What is Ripple and XRP?

Ripple is the company that created XRP, which is a high-speed payment coin used around the world. Some experts believe that XRP and not Bitcoin is the future of digital currency because of its speed and cost. This article will explore the core elements of Ripple, its purpose, and how its currency, XRP, differs from other digital assets.

What is Ripple?

Ripple Labs (Ripple) is a company based in San Francisco. Since its foundation in 2004 and its entry into the early crypto market in 2012, Ripple has evolved into a global payments network that offers real-time gross settlements. Ripple consists of multiple core elements: RippleNet, a P2P transfer platform, the XRP Ledger, and the cryptocurrency XRP. We will cover each of these a bit later.

What is the purpose of Ripple?

While many aspects of our lives, such as postal mail or photography, have made a seamless transition into a digital form, the transfer of fiat across borders has always been a reasonably clunky process. At present, to transfer international transactions, banks use the Society for Worldwide Interbank Financial Telecommunications (SWIFT). Unfortunately, this method can be quite expensive. Ripple’s purpose is to speed up and smooth out the currency transfer process while decreasing associated costs.

How does Ripple work?

You can think of RippleNet, Ripple’s Digital Payment Network, as a sort of informal intermediary in transactions. This occurs when each person involved in the transaction has a different preferred method of sending and receiving money or uses different currencies. Throughout the whole process, though, no physical money moves. 

Let’s take a look at an example. Georgia needs to send money abroad to Ted. However, because they’re using different currencies or banking methods, direct transfer is inefficient or costly. Instead, Georgia provides funds to her ‘agent’, who then alerts Ted’s ‘agent.’ To access the funds, Ted must provide a security code or password. Ted’s agent then gives him that amount of funds.

Because money was never transferred directly from Georgia to Ted and the funds that Ted received came directly from his Agent, Georgia’s Agent now owes Ted’s Agent that money. This is recorded to be paid later, or counter transactions – say Ted needs to give Georgia money in the future – can be made to settle that debt.

This is the core functionality on which RippleNet operates. Instead of fiat currency though, exchanges are made in XRP and recorded on the XRP ledger.

The core components of Ripple 

What is XRP and the XRP Ledger

While XRP is widely associated with Ripple and the company uses both the ledger and XRP for various purposes, the Ripple network and XRP operate independently.

The XRP Ledger is a blockchain network that is both public and decentralized. Anyone can connect to the P2P network that manages the ledger. Its community is comprised of server operators, software engineers, businesses, and end-users whose role is to maintain the ledger. 

XRP is the native token of the XRP Ledger. The XRP Ledger operates similarly to the Ethereum blockchain in which third parties can use it to construct solutions and other tokens.

What is RippleNet?

RippleNet is the network through which financial institutions can transfer money. RippleNet was designed to transfer funds quickly while costing less and providing greater transparency. As you’ll remember from earlier, direct transfers do not occur on RippleNet. This is why it can facilitate cross-border payments and currency exchanges at a fraction of the price.

XRP vs Bitcoin: how do they differ?

A common question you might see is, how is XRP different from Bitcoin? And is it better? In a nutshell, Bitcoin transactions take longer to process, require more energy, and have higher transaction costs. That said, they utilise very different protocols to verify transactions.

The majority of cryptocurrencies use one of two main consensus algorithms, Proof of Work (PoW) and Proof of Stake (PoS). Coins like Bitcoin and Ethereum use the PoW protocol, whereas coins like Cosmos and Cardano uses the PoS protocol. Ripple doesn’t use either. It uses its own consensus mechanism, the XRP Ledger Consensus Protocol, which boasts faster and more efficient transaction validation.

Bitcoin is more expensive and slower

The Proof of Work (PoW) system is often regarded as the most secure and decentralized way to operate a blockchain. However, Bitcoin mining is timely and requires a lot of energy, which means it is typically more expensive. It also means Bitcoin transaction confirmations can take more than 10 minutes minutes. XRP transactions take just seconds.

XRP is released through smart contracts

New Bitcoins are created through mining. Supply is largely impacted by network speeds and the mining difficulty. XRP tokens, on the other hand, are released with a maximum of 1 billion tokens per month by an in-built smart contract. As a result, there are also significantly more XRP coins than Bitcoins in the market. Bitcoin is capped at a maximum of 21 million coins, while approximately 50 billion XRP tokens are now in circulation.

SEC vs Ripple

Ripple has never really left the spotlight in the crypto world. In its early days, this was often hype about XRP being the next big thing. But in recent years, Ripple has been in the limelight because of its legal troubles with the Securities and Exchange Commission (SEC).

In late 2020, the SEC filed a lawsuit against Ripple and its current and former CEOs. It was alleged Ripple executives “raised over $1.3 billion through an unregistered, ongoing digital asset securities offering”. Two years later, in 2022, the case is still ongoing.

In recent years there has been some correlation between the price of XRP and the results of the lawsuit. In April 2021, for example, Ripple surged a massive 40% following a court ruling in Ripple’s favour.

Where to trade XRP

You can buy Ripple (XRP) from most big cryptocurrency exchanges. Swyftx is a popular crypto exchange in Australia and New Zealand where users can buy Ripple with low fees and store it in their personal crypto wallet.

Wrap up

This article has explored the difference between the company Ripple and the cryptocurrency XRP (also confusingly known as Ripple). It has also delved into how XRP works and how it differs from Bitcoin. If you want to learn more about consensus mechanisms, smart contracts, or anything else crypto or blockchain-related, there is lots more great content on Swyftx Learn!