What Is Ripple? What Is XRP? – Forbes Advisor


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Ripple is a money transfer network designed to meet the needs of the financial services industry. XRP, a cryptocurrency designed to run on the Ripple network, consistently ranks in the top five cryptocurrencies by market cap.

Despite its ambitions, Ripple is currently in legal trouble with the Securities and Exchange Commission (SEC), though that hardly stopped XRP from rising in value with other cryptocurrencies.

What is ripple?

Ripple is a payment settlement system and currency exchange network that can process transactions all over the world. The idea is for Ripple to serve as a trusted broker between two parties to a transaction, as the network can quickly confirm that the trade was successful. Ripple can facilitate exchanges of a variety of fiat currencies, cryptocurrencies such as Bitcoin and even commodities like gold.

“Ripple was designed from the ground up to be essentially a replacement for SWIFT [a leading money transfer network] or to replace the settlement layer between major financial institutions,” says Pat White, CEO of Bitwave.

Every time users make a transaction using the network, the network deducts a small amount of XRP, a cryptocurrencyas a fee.

“The standard fee for transacting on Ripple is set at 0.00001 XRP, which is minimal compared to the large fees banks charge for making cross-border payments,” says El Lee, board member of Onchain Custodian. At the end of April 2021, the price of XRP was $1.38 per token, which means that the transaction fee is only $0.0000138.

What is XRP?

XRP is cryptocurrency which runs on the XRP Ledger, a blockchain designed by Jed McCaleb, Arthur Britto, and David Schwartz. McCaleb and Britto would found Ripple and use XRP to facilitate transactions on the network. You can buy XRP as an investment, as a currency to exchange for other cryptocurrencies, or as a way to finance transactions on the Ripple network.

In particular, the XRP blockchain works a bit differently than most other cryptocurrencies. Other cryptocurrencies open their transaction records and verification processes to anyone who can quickly solve complex equations, but the transactions are secure as the majority of record holders must agree to verification for them to be added.

Instead, XRP’s Ripple network centralizes things a bit: While anyone can download its validation software, it maintains what it calls lists of unique nodes that users can select to verify their transactions based on which participants they think they have. less likely to disappoint them. Its default list currently contains 35 trusted validators. Ripple decides which validators to approve for this list and also constitutes six of these validating nodes. However, users can opt out of this default list and hypothetically remove Ripple-backed validators from their transactions altogether, instead building their own lists of trusted validators. This would allow the network to continue approving transactions even without Ripple, the company, remaining involved or even continuing to exist.

As new transactions come in, validators update their ledgers every three to five seconds, making sure they match the other ledgers. If there is a mismatch, they stop to find out what went wrong. This allows Ripple to securely and efficiently validate transactions, giving it an advantage over other cryptocurrencies, such as Bitcoin.

“Bitcoin transaction confirmations can take several minutes to hours and are typically associated with high transaction costs,” says Lee. “XRP transactions are confirmed in around four to five seconds at a much lower cost.”

How to mine XRP

“Mining” is the distributed verification system used by most blockchain-based cryptocurrencies. It facilitates transactions and provides the mechanism by which new currency is introduced into a cryptocurrency system, usually as a reward to verifiers for their work in supporting the network. For example, Bitcoin has a total supply limit of 21 million tokens that are constantly being released as more and more transactions are verified.

XRP, on the other hand, was “pre-mined”, meaning that the XRP Ledger created 100 billion tokens which are then regularly released. Ripple owns around 6% of that as an incentive to help the cryptocurrency grow and succeed over time. Another approximately 48% is held in reserve for periodic release to the market through sales.

This has understandably raised concerns that a large amount of XRP could be released at once, diluting the value of other XRP already in circulation because part of what gives any coin value is its comparative scarcity.

“The company has tried to reduce uncertainty by implementing various mechanisms (trust, predictable release, etc.),” says Tim Enneking, director of Digital Capital Management. That distinction between mining and pre-mining may also be a reason for your conflict with the SEC, as the SEC may think of XRP less as a currency and more as a security, like a stock, that is governed by different regulation and More strict.

Ripple Advantages

  • Quick clearance. Transaction confirmations are incredibly fast. They typically take four to five seconds, compared to the days it can take for banks to complete a wire transfer or the minutes or potentially hours it takes for Bitcoin transactions to be verified.
  • Very low rates. The cost of completing a transaction on the Ripple network is just 0.0001 XRP, a small fraction of a cent at current rates.
  • Versatile exchange network. The Ripple network not only processes transactions using XRP, but can also be used for other fiat currencies, cryptocurrencies, and commodities.
  • Used by large financial institutions. Large companies can also use Ripple as a transaction platform. Santandar, Axis Bank and Yes Bank are some of those using this network, showing that it already has a higher adoption in the institutional market than most cryptocurrencies.

Ripple Disadvantages

  • Something centralized. One of the reasons cryptocurrencies became popular is that they were decentralized, taking control away from the big banks and governments. The Ripple system can be somewhat centralized due to its default list of validators, which goes against this philosophy.
  • Large supply of pre-mined XRP. Although most of the Ripple supply that is not in circulation is stored in escrow, it is possible for large amounts to be introduced at inopportune times, which could affect the value of XRP.
  • Recent SEC action against XRP. In 2020, the SEC filed a lawsuit against Ripple, saying that since it can decide when to release XRP, the company should have registered it as a security. Until this is resolved, it could slow institutional use of this system. As a result, several exchanges have also stopped listing XRP.

How you can use Ripple and XRP

You can use XRP like any other digital currency, either for transactions or as a potential investment. You can also use the Ripple network to process other types of transactions, such as exchange currencies.

For example, if you are looking to exchange USD for euros, you can first exchange your USD for XRP on the Ripple network and then use them to buy euros, instead of handling the currency exchange directly through a bank or currency exchange. This can be a much faster and cheaper approach instead of paying the high fees that banks and money transfer organizations can charge.

Should you buy XRP?

While some may find the vision and benefits of XRP compelling, White is concerned that the SEC lawsuit could create problems for those looking to buy it. “They are positioning themselves as a settlement layer for regulated companies, but they are also in the middle of a dispute with the SEC. None of the customers who would love to onboard can really start using XRP until Ripple has resolved their legal issues,” he says.

With all this uncertainty, Enneking warns that XRP may be a gamble not for the faint of heart. Although it has since more than recovered, “the SEC announcement sent the price of XRP crashing,” he notes, making this crypto a particularly volatile investment until things are settled with the SEC.

That being said, if you think Ripple will emerge victorious against the SEC and continue to take over as a payment system, then XRP might be worth buying. Just make sure it’s with money you can afford to lose.