What is Ripple (XRP)? How Does It Work?

Ripple (XRP) is a cryptocurrency that aims to allow people to send money around the world faster and cheaper. 

While most early cryptocurrencies lack features that allow easier monitoring transaction activities, among other regulatory activities, Ripple was designed to thrive within regulatory frameworks. Ripple invites the traditional legacy banking system to change the way international payments are done. 

Ripple (XRP) explained

First created by Ripple Labs in 2012, like Bitcoin, Ripple uses a distributed transaction ledger, powered by blockchain technology, to maintain record security and immutability. However, this is where the similarities end.

XRP transactions are performed across a permissioned blockchain. Behind the blockchain network is a private company that runs a collection of private computer nodes that validate transactions.

Every transaction is processed by a validator who has special permission to help maintain the Ripple payment network.

This is very different from Bitcoin. With Bitcoin, it is possible for anyone to help validate transactions.

New to crypto? Read our crypto 101 guide to get started.

What’s good about Ripple XRP?

• Fast – 4 seconds (compared to 2 minutes for Ethereum, 10+ minutes for Bitcoin, and 1-5 days for traditional cross-border payments).
• Scalable – the network can theoretically handle the same volume as the Visa network.
• Cheap – It costs 0.00001 XRP to send a payment on the network. 
• Trusted partnerships – Ripple has a very impressive partners list already.

You can see Ripple’s full partnership list here – but the list is not exhaustive:

• Bank of America
• American Express and Santander
• SBI Holdings
• MoneyGram
• National Bank of Fujairah PJSC (NBF)
• Money Match
• Standard Chartered Bank (SCB)
• Westpac Institutional Bank and Bank of Australia
• Royal Bank of Canada
• Unicredit
• Reisebank
• ATB
• National Bank of Abu Dhabi
• UBS

With over 200 partnerships with major banks like Westpac and the Bank of America – the future of XRP at this point of time looks bright.

Is Ripple XRP a company, currency or network?

The structure around Ripple is more complicated than most cryptocurrencies, and “Ripple” can actually mean a few different things:

1. First, there’s the cryptocurrency XRP. This is the coin that you can buy.
2. Then there’s the privately held company behind the currency, known as Ripple Labs.
3. Finally, there are the Ripple networks, or the infrastructure and systems created by Ripple Labs. These are known as XCurrent, XVia and XRapid, and they all do different things.

How does XRP work?

For the last 40 years, a Belgium company called SWIFT has dominated the global payments infrastructure.

Facilitating roughly 5 trillion dollars per day on its network, Swift has undoubtedly held the throne for global international payments over the last half-century.

Unfortunately, it could still take days to send money overseas using the typical traditional money transfer systems such as SWIFT.

This is where Ripple comes into play. Here is roughly how XRP works:

1. Bank A wants to send money to bank B.
2. Bank A uses Ripple’s payment system to instantly convert local currency into XRP.
3. XRP is sent from Bank A Bank B in less than a second with minimal fees.
3. Bank B receives XRP and instantly converts it to their local fiat.

What does it mean to be ‘Centralised’?

Ripple is built on blockchain technology, just like Bitcoin. Unlike Bitcoin, however, Ripple is centralised. This means that only a limited number of computer nodes can validate the transactions on the network.

The Ripple network has 55 nodes, and these nodes are appointed by Ripple Labs. For comparison, there are no limits to the number of nodes on the Bitcoin network, and anyone can opt-in to be a Bitcoin node.

It’s also interesting to note that Ripple Labs holds 60% of all XRP, and the founders of Ripple own 20%. So only 20% of XRP is actually out there on the market.

Learn more: What is blockchain technology?

Ripple vs Bitcoin

Ripple uses a permissioned blockchain because Ripple is designed to be used by mainstream banks and payment processors.

Banks occasionally have to reverse a transaction or freeze customer funds at the request of law enforcement officials. However, with Bitcoin, reversing payments is not possible.

By comparison, reversing payments and freeing customer deposits with Ripple is easy. As a result, XRP and the Ripple network are fully compliant with anti-fraud, anti-money laundering, and other worldwide regulations governing traditional payment settlements.

What is Bitcoin? Everything you need to know about Bitcoin (BTC).

Takeaways

Ripple’s payment network is already being used by several major banks and financial institutions. XRP coin prices have also previously topped highs of almost $2. Many, therefore, consider XRP a top coin to watch in the run-up to 2022.

Some believe that Facebook’s Libra undermines the basic use case of XRP. Still, others believe that the risk to XRP is minimal. This is because Libra is designed to be used by everyday Facebook users — not banks or mainstream financial institutions.

Invest in Ripple: Click here to buy XRP today.