What is Ripple? A Protocol and a Digital Currency for the Payments Industry

5月 13, 2019

Ripple is as interesting as they come. It is the name of both a protocol and a currency. Ripple is a real-time gross settlement (RTGS) system or an open source network used to facilitate cheaper and faster global transactions.

It is very different from Bitcoin which was initially created to be used as a form of payment. There is no doubt that Ripple has set its eyes on becoming the leader in global remittance and currency exchange sectors.  

The Ripple protocol supports a native currency known as XRP and the platform can also be used to create other tokens.

History of Ripple

Ripple was conceived in 2005 – nearly three years before Bitcoin – as a financial service that allowed secure and global transactions for an online network. It was known as RipplePay at the time and was developed by Ryan Fugger.

However, the Ripple ecosystem known today was conceived by Jed McCaleb, an American programmer who created the now-defunct Mt. Gox cryptocurrency exchange, eDonkey200 application, Overnet, and the P2P eDonkey.

In 2011, McCaleb independently worked on a digital currency system which allowed transactions to be verified by consensus among network members instead of the mining process used in Bitcoin.

McCaleb hired Chris Larsen in 2012 and the pair approached Fugger about the idea of digital currency. The two were handed control of Fugger’s platform and they went on to establish OpenCoin in September 2012. The company changed its name to Ripple Labs.

McCaleb eventually left the company to found Stellar, a competing open-source protocol specializing in the payments industry. According to David Schwartz, Ripple’s current CTO, McCaleb had disagreements with management because he wanted to implement a number of bad ideas that could have hurt the company in the long run.

Whether true or not, this resulted in a lawsuit and an agreement was reached in which McCaleb had to slowly sell-off his XRP stake instead of dumping it all at one go.

Challenges and solutions

Any meaningful blockchain protocol or its associated cryptocurrency is designed to address specific challenges or provide a solution superior to those known to mankind.

Ripple has made a name for itself as a payment platform and its purpose is to bring the industry up to speed with the modern era. According to Ripple, the current payment system suffers from the following:

  • Slow – current transactions are settled in 3 – 5 days
  • Unreliable – the payment system is prone to failures
  • Expensive – consumers pay up to $1.6 trillion per year in transaction fees
  • Unacceptable – the world demands a better experience in executing financial transactions

Ripple’s solution to all of this is RippleNet – a network that connects financial institutions and allows them to send and receive money globally without any hassles.

What is RippleNet?

RippleNet is a network of financial institutions – banks and payment providers – that use Ripple’s standard rules to efficiently facilitate global transactions.

RippleNet offers users four distinct benefits:

  • Speed – RippleNet enables near real-time transactions that settle in seconds instead of days as in the case with the traditional financial system
  • Cheaper costs – transaction costs are significantly lower
  • Access – RippleNet provides a single-entry point to the global financial network
  • Certainty – increased transparency of fees and delivery times through a messenger API

Let’s assume there are three people – John who lives in the U.S., Williams in the United Kingdom, and De Villiers in South Africa. John wants to send money to South Africa, De Villiers wants to pay school fees for his child studying in Britain, and Williams wants to buy property in the U.S.

The steps involved in these transactions are cumbersome, includes a number of exchanges, and are very costly. At the end of the day, people are left with less money while they have to wait for days for their transactions to go through.

RippleNet simply searches for the simplest, quickest, and cheapest way to facilitate the required transactions.

XRP – Ripple’s native token

XRP is the protocol’s native token used to exchange value across the Ripple ecosystem. The digital currency works as a bridge for both digital assets and fiat currencies in cross-border payments. It is used as a source of liquidity for such transactions.

The benefits of using XRP are:

  • Fast – XRP transactions can be completed in 4 sec as compared to ETH’s 2+ mins and BTC’s 1+ hours and the traditional system that takes days.
  • Scalability – blockchain solutions have long suffered from scalability challenges. XRP can handle 1,500 transactions per second (TPS) and can scale to VISA’s 24,000 TPS.

Ripple’s charge very small transaction fees in order to prevent Distributed Denial of Service (DDoS) attacks.

Is Ripple centralized or not?

This is an important question that attracts different answers depending on who is responding. Ripple is operated by a single company, unlike other blockchain protocols that receive guidance from a distributed network of developers spread across the world.

Bitcoin, the largest cryptocurrency on the planet by market cap, has a hard cap of 21 million coins and other digital assets have no known limits, but Ripple was created with 100 billion pre-mined tokens. Ripple Labs owns more than half of those tokens and this goes against the ethos of decentralization.

This means that Ripple Labs can theoretically participate in a pump-and-dump scheme – prop up XRP’s price and cash out – effectively affecting the cryptocurrency or even kill it at worst.

Ripple Labs, a single entity, has the ability to freeze transactions. This happened when McCaleb tried to sell a large portion of his XRP tokens.

While this was a move made in the interest of self-preservation, it this is one of the things that cryptocurrencies stand against. There were also rumors that U.S. cryptocurrency exchange Coinbase delayed listing XRP because the digital asset was considered centralized and possibly regarded as a security by the U.S. Securities and Exchanges Commission (SEC).

Schwartz has denied the allegations that XRP is centralized and argues that the XRP Ledger and the former are two different things.

Ripple’s blockchain and consensus algorithm

Ripple is different from other crypto projects in the sense that it does not have a blockchain – something very strange because many people regard Ripple Labs to be one of the most valuable blockchain companies in the world.

How are transactions verified on Ripple’s network?

Ripple uses what is known as the Ripple Protocol Consensus Algorithm (RPCA). This means that transactions are only validated if all the nodes are in agreement.

Ripple funding and partnership

Many crypto projects were and still funded through initial coin offerings (ICOs) but Ripple’s case is different. The company is privately funded and has secured at least $96 million in five funding rounds consisting of two angel funding rounds and one round each of seed, Series A, and Series B funding.

The fintech startup has secured funding from notable investors such as Andreessen Horowitz, Google Ventures, IDG Capital Partners, Standard Chartered, Santander InnoVentures, Accenture, CME Group, SBI Holdings, Seagate Technology, and more.

Ripple has partnered with more than 200 financial institutions such as Santander, Union Credit, UBS, Axis Bank, Westpac, NBAD, Yes Bank, etc.

How to buy, store, and sell XRP

XRP is listed on several major exchanges such as Binance, Coinbase, Bitfinex, Upbit, CoinEgg, Huobi, Poloniex, Bittrex, Bitstamp, and more. You can buy XRP from using fiat currency, digital currencies (Bitcoin, Ether), and credit card.

You need to have an XRP wallet and address before buying the digital asset. As in almost all cases, it is advisable to store your XRP in cold wallets in order to protect yourself from hacking scandals.


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