- Ripple is the company behind XRP.
- XRP transactions are confirmed in seconds.
- Many Banks have adopted the XRP payment system.
- The Ripple network uses a unique distributed consensus mechanism to validate transactions.
The History of Ripple
Ripple originally started in 2012. However, the idea behind it popped up in 2004. A year later, Ryan Fugger launched a website known as RipplePay. It provided an online secure payment option for communities but never really got the widespread adoption it needed. As we move forward to 2011, Fugger was approached by two people, Chris Larsen and Jared McCaleb, to replaced RipplePay with a digital currency payment system where the community consensus verified the transactions instead of miners.
Chris Larsen was the angel investor and the business executive. He also was a privacy activist, one of the richest people within the cryptocurrency world, and can constantly be seen co-founding different startups in financial services. On the other hand, Jared McCaleb is one of the most well-known programmers as well as an entrepreneur, as he has also co-founded different crypto-startups throughout his career, which include eDonkey, Overnet, Stellar, and Mt. Gox.
This gave birth to the Ripple Transaction Protocol in 2012. It was designed to facilitate quick and direct money transfers between two parties in fiat currencies. However, it did not require the wait times or even the transaction fees of traditional money transfer services available at the time. To provide a higher level of liquidity, the protocol provided for the creation of a new value token would be known as XRP. 2014 was also a big year because several banks started utilizing Ripple throughout their tests.
Ripple Explained
Ripple is both a platform as well as a currency. The platform itself is an open-source protocol specifically designed to incentivize quick and cheap transactions. This platform has its own currency known as XRP, allowing just about anyone to use the platform to create their own through RippleNet.
Ripple is the network, and XRP is the coin on the network. The company is based in America and was founded in 2012 when it was originally known as Opencoin, and only changed its name once it developed the Ripple Transaction Protocol in 2015.
This platform’s concept was incentivized because the team behind it wanted to streamline international transactions between banks.
To do this, platforms were developed known as xRapid, xCurrent, and xVia.
Keep in mind that XRP cannot be mined, and all of the coins were originally created at the start of Ripple. They then release coins into the market throughout regular intervals. This means that one of the easiest ways to acquire XRP is to buy it at an online exchange or a broker.
While many other blockchain technologies are secured through a decentralized network of miners, Ripple is secured through a network of validating servers with an internal ledger that guarantees the transaction based on consensus.
Transactions on Ripple are limited to XRP, and the platform supports fiat currencies such as euros, dollars, pounds, and so on. The platform even supports other cryptocurrencies such as bitcoin and is the primary payment processor and currency exchange.
XRP Tokens Explained
As mentioned previously, the XRP token is the token used on the Ripple network to facilitate the transfer of money between different countries. The existing settlement systems will use US dollars as a common currency, which incurs exchange fees and will take a lot of time.
However, if we convert the value of the transfer to XRP instead of USD, the exchange fees are eliminated, and the payment processing is reduced to seconds.
Let us look at this in a different example.
On the Flipside
- XRP has widespread usage in many banks.
- The strength of the system is determined by its ability to serve the market, and as such, it is scalable because it can handle more than 1500 transactions per minute.
- It is built on open-source technology that allows for the distribution of capability and customization to fit users’ needs.
Imagine that you want to transfer funds from bank A located in Europe to Bank B, located in America. Instead of transferring and converting EUROS to DOLLARS and waiting for a few days, the bank can convert the currency to XRP, send it to the bank in America, and then that bank can convert the currency from XRP to dollars.
XRP is the token that is used to represent the transfer of value across the Ripple Network. Ripple created 100 billion XRP coins when it was created.
Now, what you need to keep in mind is that XRP was not initially developed to be a currency or payment method. However, there are merchants out there that will accept payment in the form of XRP tokens online. You can buy different things online; it’s that simple. However, that being said, the primary use of XRP is intended to be for the transfer of other currencies over the Ripple network.
The Ripple Protocol Consensus Algorithm (RPCA) Explained
First and foremost, you have to understand that Ripple does not have its own blockchain. To verify the transactions and make sure that everything is okay, it uses the Ripple Protocol Consensus Algorithm.
It is applied every few seconds by all of the nodes to maintain the network’s correctness and agreement. Once the consensus is reached, the current ledger is considered closed and becomes the last-closed ledger as a result.
Ripple’s Answer to a Long-Time Problem
We live in an era where we have constant and instantaneous connectivity; however, when it comes to money transfers globally, specifically cross-border transactions, the banks or payment processors will typically end up charging high fees and take days to process the payments completely.
The main reason why cross-border transactions are slow is that they use the practice associated with Nostro or Vostro accounts. This means that instead of using the agent or gateway model, a domestic bank will have an account at another foreign bank, this is known as a Nostro, and the foreign bank will have an account at the domestic bank; this is known as a Vostro. These accounts will be used to transact in the two currencies and be reconciled before the transactions can be approved.
his makes the entire process extremely expensive and time-consuming, as the bank has to enter the equation to facilitate and validate the reconciliation process.
Ripple, as a company, has a reputation for partnering up with banks for years, and the idea behind this is that Ripple, the company itself, wants to convince banks to use the Ripple-based crypto technology to make traditional banking transactions much faster and much cheaper.
This is one of the driving factors of XRapid, and the reason why many banks throughout Ripple’s history have accepted them, and why many experts predict that their acceptance will be more widespread in the future.
Through the usage of Ripple’s payment system known as XRapid, XRP provides the liquidity that is necessary for institutions to be able to transfer funds across borders instantly while paying no transaction fees.
As a result, Ripple has even managed to partner up with many major institutions, including SBI Group, Santander (MC:SAN), and PNC Bank. XRapid is the liquidity solution for banks that use Ripple’s XRP as the bridge currency.
The originating currency is exchanged into XRP, which provides the required liquidity that powers the final payments. Within seconds, the XRP can be exchanged into the destination currency on the second digital asset exchange.
RippleNet Explained
The RippleNet is a network of institutional payment providers, which typically includes banks, that use solutions that Ripple develops to provide a quick and efficient way of sending money globally. RippleNet is a single, global payment network that can send and receive payments through Ripple distributed financial technology, which provides real-time messaging, clearing, and settlement of transactions as a whole.
Pros and Cons of Ripple
When it comes to the pros, Ripple is an official organization that has gained the trust of a multitude of banks, it has no inflation, and all of the tokens are initially mined and already exist. The more banks use it as a transaction platform, the higher the value of XRP rises.
When it comes to the cons, it is highly centralized, and it has a monopoly because Ripple Labs has a high percentage of the coins. It is also open-source, and once the code is accessible, there is a high chance that someone will attempt to compromise it.
The Lawsuit
We cannot talk about XRP’s future without discussing the lawsuit. As of December of 2020, the U.S. Securities and Exchange Commission (SEC) sued Ripple, alleging that its CEO Brad Garlinghouse and Chairman Chris Larsen sold over $1 billion in XRP, and promoted the token, and paid third parties to support the cryptocurrency.
However, Ripple categorically denied the accusations against the company and its senior executives. Keep in mind that the complaint also argues that XRP digital currency was used as a medium of exchange for cross-border transactions in Ripple’s software products and evaded SEC regulation for a total of seven years.
The Future of XRP
Ripple, at its core, was designed for speed and to achieve the lowest fees of any crypto asset out there, and these are the attributes that make it an attractive option for banks, which are Ripple’s main customers.
XRP intends to move larger amounts of money quickly and at a low cost.
Due to this, Ripple can eventually become a replacement for other enormous money-transfer platforms such as SWIFT, one of the current bank standards for bank wires, and it has slower speeds and much higher fees.
Ripple also has the potential to disrupt traditional cross-border payments such as MoneyGram. Because Ripple has a high potential of becoming the new standard in many industries, it has one of the highest price potentials out of any crypto asset. Keep in mind that, for any cryptocurrency, both short and long-term prices can be tough to predict. However, Ripple has a high chance of going upward as more banks adopt its transfer method.
In November, if we analyze 2020, the value of XRP rose, with the coin becoming the third-largest cryptocurrency. However, it is currently at the 7th spot.
It started 2020 at a value of $0.20, and it got up to $0.34 throughout February. On March 13th, it fell to $0.11 per coin, and it then rose to $0.20 again in the following months. Throughout September and October of 2020, the price got back up to $0.25. XRP is now, at the time of writing, February 26th, 2021, valued at $0.42, which is a huge increase when we compare it to the previous numbers.
Now, keep in that the price of XRP rose by 50% and reached $0.77, and then dropped to $0.42.
The XRP currency has its ups and downs, and we cannot really predict the price for sure. However, the team behind the project aims for a lot of developments throughout the entirety of 2021. Experts believe that the company behind the project can partner up with different financial institutions and potentially even get to the $2 mark done if everything is executed efficiently.
In a perfect case-scenario, if XRP gains more mainstream attention and adoption by 2023, it could potentially reach the $3 mark as well. However, this is highly dependent on the developments behind the company’s legal issues as-well.
