Throughout the cryptocurrency world there are a number of coins with multi-billion dollar market caps which all operate on blockchain technology with similar rules. The grandfather of cryptocurrency; Bitcoin, set the precedent for functioning peer-to-peer digital currency networks by giving its users the freedom to send nearly instant, pseudonymous transactions across the globe.
Since Bitcoin was first introduced in 2009, a number of other cryptocurrecies have made their presence known. Each of these digital currencies have generally followed in Bitcoin’s footsteps. Ripple, however, chose an entirely different path while maintaining many of the intriguing attributes that first drew users to Bitcoin, Ethereum, Dogecoin and other virtual currencies.
Ripple Value, Market Cap and Volume
Since its conception, Ripple has steadily risen to become one of the most popular cryptocurrencies. For the most part, XRP has continuously held a larger market capitalization than many other popular cryptocurrencies including Litecoin, Dash, IOTA, NEO and Monero. Depending on the price of XRP, anywhere from $50 million USD to $12 billion USD can be traded across all major cryptocurrency exchanges on a daily basis.
Understanding The Ripple Network and XRP
Compared to most of the cryptocurrencies that are being traded today, Ripple has a number of completely unique qualities associated with it. For starters, Ripple is not even necessarily valued for its capabilities as a digital currency. Instead, Ripple and its native currency (XRP) have become popular due to the network’s innovative payment protocol. The company behind Ripple (Ripple Labs, Inc.) is also a privately funded corporation based in San Francisco, which is almost unheard of in the cryptocurrency world.
Ripple’s Payment Protocol Capabilities
In 2012, Ripple Labs, Inc. (then named OpenCoin) began developing a unique, open-source digital payment protocol built on blockchain technology that would operate on its own virtual network. These would become known as Ripple Protocol and the Ripple Network respectively. Today, the Ripple Network is fully functional and is built on one of the most advanced, scalable and secure blockchains.
Ripple’s payment protocol and its secure blockchain now enable banks, financial institutions, businesses and digital asset exchanges all over the world to seamlessly transfer money between one another. On the Ripple Network, “money” can include fiat currencies such as USD and GBP or even cryptocurrencies like Bitcoin, Litecoin and Ether. This means that the users on the network will be able to transact with each other much faster and with lower fees compared to international transactions being conducted in the traditional financial world.
XRP: The Native Currency of Ripple
XRP is a digital currency that was created by Ripple and exists solely on its network. Ripple initially released a limited number of XRP into circulation and set a maximum amount of 99,993,195,805 XRP tokens that can ever exist. The smallest unit of XRP is called a drop, with 1 million drops equaling 1 XRP.
Like most other cryptocurrencies, XRP was created with a cap on the number of units in order to decrease the availability over time. The 100 billion XRPs in existence were released at the conception of Ripple. This is different from Bitcoin, which are released slowly over time through the process of mining.
It is important to note that XRP is the only currency in the Ripple network that does not carry a counter-party risk. All Ripple accounts require users to have a reserve of at least 20 XRP.
Ripple vs. Other Cryptocurrencies
Ripple is similar to other cryptocurrencies in a number of ways. It exists as a decentralized open-source protocol payment network. Ripple’s goal is the same as most other cryptocurrencies; to eliminate the need for a central bank or other financial institution. The most important similarity between Ripple and other digital currencies may be that it operates on a peer-to-peer network where users can complete transactions with one another.
In the world of virtual currency, Ripple stands apart from the rest in a number of ways. It does not utilize mining or Proof-of-Work to confirm transactions and add them to the ledger. Instead, Ripple uses what is dubbed as the Interledger Protocol which allows users to transmit cross currency instantaneously.
Ripple’s Interledger Protocol was designed to avoid reliance on centralized exchanges, such as those that miners would conduct, while using less electricity than Bitcoin and completing transactions much more quickly.
Decentralized Transaction Networks
Most cryptocurrencies (excluding Ripple) aim to create an actual virtual form of currency, which is not necessarily the case with Ripple. Ripple allows transactions for a number of fiat currencies, meaning that their value is based upon the institution that backs it. While Ripple does have XRP tokens as its “currency” they exist more as a representation of currencies that exist in the real world. In this way, individuals and institutions use XRP as a sort of IOU, making it less a network for digital currency and more of a transaction network.
Other cryptocurrency networks track the movement of their native units of currency, whereas Ripple can track information or currency of any kind. Ripple does not need miners to help track this information – its consensus ledger is established through a network of independent validating servers that constantly compare transaction records. Like miners, these servers could belong to anyone and are able to create a new ledger every few seconds
Although cryptocurrencies are renowned for their lack of influence from a centralized power, such as a financial institution or government, they do rely on centralized exchanges. Miners, who confirm transactions by solving cryptography and adding to the blockchain ledger, conduct these exchanges. Ripple does not rely on miners to complete its ledger, thus completing the process of establishing the ledger much faster.
How Exactly Does Ripple Work?
As we touched on above, Ripple operates on a peer-to-peer network where the contents are decided on by consensus. It requires a financial institution to hold funds and issue balances on behalf of customers, and market makers (such as currency trading desks) to provide liquidity in the currency they want to trade in. At it’s core, Ripple is providing the platform for financial institutions to communicate directly with one another.
Like any other cryptocurrency, Ripple enables its users to make payments through the use of cryptographically signed transactions, which can be represented in XRPs or any other form of currency. Ripple’s Interledger Protocol is used for any transactions that are an exchange of XRPs. The ledger also records transactions of other currencies, but only represents these transactions as debt obligations, and not an actual transfer of currency.
Today, Ripple utilizes various user verification protocols and bank services. In order for a transaction to be completed between users, the two users must agree that they trust the other user. Then each user must confirm the amount at which they are trusted. Trust must also be established between users and the gateway that holds their deposit. Essentially, users need to agree that if they give X amount of currency to their gateway, they accept the counterparty risk.
Gateways play an essential role in Ripple’s network, as they act as the place from which fiat currencies enter and exit the Ripple protocol. The gateways are another word for the businesses, money services, or market places that give users the ability to perform transactions on the network. Essentially, gateways are the banks of the Ripple network, but unlike banks they share a global ledger. Different gateways can have different verification protocols to ensure the security of the users.
Ripple’s name derives from a function that allows users to utilize multiple gateways in the same currency, which they can allow to “ripple” between gateways. In other words a user may allow the balance of a currency to shift between the two gateways, without altering their total balance, for a small transit fee. Popular gateways include, Bitstamp, Gatehub, Ripple Fox, Tokyo JPY, Mr. Ripple, RippleChina, and The Rock Trading.
The Future of Ripple
There are some seriously intriguing attributes that Ripple possesses. It has the fastest transaction time of any cryptocurrency network, due to its unique consensus ledger. It also requires no fees, whereas Bitcoin may require fees for any mining that takes place. The purpose of Ripple is best surmised, perhaps, by its chief cryptographer David Schwartz who explained “Ripple is designed to connect different payment systems together.”
To put it simply, Ripple establishes a universal set of rules that financial institutions and users can rely on, rather than going through the long and tedious process of trying to work within the confinement of their own rules and regulations. Ripple has already been backed by a number of reputable institutions, such as UniCredit or Santander.
Like many cryptocurrency networks, Ripple’s technology has gained recognition over the years and has drawn the attention of users and businesses alike. As people around the globe become more conscious of the existence and uses of cryptocurrencies, it is likely that Ripple will become an even bigger force for financial exchanges.