When you hear the name Ripple you may immediately think of the cryptocurrency, and we’d forgive you for that. Ripple is actually a privately held company that created Ripple Net which is the network that utilises blockchain technology to facilitate transfers of the XRP cryptocurrency.
If you’ve been following our blog for a while now or spent some time doing your research, you will know that cryptocurrencies act as so much more than a means of storing value. Ripple and its digital currency, XRP, are no exception.
This article will delve into the core elements of Ripple, its purpose, and how XRP differs from other digital assets.
What is Ripple?
Ripple itself is a digital payment network and protocol based on an open-source blockchain.
The Ripple Labs company is based in San Francisco. It is privately held, meaning it is not publicly traded. This is what has caused Ripple legal strife with a court case from the American Securities and Exchange Commission (SEC) that first began in 2020, but more on that later.
Ripple comprises multiple core elements: P2P transfer platform RippleNet, and the XRP Ledger and XRP coin.
XRP is now ranked one of the top ten most valuable blockchain-based tokens by their market cap.
Its first iteration was the money transfer platform, RipplePay. Founded back in 2004, Ripple has evolved to a global payments network that offers real-time gross settlements. People like Jed McCaleb, Arthur Britto and David Schwartz all played key roles in building the XRP cryptocurrency following the launch of Bitcoin in 2009.
What is the purpose of Ripple?
While many facets of our modern life have made a relatively seamless transition to the digital age like snail mail to e-mail and photo prints to online albums – cross-border payments of fiat currency has always been a reasonably clunky process.
At present, to transfer international transactions, banks use SWIFT or the Society for Worldwide Interbank Financial Telecommunications. Unfortunately, this method is also associated with increased costs.
Ripple’s purpose is to speed up and smooth out the currency transfer process while decreasing associated costs.
How does Ripple work?
You can think of RippleNet, Ripple’s Digital Payment Network, as a sort of informal intermediary in transactions. This occurs when each person on either end of the transaction has a different preferred method of sending and receiving money or uses different currencies. Throughout the whole process, though, no physical money moves.
Let’s take a look at an example. Person A needs to send money abroad to Person B. However, because they’re using different currencies or banking methods, direct transfer is inefficient or costly.
Instead, Person A provides funds to their ‘agent’, who then alerts Person B’s ‘agent.’ To access the funds, Person B must provide a security code or password. Person B’s agent then gives them that amount of funds.
Because money was never transferred directly from Person A to Person B and the funds that Person B received came directly from their Agent, Person A’s Agent now owes Person B’s Agent that money. This is recorded to be paid later, or counter transactions – say Person B needs to give Person A money in the future – can be made to settle that debt.
This is the core functionality on which RippleNet operates. Instead of fiat currency though, exchanges are made in XRP and recorded on the XRP ledger.
The core components of Ripple
Ripple refers to its open-source network, RippleNet, and is often used in reference to digital currency XRP.
You may have even seen the names used interchangeably. However, this is not the case. Ripple is the company, while XRP is the cryptocurrency.
What is XRP and the XRP Ledger
While XRP is widely associated with Ripple and the company uses both the ledger and XRP coin for various purposes, the Ripple network and XRP operate independently.
The XRP Ledger is a blockchain network that is both public and decentralised. Anyone can connect to the P2P network that manages the ledger. Its community is comprised of server operators, software engineers, businesses, and end-users whose role is to maintain the ledger.
XRP is the native token of the XRP Ledger. The XRP Ledger operates similarly to the Ethereum blockchain in which third parties can use it to construct solutions and other tokens.
What is RippleNet?
RippleNet is the network through which financial institutions can transfer money.
RippleNet was designed to transfer funds quickly while costing less and providing greater transparency.
As you’ll remember from earlier, direct transfers do not occur in RippleNet. This is why it can facilitate cross-border payments and currency exchanges at a fraction of the price.
XRP vs Bitcoin: How do they differ?
A common question you might see is, how is XRP different from Bitcoin? And is it better?
It depends on how you want to define ‘better,’ however they are definitely different.
In a nutshell, Bitcoin transactions take longer to process, require more energy and have higher transaction costs. To expand on that, however: They utilise different protocols to verify transactions.
Unlike Bitcoin, which uses the Proof of Work (PoW) protocol, and even Cardano, which uses the Proof of Stake (PoS) protocol, Ripple uses its own consensus mechanism. The XRP Ledger uses what we refer to as the XRP Ledger Consensus Protocol, which boasts faster and more efficient transaction validation. Its full mechanics can be found here.
Bitcoin is more expensive and slower
Because Bitcoin mining is timely and requires a lot of energy which means it is typically more expensive. It also means Bitcoin transaction confirmations can take multiple minutes. XRP transactions take seconds.
XRP is released through smart contracts
New Bitcoins are created through mining. Supply is largely impacted by network speeds and the difficulty of algorithms.
XRP tokens, on the other hand, are released with a maximum of 1 billion tokens per month by an in-built smart contract. As a result, there are also significantly more XRP coins than Bitcoins in the market. Bitcoin is capped at a maximum of 21 million coins, while approximately 50 billion XRP tokens are now in circulation.
SEC versus Ripple
Ripple has never really left the spotlight in the crypto world, but it’s in it for an entirely different set of reasons of late.
In late 2020, the SEC filed a suit against Ripple and its former and current CEOs. It was alleged Ripple executives “raised over $1.3 billion through an unregistered, ongoing digital asset securities offering.”
In early 2021, the case is ongoing and yet to be settled, but we’ve seen the price of XRP rise and dip along with Ripple’s outlook of victory. In mid-April, for example, Ripple surged a massive 40% following a court ruling in Ripple’s favour.
Where to trade XRP
Ripple (XRP) can be purchased and sold through Swyftx. The Real-Time Price Feed allows you to see asset value live, and buy and sell triggers can prevent you from getting caught out with market volatility.