What is Ripple (XRP)?

Ripple is a global settlement of value network built on blockchain technology.

It differs from the Bitcoin network and other crypto projects which position themselves as disruptive alternatives to traditional finance that can be used by everyone (including regular folks).

Ripple mainly focuses on improving the existing financial system and working mainly with big companies like banks, remittance services, and payment providers.

But developers are also moving towards creating a public, community-driven blockchain that can support many of the use cases seen in many blockchain ecosystems, including DeFi, stablecoins, NFTs, and micropayments.

Ripple vs. XRP

It’s important to distinguish between Ripple and XRP, as they are often mistakenly used interchangeably.

Ripple is a technology company that provides financial solutions for businesses, while XRP is the digital asset that powers those solutions.

Think of it this way: Ripple is a company like Google, and XRP is a product like Google Maps.

XRP is the native cryptocurrency of the XRP Ledger (XRPL), an open-source, decentralized technology.

It was created to facilitate faster and cheaper cross-border payments. Unlike Bitcoin, which has a limited supply of 21 million coins, XRP has a fixed supply of 100 billion tokens.

Unlike Bitcoin, which can take several minutes to confirm a transaction, XRP transactions settle in just 3-5 seconds. This makes it an attractive option for businesses and financial institutions that need to move money quickly and efficiently

What is the XRP token?

Ripple’s native token XRP mainly functions as a middleman currency in order to facilitate transactions.

Their software, XRP Ledger, maintains a limit on the amount of cryptocurrency that can ever be created, capping the total at 100 billion XRP.

Out of the 100 billion, Ripple initially gave away 55 billion XRP to users on forums while the company escrowed the remaining supply to fund its technology development.

The XRP Ledger does not charge transaction fees, but it does require a small amount of XRP to be put up by the sender to be destroyed and deducted from the total supply.

Key Features of XRP

Fixed Supply: The total supply of XRP is capped at 100 billion tokens, all of which were pre-mined at the creation of the XRP Ledger.
Escrow Mechanism: Ripple has placed a significant portion of the XRP supply in escrow accounts to ensure controlled and predictable releases into the market. This mechanism helps maintain market stability and investor confidence.
Transaction Efficiency: XRP transactions are settled in 3-5 seconds, making it one of the fastest cryptocurrencies. The cost per transaction is minimal, often less than a fraction of a cent, which is significantly lower than traditional banking systems and many other cryptocurrencies.
Deflationary Mechanism: A small amount of XRP is destroyed with each transaction as a fee. This burning mechanism reduces the total supply over time, introducing a deflationary aspect to the token’s economics.

RippleNet and XRP Utility

RippleNet, Ripple’s global payments network, leverages XRP to provide “On-Demand Liquidity” (ODL). This service allows financial institutions to use XRP as a bridge currency to facilitate instant cross-border payments.

By converting fiat currency into XRP on one exchange and then into the desired currency on another, RippleNet reduces the need for pre-funded accounts and minimizes liquidity costs.

Token Metrics:

Circulating Supply: Around 57.49 billion XRP tokens.
Total Supply: Approximately 99.99 billion XRP tokens.
Maximum Supply: 100 billion XRP tokens.

The Technology Behind XRP

While XRP utilizes blockchain technology, it differs from other cryptocurrencies in a few key ways. First, XRP is not mined like Bitcoin. Instead, all 100 billion XRP tokens were pre-mined at its launch.

This means that no new XRP tokens are being created. Second, XRP uses a unique consensus mechanism called the Ripple Protocol Consensus Algorithm (RPCA).

This allows a majority of validators on the network to agree on a set of transactions, making it faster and more efficient than traditional proof-of-work systems like Bitcoin’s.

The XRP Ledger uses a “unique node list,” which is a list of trusted validators that participate in the consensus process. These validators constantly compare transaction information with a common ledger to ensure accuracy and security.

Another key difference is that XRP Ledger doesn’t use a traditional blockchain. It uses a distributed ledger technology that is less energy-intensive and more scalable than traditional blockchains.

This makes XRP a more environmentally friendly option compared to Bitcoin, which has been criticized for its high energy consumption

How does Ripple work?

Transactions on the Ripple network run through validating servers that constantly compare the information they receive and process through the XRP Ledger.

These servers use a mechanism called HashTree, which reaches a consensus by comparing a single value derived from summarizing the ledger’s data.

As such, it differs from the Proof-of-Work blockchain consensus used by the likes of Bitcoin which involves comparing all the data.

Thanks to HashTree, Ripple does not need as much energy and computing power, but it is able to execute transactions faster.

The XRP Ledger does not rely on mining or require specialized computing hardware for security. Instead, it enables servers to send transactions for consideration by their own network.

Like Bitcoin, the XRP Ledger allows users to send and receive cryptocurrency using public and private keys, with transfers between addresses requiring digital signatures.

Only transactions validated by “unique nodes” can create consensus on the network. According to their software rules, at least 80% of participants must deem the transaction valid for it to go through.

Unlike Bitcoin which allows anyone to contribute computing power for validating transactions and securing the ledger, Ripple’s validating servers are run by either approved individuals or by banks and institutions.

For some, this makes Ripple more suitable for regulated entities that must adhere to strict laws on money transfers.

Use Cases of XRP

XRP is primarily designed for cross-border payments. Ripple has partnered with numerous banks and financial institutions to facilitate faster and cheaper international money transfers using XRP.

By using XRP as a bridge currency, businesses can avoid the high fees and delays associated with traditional cross-border payment systems.

RippleNet is a network of financial institutions that use Ripple’s technology for cross-border payments.

While XRP can be used on RippleNet, it’s not required, and some institutions use RippleNet with their existing infrastructure.

XRP also plays a crucial role in providing on-demand liquidity, allowing businesses to access funds quickly without needing pre-funded accounts in foreign currencies. This can be particularly beneficial for businesses operating in global markets.

Beyond cross-border payments, XRP has several other use cases:

Micropayments: XRP’s low transaction fees make it suitable for micropayments, allowing users to send and receive small amounts of value efficiently. This can be useful for content creators, online tipping, or even paying for small online services. For example, Coil is a platform that uses XRP for micropayments to support content creators.
Smart Contracts: XRP can be used in smart contracts, which are self-executing contracts with the terms of the agreement written into code. This can automate various financial agreements and transactions, making them more efficient and secure.
Tokenization: XRP Ledger can be used to tokenize various assets, such as real estate, stocks, or commodities. This can improve liquidity and accessibility for these assets, making it easier to trade and transfer ownership.
Decentralized Finance (DeFi): XRP can be used in DeFi applications for lending and borrowing, allowing users to earn interest on their holdings or access funds without relying on traditional banks.
Trading: Traders can leverage XRP to bridge currencies, switch between cryptocurrencies instantly, and shift collateral on any exchange. This can be particularly useful for arbitrage trading and managing trading inventory.

Regulatory Landscape and Legal Challenges

XRP has faced regulatory scrutiny from the U.S. Securities and Exchange Commission (SEC). In 2020, the SEC filed a lawsuit against Ripple, alleging that XRP was an unregistered security. This legal battle has created uncertainty around XRP’s future and has impacted its price.

However, in a significant development in July 2023, a U.S. District Judge ruled that XRP was not a security when sold on public exchanges. This was a major victory for Ripple and provided some clarity for the cryptocurrency market.

The July 2023 ruling was a landmark decision that could set a precedent for other cryptocurrencies facing regulatory scrutiny. It clarified that XRP is not inherently a security, which could have positive implications for its adoption and future growth.

However, the SEC has appealed this ruling, and the legal battle continues. The return of Donald Trump to the presidency could have a significant impact on the regulatory landscape for cryptocurrencies, including XRP.

Trump has previously expressed support for cryptocurrencies, and his administration might take a more favorable approach towards XRP.

Despite the ongoing legal challenges, Ripple continues to expand its partnerships and develop new use cases for XRP. The company remains optimistic about the future of XRP and its potential to revolutionize the financial industry.

Team Background

Ripple was initially called OpenCoin, which was founded by Jed McCaleb of Mt. Gox and Chris Larsen of E-Loan and Prosper in 2012.

McCaleb is credited with conceptualizing the XRP Ledger’s unique technical design, which he then used to create the Stellar network, powered by the XLM token, after leaving Ripple in 2013.

Larsen is an angel investor known for co-founding several Silicon Valley startups and is currently the Executive Chairman of Ripple Labs.

Other notable contributors to XRP technology include former CTO Stefan Thomas, who was also a contributor to the Bitcoin Core software, co-author of the original Ripple white paper of current CTO David Schwartz, and another co-author of the Ripple white paper Arthur Britto.

Brad Garlinghouse, Ripple’s current CEO, joined the company in 2015. Before Ripple, he held executive roles at Yahoo! and served as CEO of Hightail (formerly YouSendIt).

David Schwartz, Ripple’s Chief Technology Officer, is one of the original architects of the XRP Ledger and has a background as Chief Technical Officer for WebMaster Incorporated.

The leadership team also includes Monica Long as President, Eric van Miltenburg as Senior Vice President of Strategic Initiatives, and Kristina Campbell as Chief Financial Officer

Notable Investors: Andreessen Horowitz, Arrington XRP Capital, Blockchain Capital, Pantera Capital, ValueNet Capital

Summary: Ripple vs. RippleNet vs. XRP

Ripple, RippleNet, and XRP are closely related but serve distinct roles. Here’s a summary of their differences:

1. Ripple

What it is: Ripple is a technology company (officially named Ripple Labs Inc.) that develops solutions for global payments and financial infrastructure. Founded in 2012, Ripple aims to improve the efficiency of cross-border transactions by leveraging blockchain technology.
Role: Ripple creates software, tools, and protocols to enable faster, cheaper, and more transparent international payments. It focuses on bridging the gap between traditional financial systems and blockchain-based solutions.
Key offerings: Ripple develops products like RippleNet (a global payments network) and promotes the use of XRP as a bridge currency for liquidity.

2. RippleNet

What it is: RippleNet is a decentralized global payments network built and maintained by Ripple. It connects banks, payment providers, and financial institutions to facilitate seamless cross-border transactions.
Role: RippleNet enables real-time settlement of payments and provides tools for tracking transactions, reducing costs, and improving transparency. It is designed to replace outdated systems like SWIFT, which are slower and more expensive.
Key features:
- On-Demand Liquidity (ODL): Uses XRP as a bridge currency to eliminate the need for pre-funded accounts in foreign currencies, reducing liquidity costs.
- Interoperability: Supports transactions in fiat currencies, cryptocurrencies, and other assets.
- Global reach: RippleNet has partnered with hundreds of financial institutions worldwide.

3. XRP

What it is: XRP is a digital asset and cryptocurrency native to the XRP Ledger (XRPL), a decentralized blockchain network. It was created to facilitate fast, low-cost transactions and serve as a bridge currency in cross-border payments.
Role: XRP acts as a medium of exchange, enabling the transfer of value between different currencies or assets. It is particularly useful in RippleNet’s On-Demand Liquidity (ODL) service, where it provides liquidity for cross-border transactions.
Key features:
- Speed: Transactions settle in 3-5 seconds.
- Low cost: Transaction fees are minimal (fractions of a cent).
- Fixed supply: The total supply is capped at 100 billion XRP, with a portion held in escrow by Ripple for controlled release.
- Decentralization: The XRP Ledger is maintained by a network of independent validators, not controlled by Ripple.

Aspect	Ripple	RippleNet	XRP
Nature	A technology company	A global payments network	A cryptocurrency and digital asset
Purpose	Develops payment solutions	Facilitates cross-border transactions	Acts as a bridge currency and medium of exchange
Function	Creates tools and protocols	Connects financial institutions	Provides liquidity and enables fast, low-cost transactions
Dependency	Operates RippleNet and promotes XRP	Uses XRP for liquidity (via ODL)	Independent of Ripple but used in its ecosystem

How They Work Together

Ripple develops and maintains RippleNet, a network that financial institutions use for cross-border payments.
XRP is integrated into RippleNet’s On-Demand Liquidity (ODL) service, where it acts as a bridge currency to facilitate instant and cost-effective transactions.
Ripple promotes the adoption of both RippleNet and XRP to create a more efficient global payments system.

In summary:

Ripple is the company.
RippleNet is the payments network.
XRP is the cryptocurrency that powers the network.