What is Ripple? How is XRP Related to Ripple?
Ripple is a financial settlement protocol to facilitate near-instant money transfers between two parties.
It is a product of fintech Ripple Labs, based in San Francisco. Chris Larsen and Stellar founder Jed McCaleb created Ripple to connect banks, payment providers and cryptocurrency exchanges for cost-effective, real-time global money transfers.
What is XRP
The protocol’s native cryptographic asset, XRP, powers all transaction activity on the Ripple Network or RippleNet. A shared public ledger/database called the XRP ledger records all XRP transactions.
Independent validation servers maintain transparency in the XRP record by comparing these records. Ripple Labs’ patented Ripple Protocol Consensus Algorithm (RPCA) helps achieve consensus.
But even with a consensus mechanism in place, Ripple is not a blockchain-based technology.
The protocol does not involve established blockchain practices such as mining or staking. Pre-issued 100 billion XRP tokens fuel all transaction activity.
Ripple facilitates peer-to-peer transactions, but that’s not the main focus. Antithetical to mainstream blockchain projects, the system’s aim is to prove instrumental in large-scale financial transactions between major national and private banks around the world.
As of now, a currency that needs to be exchanged is spent to buy an equivalent amount of XRP. When transferred, it is converted into the final output currency. But a future is not a way in which digital assets powered by banks themselves replace XRP for transferring value.
What about supplying XRP
Ripple’s value proposition is in the protocol itself, not the XRP token. Ripple Labs claims that no more than 100 billion XRP coins will be issued. But is it under a restriction to issue more tokens? No.
In 2017, the company locked 55% of the total supply of XRP (55 billion XRPs) in a smart contract-based escrow account, which would release 1 billion tokens per month for 55 months for sale to investors.
At the end of each sale period, Ripple originally planned to return unsold tokens to escrow for distribution beyond the 55 months. To date, the company has not sold more than 300 million XRP per month, according to data collected from 2016 to 2018.
It’s important to note that Larsen, McCaleb, and another contributor collectively withheld 20 billion XRP to start the company.
XRP transactions take a maximum of 5 seconds. The system itself can comfortably manage over 1500 transactions per second.
The minimum transaction fee is 0.00001 XRP, which in turn is destroyed to prevent RippleNet from spamming.
What are the advantages of Ripple?
Not all consensus-based platforms have a blockchain foundation and are fully in line with the ‘decentralized ideals’ established by Bitcoin. Ripple is one such platform and it has its fair share of pros and cons. Here are the pros:
- Almost tamper proof
- Fast transactions in seconds
- open standard
- It can act in its final phase as a universal translator of any currency
- Allows quick borrowing and borrowing of sums of money
- IOU loans (a type of promissory note)
- Simple connection of payment networks
- Many new possibilities due to maximum compatibility
And the cons:
Lately, Ripple has been in the news for the wrong reasons and has been criticized for various business practices. One of the claims states that although the company has promised to pass a large part of the XRP to network users, so far only small amounts have been transferred. Furthermore, Ripple Labs kept nearly half of all existing XRP in circulation to benefit from future value creation.
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