Cryptocurrencies aim to bypass traditional centralized financial systems by promoting decentralized finance as a global alternative. Achieving this goal requires a symbiotic relationship between centralized (CeFi) and decentralized finance (DeFi) structures. Ripple is actively working to integrate the operations of these two systems into a cohesive framework.
What Is Ripple?
Often referred to as RippleNet, Ripple is a platform designed for institutional asset exchange and a massive payment network that supports international currency settlements.
Unlike mainstream payment networks like Western Union or blockchain platforms such as Ethereum, Ripple occupies a unique position. It functions as a blockchain-based banking system—large, intricate, and designed to simplify the complex world of cross-border payments, currency exchange, and regulatory compliance. Many existing payment networks are outdated and slow, and this is where Ripple steps in.
Ripple significantly reduces transaction fees, cuts settlement times to seconds, and makes currency conversion far more accessible. Ripple Labs, the company behind Ripple, develops tailored financial products. Its current offerings include xRapid, xCurrent, and xVia, which we’ll explore further.
What Is XRP?
Some investors mistakenly equate Ripple with XRP, but they are distinct. XRP is a cryptographic token and digital asset—similar to how Ether is the native token of the Ethereum network. Ripple is the financial payment network that uses XRP for transactions. As Ripple’s native token, XRP is used to pay transaction fees on the network.
A typical fee is 0.00001 XRP. Once paid, this amount is destroyed (or "burned") to create a transaction cost and prevent malicious activity or ledger spam. The Ripple network can facilitate transactions even between parties that do not have a pre-established trust relationship.
If a trust chain cannot be established, participants can trade XRP on exchanges. Payment gateways set the XRP exchange rate for these transactions. However, XRP is more than just a fallback option—it offers several advantages that enable efficient token trading on the Ripple network.
XRP Transaction Speed
For example, XRP transactions settle in about four seconds, with funds transferring almost instantly. In contrast, Bitcoin transactions can sometimes take hours to settle, depending on network congestion. Additionally, XRP tokens are digital assets with verifiable properties, making them impossible to counterfeit. This allows users to place full trust in the Ripple network.
Ripple has substantial potential to transform global financial systems. It is gradually reshaping the remittance industry, including the concept of "nostro accounts"—accounts that banks hold in foreign banks to facilitate foreign exchange payments.
What Is XRP Used For?
XRP is primarily used to facilitate global fund transfers between financial institutions, earning it the nickname "the bankers’ cryptocurrency."
As noted, XRP tokens are used for currency settlement and fee payment. After each transaction, a fee of 0.00001 XRP is destroyed to prevent attacks on the open-source RippleNet. This fee is often referred to in "drops"—the smallest unit of XRP, equal to one millionth of a token.
It’s important to note that all XRP tokens were pre-mined upon creation. Ripple Labs issued 100 billion XRP and retains about 60% to fund network operations and projects. XRP tokens are not controlled by Ripple; they would continue to exist even if Ripple Labs ceased operations.
Like traditional SWIFT transfers, XRP transactions carry some price risk due to volatility. However, since RippleNet transactions settle in about five seconds, the exposure to price swings is far lower than with SWIFT, which can take days. Users can store XRP in Ripple’s official online wallet, a desktop wallet, or a cold storage option.
Who Created XRP?
The foundational idea for XRP dates back to 2004, when co-founder Ryan Fugger began exploring concepts for a decentralized digital currency. Fugger aimed to create a system where individuals and communities could create their own forms of money. This effort led to Ripplepay.com, which later became Rumplepay.com.
Years later, Jed McCaleb and Chris Larsen took notice of Fugger’s prototype. The three eventually joined forces to establish a company initially named Opencoin (not to be confused with OpenCoin Inc.). In 2013, the company rebranded as Ripple Labs, and by 2015, it was known simply as Ripple.
How Does Ripple Work?
To understand how Ripple works, it helps to first understand the remittance industry. Most remittance companies, like Western Union, operate in a relatively decentralized manner, allowing users to send money across borders quickly and affordably.
Ripple is attempting to penetrate the same market serviced by banks and remittance companies, aiming to improve cross-border payment systems. One of XRP’s biggest selling points is its ability to drastically reduce the cost of international transfers.
Ripple created XRP to serve as a bridge currency, replacing fiat money in transferring value from one currency to another. This could eventually make services like SWIFT obsolete, offering a cheaper, faster, and more secure alternative.
Using the Ripple protocol, two parties can transact through a third party or a chain of trusted intermediaries. The protocol searches the network to establish a trust chain for transactions. Through Ripple, users can transfer anything of value—including physical goods, if both parties agree.
Why Does XRP Have Value?
Although XRP’s price fluctuates, its intrinsic value comes from the utility Ripple provides within the financial sector. Ripple is both a payment protocol and a digital currency (XRP) with an open-source infrastructure that facilitates the movement of money. Its success stems from applicability beyond just cryptocurrency—Ripple uses blockchain technology to secure and speed up international payments.
While a typical cross-border bank transfer can take 2–10 days, Ripple can settle transactions in seconds. Ripple offers three main services: xRapid, xCurrent, and xVia.
xRapid: Liquidity for International Payments
Cross-border payments often come with high fees, especially in emerging markets with volatile currencies. To keep costs manageable, banks often open pre-funded liquidity accounts. xRaims to minimize these fees by using XRP for transfers. With xRapid, banks can process global transactions within seconds and at a low cost. Since August 2021, xRapid has been integrated into RippleNet’s On-Demand Liquidity (ODL) service.
xCurrent: A Complete Banking Solution
xCurrent enables banks to establish a global payment network with standardized processes. Its Interledger Protocol (ILP) connects different payment networks and ledgers, allowing banks to exchange funds seamlessly. xCurrent consists of four components: Messenger, Validator, ILP Ledger, and FX Ticker.
The Messenger operates on TLS v1.2 to secure inter-bank communications. Validators cryptographically confirm transactions. The ILP Ledger functions as a sub-ledger within the broader blockchain system, and the FX Ticker provides real-time foreign exchange rates.
xVia: Integrated Interface
xVia is an integration interface that bundles various technical functions into a central point—similar to how an email client manages SMTP or POP3. Banks can use xVia to connect to different payment networks through a standardized interface. It allows them to migrate existing business processes to the blockchain and connect to RippleNet.
Structurally, xVia is simple. It requires no installation and can be integrated via API into existing systems. This helps resolve payment network challenges and ensures smooth communication between banking partners. xVia also allows users to attach invoices or other details to transactions.
What Makes XRP Unique?
Investment and Integration
As of this writing, 38 of the world’s top 100 banks have tested, integrated, or invested in Ripple’s services. Partners include MoneyGram, BNP Paribas, HSBC, UBS, UniCredit, DZ Bank, and RBC. This large-scale adoption by major financial institutions demonstrates deep confidence in Ripple’s platform.
Liquidity Flexibility
RippleNet offers banks significant flexibility in managing liquidity for transactional banking. Institutions can choose from multiple liquidity arrangements—or combinations thereof—based on their specific needs, payment channels, and cost considerations. This helps optimize expenses, reduce risk, and improve capital efficiency. RippleNet’s pathfinding functionality enables interoperability across these arrangements.
Focus on Financial Institutions
XRP is often called "the bankers’ cryptocurrency" because it targets international fund transfers between financial institutions. Ripple’s goal is to migrate banking onto the blockchain, harnessing the technology’s benefits for traditional finance. RippleNet serves as a holistic solution to many operational challenges faced by banks worldwide. In short, Ripple is essentially a blockchain for banks.
What Is the Current Circulation of XRP?
As of mid-2022, there were over 48 billion XRP tokens in circulation, with a market capitalization of around $21 billion. Remember, XRP was fully pre-mined—no new tokens can be created through mining.
Since 2012, Ripple has periodically sold XRP to incentivize market makers and enhance liquidity. It placed 55 billion XRP in an encrypted escrow account to ensure availability. Ripple Labs holds over 6 billion XRP.
How to Store XRP
Investors and users can store XRP in Ripple’s official online wallet, third-party desktop wallets, or cold storage hardware wallets. Many cryptocurrency exchanges also offer integrated XRP wallets, providing a range of options to suit different security and usability needs.
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Frequently Asked Questions
What is the main purpose of XRP?
XRP is designed to facilitate fast, low-cost international money transfers between financial institutions. It acts as a bridge currency to simplify cross-border transactions and reduce reliance on traditional systems like SWIFT.
How is Ripple different from Bitcoin?
While both are digital assets, XRP transactions settle in seconds compared to Bitcoin’s longer confirmation times. Ripple focuses on institutional banking solutions, whereas Bitcoin aims to be a decentralized peer-to-peer currency.
Can XRP be mined?
No, XRP cannot be mined. All 100 billion tokens were created at launch, with a portion held in escrow by Ripple Labs for strategic sales and ecosystem development.
Is Ripple centralized?
Ripple operates with a degree of centralization because Ripple Labs controls a significant portion of XRP supply and develops the network protocols. However, the XRP ledger itself is open-source and decentralized in operation.
What are the risks of investing in XRP?
Like all cryptocurrencies, XRP is subject to market volatility, regulatory changes, and adoption challenges. Its close ties to Ripple Labs also mean that company-related news can significantly impact its price.
How can I buy XRP?
XRP is available on many major cryptocurrency exchanges. You can purchase it using fiat currency or other cryptocurrencies, and store it in a compatible wallet for either short-term trading or long-term holding.