What is Ripple (XRP)?

In the world of cryptocurrencies, Ripple (XRP) is an old veteran. It walked alongside Bitcoin (BTC) and Ethereum (ETH) years ago until it ran into trouble with the US SEC. It recently won a lawsuit against that authority and can reignite its potential. In this guide, you’ll find everything you need to know about Ripple.

Our global society is more connected than ever, with technology rapidly increasing efficiency to levels unimaginable just a few decades ago. Yet transferring money in the form of cross-border transactions is still time-consuming and often inefficient. The reason for these slow and costly transactions is the use of outdated procedures that need to keep pace with financial system innovation. In contrast, inadequate communication between payment channels slows transfer functions down. In addition, the complexity of these transactions with multiple currencies and country-specific regulations adds to the problem.

And here comes Ripple (XRP). In this context, it is a pivotal solution, operating as a worldwide payments network (RippleNET). It aspires to address the aforementioned issues by leveraging blockchain technology and its associated cryptocurrency, XRP. Essentially, Ripple links various entities within the payment ecosystem. Evidently, banks, payment service providers, digital asset exchanges, and corporations will be included, facilitating a seamless experience in transferring and receiving funds globally.

What is Ripple?

Ripple (XRP) is a digital payment network and protocol based on blockchain. Its cryptocurrency is XRP. Ripple’s primary process is a funds exchange system for settling payments and remittances. This system is similar to the SWIFT system used by banks and financial intermediaries for international money and securities transfers.

Many of us have likely encountered firsthand the inefficiencies of the SWIFT system. This protocol has long been a cumbersome payment method due to the numerous transaction layers needed before reaching their ultimate destination. Blockchain technology addresses this inefficiency, facilitating quicker and more cost-effective international payments and remittances. Ripple, utilizing distributed ledger technology, holds the capability to transform conventional financial procedures by offering a payment network that is more efficient, faster, and economical.

How Does Ripple Work?

Ripple operates on a peer-to-peer network, using a consensus algorithm to validate transactions, unlike Bitcoin’s proof-of-work (mining). This means that transactions are quick and efficient, with confirmations being finalized in seconds. Ripple’s network can handle a staggering 1,500 transactions per second (tps) and can be scaled to handle the same throughput as Visa. This scalability and speed make Ripple a favored choice for banks, with over 100 banks globally adopting Ripple’s payment protocol.

By eliminating the numerous layers necessary for SWIFT’s functioning, RippleNet facilitates a direct transfer process that concludes within minutes. It functions on a decentralized, open-source, peer-to-peer platform. This platform enables the smooth transition of funds in any form, be it dollars, yen, euros, or cryptocurrencies like Ethereum (ETH) or Bitcoin (BTC).

To understand the Ripple network, it is necessary to understand its essential components:

• Payment gateway: This is the entry point for financial institutions in the RippleNet ecosystem. Institutions use their gateway to connect to the network, open payment requests, and communicate with other network participants.

• Validation nodes: These are the servers that participate in the RippleNet consensus protocol. Validation nodes process transactions and maintain the integrity and security of the network.

• XRP Ledger: A decentralised cryptographic ledger powered by a network of peer-to-peer servers. This ledger stores the XRP digital assets inherent in the Ripple system.

Ripple uses the Interledger standard, a blockchain protocol for payments across networks that link the ledgers of two or more banks, removing intermediaries and central control from the system. Similar to the TCP/IP internet protocol, which allows different computers and systems to communicate, interledger allows communication between linked ledgers, reducing the cost and time-consuming process of existing cross-border transactions.

Fast and Efficient Transactions

One of the key features of RippleNet is the ability to process transactions in near real-time. When a financial institution wants to send an international payment via RippleNet, the process is straightforward:

• Start: the sending bank orders the payment transaction in its home currency. The transaction is then transmitted to RippleNet via a payment gateway.

• Validation: The Validation Nodes receive the transaction and validate its integrity through a consensus process. This phase removes the need for an intermediary, making transactions more efficient and less costly.

• Conversion to XRP: The confirmed transaction is converted into XRP. Using XRP as a bridge currency eliminates the need for pre-funded reserve accounts in different currencies, further reducing costs.

• Transmission: XRP is sent across Ripple’s network in seconds, regardless of the geographical distance between sender and receiver.

• Conversion into the recipient’s currency: XRP is received by the receiving bank and then converted into the recipient’s local currency.

• Funds availability: The converted funds are immediately available in the recipient’s account, thus completing the transaction.

History

However, it was in 2012 that Ripple truly began to take shape. Chris Larsen and Jed McCaleb co-founded OpenCoin, the company that would later become Ripple Labs. They sought to develop a system that was more efficient and scalable than the existing blockchain technology, focusing on enabling instant, secure, and nearly free global transactions.

Ripple Labs

In 2013, OpenCoin underwent a rebranding to become Ripple Labs Inc. The objective was to facilitate immediate, peer-to-peer transfers in any currency, with XRP emerging as a crucial facilitator. This cryptocurrency was envisioned as the foundational digital asset for the XRP Ledger, an open-source blockchain protocol.

Following the initiation of the XRP ledger, the developers allocated 80 billion tokens to Ripple in support of the cryptocurrency. Ripple diligently sold XRP over some time, utilizing it to enhance liquidity and establish strong XRP markets. Jed McCaleb, one of the founders of Ripple, departed from the company in 2014 to create a comparable network named Stellar (XLM). Prior to his departure, he was awarded 9 billion XRP as recognition for his role in developing and establishing the company, assets he claims to have sold.

RippleNET

In 2015, RippleNet was introduced, establishing a network of institutional payment providers like banks and money service businesses that employ Ripple technology to facilitate easy global money transfers. The inception of RippleNet marked a significant stride in achieving Ripple’s aspiration of creating an Internet of Value, envisioning a world where the movement of money is as seamless as the flow of information.

XRPL Foundation

In 2020, an independent and non-profit XRP Foundation was established to promote the growth and adoption of a decentralized XRP ledger. It raised $6.5 million to establish an XRP Community Fund and improve the XRP ledger infrastructure.

Key Milestones

• 2004: Ryan Fugger conceptualizes Ripple in Vancouver, B.C., Canada, envisioning a decentralized monetary system allowing individuals to create their own money, leading to the creation of RipplePay.com.

• 2012: Chris Larsen and Jed McCaleb co-found OpenCoin, marking the official inception of the Ripple protocol. OpenCoin aims to enable secure, instant, and nearly free global transactions of any size with no chargebacks.

• 2014: OpenCoin rebrands to Ripple Labs, reflecting the company’s sharpened focus on developing the Ripple payment and exchange network. Ripple Labs launched RippleNet, a global network of financial institutions that use Ripple’s technology to facilitate payments.

• 2017: XRP experiences a monumental surge in value during a crypto bull run, reaching an all-time high of approximately $3.84, driven by widespread adoption and speculative trading.

• 2019: Ripple forges a strategic partnership with MoneyGram, one of the world’s leading money transfer companies, enhancing its global footprint and influence in the remittance sector.

• 2020: The U.S. Securities and Exchange Commission (SEC) files a lawsuit against Ripple Labs, alleging the sale of unregistered securities, casting a shadow of uncertainty over Ripple’s future. XRP price falls sharply.

• 2023: On 13 July 2023, a US district court determined that the sale of XRP tokens on public exchanges did not constitute investment contracts, a victory for Ripple. In the same year, it announced a new partnership with Western Union to enable international money transfers using XRP.

What is XRP?

It’s crucial to clarify a common misconception: the terms Ripple and XRP are not synonymous. Ripple is the company responsible for developing and sustaining the Ripple payment protocol and network, whereas XRP functions as cryptocurrency within this system. XRP was crafted with a distinct objective: to facilitate quicker and more streamlined cross-border transactions. Serving as a bridge currency within the Ripple payment ecosystem, XRP aims to address the challenges associated with conventional finance.

Nonetheless, assets that are bridged by XRP could present a hazard to financial institutions depending on the Ripple network to supply the essential liquidity for the transfer. Employing XRP and other cryptocurrencies for transfers is further precarious due to their volatility, rendering them inappropriate as exchange units. The minimal transaction fees and swift settlement of transactions have consistently been the unique selling propositions for XRP by Ripple. The network mandates a minimal transaction fee of 0.00002 XRP for a standard transaction.

Unlike Bitcoin, XRP does not require mining

Unlike many cryptocurrencies, such as Bitcoin, XRP tokens are not mined. When it created the network, Ripple Labs mined its entire stock of 100 billion XRP tokens. This pre-mining means that a resource-intensive mining process is not needed to create new tokens, setting XRP apart in the cryptocurrency field.

Similar to other cryptocurrencies, the Ripple blockchain preserves a permanent log of transactions on the XRP Ledger. This ledger also holds the responsibility of documenting transaction information, including balances, invoices, and transfers, and is safeguarded cryptographically through key pairs (private and public keys). Only the possessors of the private keys have the authority to approve transactions. XRP transactions reach settlement within seconds, enabling payments in the local currency for both entities and allowing institutions to act as a bridge between currencies. The transactions are authenticated by a network comprising over 150 validators (servers), which may earn a spot on Ripple’s roster of unique nodes as a reward.

Where can I buy XRP?

Like buying most cryptocurrencies, XRP can be exchanged for fiat currencies such as the euro and stored in crypto wallets. Because XRP is among the top 10 cryptocurrencies by market capitalization (it is ranked 7th at the time of writing) and because it won a recent lawsuit against the SEC, you can trade the cryptocurrency on all major crypto exchanges such as Binance, Coinbase, Kraken, and KuCoin.

You can buy XRP on Binance by following the next steps:

1. Create an account on Binance by clicking »Register« and completing the steps.

2. Deposit funds: Hover over “Wallet” in the top right corner and select “Fiat and Spot.” Click on “Deposit” and select the currency you wish to deposit, such as USD, EUR, or BTC.

3. Once your deposit is successful, go to the top left corner and hover over “Markets.”

4. Click “Buy crypto” and choose how you want to make your Ripple (XRP) purchase. Credit or debit card, SEPA bank transfer, crypto transfers or third party transfers are available.

5. Confirm the transaction.

6. Congratulations, you now have XRP in your crypto wallet.

Where can I store my XRP tokens?

There are a number of crypto wallets available, and each crypto exchange automatically creates a wallet upon registration.

Is XRP a Good Investment?

Investments inherently carry no assurance of being secure or profitable, and this is particularly true for cryptocurrencies. Nonetheless, several factors can be considered by an investor to determine whether XRP is a smart investment. Although its fundamental aim is to transform international payments and remittances, XRP hasn’t achieved widespread adoption yet. The financial entities expressing interest in Ripple and its technology are still in the experimentation phase with the network. However, it’s undeniable that the number of interested institutions is growing, and the recent triumph against the SEC stands as a promising development for Ripple.

Practical Use Sases

The potential of Ripple and the XRP cryptocurrency has attracted the attention of financial institutions worldwide. See some practical examples of how Ripple can be used:

• Santander: Santander, one of the world’s largest banks, has partnered with Ripple to launch One Pay FX, the first cross-border payments mobile app to use Ripple’s xCurrent technology. xCurrent provides comprehensive tracking of cross-border transfers, ensuring transaction transparency and allowing users to send international payments seamlessly.

• Standard Chartered: the British multinational banking and financial services company has partnered with Ripple to launch a new payment solution. The partnership enables frictionless “live” cross-border payments and deepens fintech capabilities. With the help of Ripple’s network, Standard Chartered has been able to greatly simplify and accelerate its global payment system.

• American Express: Under the partnership, American Express uses Ripple technology to process cross-border payments between its customers.

• MoneyGram: Ripple also entered into a partnership with MoneyGram, one of the world’s leading money transfer companies. The collaboration aimed to leverage XRP in forex settlements to enhance the speed and efficiency of international remittances.

• SBI Remit: In Japan, Ripple technology is used by SBI Remit, which offers a remittance service between Japan and Thailand. Through a partnership with Siam Commercial Bank in Thailand, the service enables Thai citizens living in Japan to send money home faster and cheaper. Given that Japan is home to the largest Thai population outside Thailand, this service has had a significant impact on a large community.

• PNC Bank: PNC Bank became the first major US bank to use RippleNet for cross-border payments. By joining RippleNet, PNC Bank’s customers can receive payments instantly from overseas, changing the way they manage their global receivables and enabling them to better manage their working capital.

Ripple: Pros

• Speed and scalability: one of Ripple’s most attractive features is the speed of transactions. XRP Ledger can process transactions in as little as three to five seconds, which is much faster than Bitcoin, Ethereum, and even some traditional banking systems. In addition, it can process as many as 1,500 transactions per second, a number that can be increased as the network grows.

• Cheap transactions: Compared to traditional banking systems and even other cryptocurrencies, Ripple boasts incredibly low transaction fees. This feature is particularly useful for international transfers, where transaction costs can be high.

• Use case in the traditional financial system: XRP plays an important role in the Ripple ecosystem as a bridge currency for fast and efficient cross-border value transfer. It allows financial institutions to transfer money globally without the need for upfront funding, reducing the time and costs associated with international transactions. Ripple has thus already successfully partnered with more than 300 financial institutions worldwide, including American Express and Santander.

• Ecology: Unlike Bitcoin and some other cryptocurrencies, XRP is not mined. This means it does not need the huge computing power and energy that mining requires, making it a more environmentally friendly choice in the world of digital assets.

Ripple: Cons

• Centralization concerns: One of the major criticisms leveled at Ripple and XRP is the perceived degree of centralization. Unlike Bitcoin, which is fully decentralized and operates without a supervisory authority, Ripple Labs owns a significant amount of XRP. This concentration of ownership has raised concerns about the potential for manipulation.

• Regulatory uncertainty: XRP faces considerable regulatory scrutiny, notably from the US Securities and Exchange Commission (SEC). Although Ripple won this battle in July 2023, this does not mean that it could not find itself under attack again.

• Limited adoption of XRP: While RippleNet, Ripple’s global payment network, is widely adopted, the same cannot be said for XRP. Many of Ripple’s banking partners use the RippleNet payment protocol but do not use XRP for liquidity. This discrepancy may affect the future value and potential of XRP.

• Dependence on Ripple Labs: XRP’s success is closely linked to Ripple Labs’ success. While this has advantages, it also means that any negative news about the company can directly impact XRP’s value and perception.

• Competition with SWIFT: Ripple faces stiff competition from the established SWIFT network. Most banks currently use SWIFT for international money transfers, posing challenges to Ripple’s widespread adoption.

Lawsuit Ripple vs. SEC

The dispute revolved around the classification of XRP. The SEC posited that XRP should be categorized as a security, subjecting it to stringent regulatory requirements and disclosures. Conversely, Ripple vehemently contested this classification, asserting that XRP is a currency and a medium of exchange, facilitating international transactions and settlements.

On July 13, 2023, U.S. District Judge Sarah Netburn declared that XRP is not a security. This judgment marked a significant triumph for Ripple, paving the path for the firm to persist in selling XRP without the necessity for security registration. Consequently, the XRP price experienced a substantial surge in value, escalating 96% within one day.

However, the SEC also won a partial victory in the case. The judge ruled that XRP was a security when sold to institutional investors because it met the conditions of the Howey test. This means the SEC can still prosecute Ripple for selling XRP to institutional investors without registering it as a security.

Conclusion

By reducing the number of intermediaries and using XRP as a bridge currency, RippleNet can significantly reduce the cost and duration of international transactions. Its use of blockchain-inspired technology also ensures transparency and traceability. It solves common problems of fraud and misunderstandings in traditional remittance systems. At its core, RippleNet is a robust solution designed to modernize the financial industry.

It is a powerful example of how blockchain technology can improve our existing financial systems, streamline processes, and make international money transfers as quick and easy as sending a text message. The recent legal victory against the SEC has rekindled its prospects, allowing it to continue its mission without the constraints of security registration. However, the journey is fraught with challenges. These include concerns over centralization, limited adoption of XRP in liquidity provision, and competition with established networks like SWIFT.

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