What is Ripple (XRP)?
Ripple is a global payment network that uses XRP as its native cryptocurrency. It is meant to make international and inter-bank transactions faster and cheaper than existing methods.
How it works
Ripple seeks to connect fragmented banks. The current banking system lacks a single payment network and results in slow, costly payment transfers, especially for international payments. Ripple connects banks by putting them all on the same Ripple network. Ripple adds standardization to banks, which makes transactions more likely to succeed, faster, cheaper, and easier to execute. It uses the XRP cryptocurrency as its native currency but it does not exclusively use XRP.
Banks, payment providers, platform businesses, corporate treasuries, and consumers can also use Ripple for optimized international transactions.
To maintain valid XRP transactions, Ripple has a set of validator nodes to confirm XRP transactions. Transactions require approval from 80%+ of the nodes and takes a couple of seconds to send.
XRP vs Bitcoin
-XRP and Bitcoin have different supplies, distribution methods, consensus methods, time required to send, fee structures, and ultimately different use cases.
The supply of XRP was originally 100 billion but some XRP gets burned after every transaction so there is now less than 100 billion.
-During XRP’s inception, 100 billion was created. 20 billion was given to its creators and 80 billion was given to the company Ripple Labs to give to participators in the network and to sell on the market. In 2017, Ripple escrowed 55 Billion XRP to establish a predictable distribution model. The escrow contract ensures that no more than 1 billion XRP are released per month and that all of the unused XRP out of that 1 billion per month remains in the escrow contract.
Bitcoin has a total supply of 21 million and they are gradually released through proof of work mining. Bitcoin did not release all of its coins at its inception like XRP.
-XRP arrives at consensus when 80%+ of its validator nodes approve of a transaction. Ripple Labs dictates who gets to be a validator node and as of this article (October 2018) there are 55 verifiable validator nodes. This system enables faster and cheaper transactions, but some argue that it is more centralized than Bitcoin and could potentially have a central point of failure. In contrast, anybody can participate in the Bitcoin validation process by providing proof of work.
-Because of its consensus mechanism with a limited number of validators, XRP can be sent in 4-5 seconds, compared to Bitcoin, which requires 10+ minutes.
-XRP charges a 0.00001 XRP fee to send any transaction and also requires that one has 20 XRP in their wallet to send any amount of XRP. The fee and the reserve is designed to prevent spam in the network. The fees are negligible to benevolent users but would be costly to a network attacker. Bitcoin fees are variable. BTC fees are currently about $0.50 but have soared over $50 per transaction in the past.
Ripple’s Different Services
Ripple has three basic products: xCurrent, xRapid, and xVia. xCurrent makes it easier for banks to track and clarify international payments. xVia is a standardized API that makes it easier for banks and businesses to send payments across different bank networks. xRapid is the only product that specifically uses XRP. xRapid is designed to make it significantly cheaper for banks to provide liquidity for foreign markets.
xRapid uses XRP as a currency bridge that connects two foreign currencies. The idea is that instead of a bank holding massive amounts of foreign currencies, they will hold reserves of XRP instead. With their XRP reserves, they can convert currency A into XRP and XRP into currency B without having pre-funded local currency accounts of A and B.
XRP is uniquely positioned compared to other cryptocurrencies. There really is no other cryptocurrency like it. One of the best features of a cryptocurrency is its borderless-ness. XRP uses that key characteristic to make international transactions more efficient. Ripple has some impressive customers and more institutional support than other cryptocurrencies. While
BlockWolf sees XRP as a useful cryptocurrency that will remain a top 3-5 cryptocurrency. Unlike something like Ethereum, which could potentially be surpassed by a third generation blockchain, XRP does not have any direct competitors. During the next bull run, sophisticated and unsophisticated investors will most likely be interested in XRP.