What is Ripple XRP? How does XRP work?
Ripple can facilitate exchanges for a variety of fiat currencies, cryptocurrencies like Bitcoin and even commodities like gold. Formerly known as OpenCoin, Ripple is a privately held company that is building a payment and exchange network (RippleNet) on top of a distributed ledger database (XRP Ledger). The main goal of Ripple is to connect banks, payment providers and digital asset exchanges, enabling faster and cost-efficient global payments. Ripple is a money transfer network designed to serve the needs of the financial services industry.
A gateway is essentially a digital portal that governments, companies, and financial institutions use to join the network. This mechanism is called the Ripple Transaction Protocol (RTXP), also known as RippleNet. XRP’s unique consensus mechanism allows it to authenticate transactions faster and cheaper.
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To explain, this is a list of nodes the server queries to reach a consensus about a state or value in the network. In other words, when determining consensus, each node in the network only considers the votes of nodes in its own UNL. This means Ripple relies on significantly fewer nodes to reach a consensus than blockchains like Bitcoin and Ethereum. Thus, Ripple aims to replace SWIFT with a global blockchain ledger system.
XRP, in contrast, was “pre-mined,” meaning the XRP Ledger created 100 billion tokens that are then periodically released publicly. Ripple owns about 6% of that as an incentive for it to help the cryptocurrency grow and be successful over time. Another approximately 48% are held in a reserve for regular release into the market through sales. This allows Ripple to securely and efficiently validate transactions, which gives it an edge over other cryptocurrencies, like Bitcoin. One interesting difference for Ripple is that the customer base that uses it network, called RippleNet, is less individual consumers, but rather financial institutions.
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Chris Larsen later joined the trio, and together, they founded the company we now know as Ripple. To combat this, Ripple verifies all of its validators or nodes and evaluates their performance based on various metrics. This lets users select a list of trusted validators to be a part of their UNL and conduct transactions securely. Despite these fears, it’s these centralized features which make Ripple so attractive to banks and financial institutions in the first place. Plus, while it is possible that Ripple could remove all of the liquidity from the system, it’s also highly unlikely.
Ripple is versatile; it can facilitate transactions for fiat currencies, such as the U.S. dollar, and cryptocurrencies, like Bitcoin and Ethereum. In addition to this, Ripple has also developed a native cryptocurrency called XRP. It serves as a settlement layer and facilitates transactions within the globally accessible network. In 2012, Fugger handed over the project to Jed McCaleb and Chris Larsen and together they founded the US-based technology company OpenCoin. From that point on, Ripple started to be built as a protocol focused on payment solutions for banks and other financial institutions. In 2013, OpenCoin was rebranded to Ripple Labs, which was later rebranded to Ripple, in 2015.
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While Ripple provides a default recommended list of ~35 validators based on past performance, each participating node in the network is free to choose its own list of validators. This list is called a Unique Node List, or UNL, that is specific to each node. The blockchain is secured cryptographically with key pairs, and transactions are only authorized by the holder of private keys. This is where the similarity with Bitcoin and other cryptocurrencies ends. Ripple network transactions rely on a consensus protocol to validate account balances and transactions on the system. It does not run with a PoW system like Bitcoin or a PoS system such as Ethereum.
- Specifically, talks with Spot BTC ETF issuers have advanced to key technical details, with Reuters indicating that it could signal a shift toward a potential approval.
- For the sake of example, let’s assume that everyone uses PayPal, which charges a 2.9% fee for each transaction.
- But transactions are secure as the majority of ledger holders must agree with the verification for them to be added.
- Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be high risk.
Instead, only validators recommended by Ripple via its UNL will verify transactions. While this does make the chain more centralized, it also means that it’s easier to organize and implement upgrades and rule changes to the network, something integral to an ever-changing banking system. The existing banking system relies on traditional finance methods, and, unfortunately, these processes can be opaque, slow and often extremely expensive. https://www.tokenexus.com/ As this technology provides the basic framework for payments and transactions for both businesses and individuals, the need for innovation becomes increasingly important. In short, xRapid is an on-demand liquidity solution that uses XRP as a global bridge currency between multiple fiat currencies. Both XRP and xRapid rely on the XRP Ledger, which enables faster confirmation times and much lower fees when compared to conventional methods.
The XRP Ledger uses the consensus protocol.
But that forecast seems absurd because it would give XRP a market cap of $3 trillion, more than double the current market cap of all of the world’s cryptocurrencies combined. This July, U.S. District Judge Analisa Torres ruled that Ripple’s sales of XRP tokens didn’t constitute a sale of unregistered securities and had more in common with a foreign currency transaction. Torres rejected a request by the SEC to appeal that ruling in October, and the SEC subsequently dropped its What is Ripple initial claims against Ripple’s two executives. However, the lack of a clear resolution continues to depress XRP’s price in this choppy market. Founded in 1993, The Motley Fool is a financial services company dedicated to making the world smarter, happier, and richer. The Motley Fool reaches millions of people every month through our premium investing solutions, free guidance and market analysis on Fool.com, top-rated podcasts, and non-profit The Motley Fool Foundation.
