Ripple is a remittance network designed to serve the needs of the financial services industry. XRP is the native cryptocurrency of the Ripple network and is consistently listed among the top 10 cryptocurrencies by market capitalization.
What is Ripple?
Ripple is the company behind XRP, a payment settlement system and currency exchange network that can process transactions around the world.
Bitwave CEO Pat White said:
It acts as a trusted agent between the two parties to a transaction, allowing the network to quickly confirm that the exchange was properly performed. Ripple can facilitate the exchange of various fiat and cryptocurrencies such as Bitcoin, to name just one example.
Every time a user makes a transaction using the network, the network deducts a small amount of the virtual currency, XRP, as a fee.
“The standard fee for making transactions on Ripple is set at 0.00001 XRP, which is minimal compared to the hefty fees banks charge for making cross-border payments,” said Onchain. Custodian board member Elle Lee said.
What is XRP?
XRP is a cryptocurrency that runs on the XRP Ledger, a blockchain designed by Jed McCaleb, Arthur Britto, and David Schwartz. McCaleb and Britto founded Ripple and used XRP to facilitate transactions on the network.
XRP can be purchased as an investment, as a cryptocurrency to exchange with other cryptocurrencies, or as a means of financing transactions on the Ripple network.
In particular, XRP’s blockchain works in a slightly different way than most other cryptos. Other cryptocurrencies open up trading ledgers and verification processes to anyone who can solve complex equations quickly. However, the transaction is secure as the majority of the ledger owners must agree to and add the verification.
XRP’s Ripple network centralizes things somewhat and uses a consensus protocol. Anyone can download that verification software, but maintain her list of unique nodes that users can select to verify their transactions.
As new transactions occur, the validator updates the ledger every 3-5 seconds to ensure it matches the other ledgers. If there is a discrepancy, they stop to find out what went wrong. This allows the network to validate transactions securely and efficiently, giving it an edge over other cryptocurrencies such as Bitcoin.
“Bitcoin transaction confirmations can take minutes or hours and typically have high transaction costs,” said Lee. “XRP transactions are confirmed in about 4-5 seconds at a much lower cost.”
How to mine XRP
“Mining” is the distributed verification system used in most blockchain-based cryptocurrencies. It provides a mechanism to facilitate transactions and introduce new currencies into the cryptocurrency system. This is usually done as a reward for validators who support the network. Bitcoin, for example, has a maximum supply limit of 21 million tokens and will be released steadily as more transactions are verified.
In contrast, XRP was “pre-mined”. So the XRP Ledger made 100 billion units and then went public periodically.
Ripple owns a portion of the XRP in circulation, which incentivizes the growth and success of the cryptocurrency. Another percentage of XRP is reserved for regular releases to the market through sales.
Naturally, this has raised concerns that a large amount of XRP could be released at once, diluting the value of other XRP already in circulation. This is because part of what gives a currency its value is its relative scarcity.
“The company has tried to mitigate the uncertainty by implementing several mechanisms (trust, predictable release, etc.),” said Tim Eneking, Principal, Digital Capital Management. This difference between mining and pre-mining could also be a reason to clash with the US Securities and Exchange Commission (SEC) in 2020.
Advantages of Ripple
- fast settlement. Transaction confirmation is very fast. It usually takes him 4-5 seconds compared to when banks take days to complete a wire transfer or when it takes minutes or even hours to verify a bitcoin transaction.
- very low fees. The cost to complete a transaction on the Ripple network is only 0.00001 XRP, a fraction of a penny at current rates.
- Diverse exchange network. The Ripple network does more than just process transactions using XRP. However, it can also be used for other fiat currencies and cryptocurrencies.
- Used by major financial institutions. Large companies can also use Ripple as their transaction platform. IndusInd Bank, Santander, and Bank of America are just a few banks using this network, demonstrating that it is already adopted in institutional markets more than most cryptocurrencies.
Disadvantages of Ripple
- Somewhat centralized. One of the reasons cryptocurrencies have become so popular is that they have become decentralized and taken control away from big banks and governments. The Ripple system can be centralized to some extent with a list of default validators that defies this philosophy.
- A large supply of pre-mined XRP. Most of the uncirculated Ripple supply is held in escrow, but there is the possibility of a large supply at the wrong time, which could affect the value of XRP.
- SEC Actions Against XRP. In December 2020, the SEC filed a lawsuit against Ripple, saying the company should have registered Ripple as a security if it could decide when to release XRP. The company denies the allegations.
How to use Ripple and XRP
XRP can be used as a transaction or potential investment like any other digital currency. The Ripple network can also be used to process other types of transactions, such as currency exchanges.
For example, if you are looking to convert INR to Euros, instead of processing the currency exchange directly through a bank or exchange office, first convert INR to XRP on the Ripple network and then use them to buy Euros. can do. This can be a much faster and cheaper approach than paying the hefty fees that banks and money transfer organizations can charge.
Should I buy XRP?
XRP can be a gamble not for the faint of heart.
That said, if you believe that Ripple will win as a payment system, it might be worth buying XRP. Make sure it’s money you can afford to lose.