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What is xrp (ripple)?
Ripple is a technology that acts as both a cryptocurrency and a digital payment network for financial transactions. It was first released in 2012; it was co-founded by Chris Larsen and Jed McCaleb. Ripple's main process is a payment settlement asset exchange and remittance system, similar to the swift system for international money and security transfers, which is used by banks and financial middlemen dealing across currencies.
Ripple is the name of the company and the network, and XRP is the cryptocurrency token. The purpose of XRP is to serve as an intermediate mechanism of exchange between two currencies or networks—as a sort of temporary settlement layer denomination.
XRP can be sent directly without needing a central intermediary, making it a convenient instrument in bridging two different currencies quickly and efficiently.
XRP is a digital asset built for payments. It is the native digital asset on the XRP Ledger—an open-source, permissionless and decentralized blockchain technology that can settle transactions in 3-5 seconds.
Understanding Ripple
Ripple operates on an open source and peer-to-peer decentralized platform that allows for a seamless transfer of money in any form, whether it's dollars, Yen, euros, or cryptocurrencies, like litecoin or bitcoin. Ripple is a global payments network and counts major banks and financial services amongst its customers. XRP is used in its products to facilitate quick conversion between different currencies.
To understand how the system works, consider a money transfer structure where the two parties on either end of the transaction use their preferred middlemen to receive the money. In effect, Ripple functions as a digital hawala service. Hawala is an informal method of transferring money, usually across borders, without any physical money actually moving.
Say that Lawrence needs to send $100 to River, who lives in a different city. Lawrence provides the funds to be sent to River to their local agent, Kate. Lawrence also provides the funds a secret password that River is required to answer correctly to receive the funds in their city. Kate alerts River’s agent, Asuka, of the transaction details—recipient, funds to be reimbursed, and the password. If River gives Asuka the right password, Asuka gives them $100.
However, the money comes from Asuka’s account, which means that Kate owes Asuka $100 (which will be settled at a later date). Asuka can either record a journal of all Kate’s debt, which Kate would pay on an agreed day, or make counter transactions that would balance the debt. For example, if Asuka was also Martin’s agent and Martin needed to transfer $100 to Etios whose agent is Kate, this would balance out the $100 owed to Asuka, since Etios will be paid from Kate’s account.
Although the Ripple network is a little more complex than this example, it demonstrates the basics of how the Ripple system works. From the example above, one can see that trust is required to initiate a transaction—trust between Lawrence and Kate, Kate and Asuka, and River and Asuka.
Ripple uses a medium, known as Gateway, as the link in the trust chain between two parties wanting to make a transaction. Gateway acts as the credit intermedietry that receives and sends currencies to public addresses over the Ripple network. Anyone or any business can register and open a gateway, which authorizes the registrant to act as the intermediary for exchanging currencies, maintaining liquidity, and transferring payments on the network.
The Swift System
Need to transfer money overseas? Today, it is easy to walk into a bank and transfer money anywhere around the globe, but how does this happen? Behind most international money and security transfers is the society for worldwide interbank financial telecommunications (SWIFT) system. SWIFT is a vast messaging network used by banks and other financial institutions to quickly, accurately, and securely send and receive information, such as money transfer instructions.
Inside a SWIFT Transaction
SWIFT is a messaging network that financial institutions use to securely transmit information and instructions through a standardized system of codes.
SWIFT assigns each financial organization a unique code that has either eight characters or 11 characters. The code is interchangeably called the bank identifier code (BIC), SWIFT code, SWIFT ID, or ISO 9362 code.2 To understand how the code is assigned, let’s look at Italian bank UniCredit Banca, headquartered in Milan. It has the 8-character SWIFT code UNCRITMM.
Let's assume a Bank of America branch customer in New York wants to send money to their friend who banks at the UniCredit Banca branch in Venice. The New York customer can walk into their Bank of America branch with their friend’s account number and UniCredit Banca’s unique SWIFT code for its Venice branch.
Bank of America will send a payment transfer SWIFT message to the UniCredit Banca branch over the secure SWIFT network. Once Unicredit Banca receives the SWIFT message about the incoming payment, it will clear and credit the money to the Italian friend’s account.
As powerful as SWIFT is, keep in mind that it is only a messaging system. SWIFT does not hold any funds or securities, nor does it manage client accounts.
Why Is SWIFT Dominant?
According to the London School of Economics, "support for a shared network...began to achieve institutional form...in the late 1960s, when the Société Financière Européenne (SFE, a consortium of six major banks based in Luxembourg and Paris, initiated a ‘message-switching project.
SWIFT was then founded in 1973 with 239 banks in 15 countries. By 1977, it expanded to 518 institutions in 22 countries.
Although there are other message services like Fedwire, Ripple, and clearing house interbank payment system (CHIPS), SWIFT continues to retain its dominant position in the market, but now you can see why xrp is created and what its trying to do, its essentially trying to obtain top spot withinside of this sector of institutions Its success is attributed to how it continually adds new message codes to transmit different financial transactions.
While SWIFT primarily started for simple payment instructions, it now sends messages for a wide variety of actions, including security transactions, treasury transactions, trade transactions, and system transactions. Nearly 50% of SWIFT traffic is still for payment-based messages, 47% is for security transactions, and the remaining traffic flows to Treasury, trade, and system transactions.
Who Uses SWIFT?
In the beginning, SWIFT founders designed the network to facilitate communication about Treasury and correspondent transactions only. The robustness of the message format design allowed huge scalability through which SWIFT gradually expanded to provide services to the following:
Services Offered by SWIFT
Applications:
SWIFT connections enable access to a variety of applications, which include real-time instruction matching for treasury and forex transactions, banking market infrastructure for processing payment instructions between banks, and securities market infrastructure for processing clearing and settlement instructions for payments, securities, forex, and derivatives transactions.
Business Intelligence:
SWIFT has recently introduced dashboards and reporting utilities which enable the clients to get a dynamic, real-time view of monitoring the messages, activity, trade flow, and reporting. The reports enable filtering based on region, country, message types, and related parameters.
Compliance Services:
Aimed at services around financial crime compliance, SWIFT offers reporting and utilities like Know Your Customer (KYC), Sanctions, and Anti-Money Laundering (AML).
Messaging, Connectivity, and Software Solutions:
The core of the SWIFT business resides in providing a secure, reliable, and scalable network for the smooth movement of messages. Through its various messaging hubs, software, and network connections, SWIFT offers multiple products and services which enable its end clients to send and receive transactional messages.
Ripple's Digital Currency XRP
The digital currency, XRP, acts as a bridge currency to other currencies. It does not discriminate between any fiat/cryptocurrency, which makes it easy for any currency to be exchanged for another. Each currency on the ecosystem has its own gateway e.g. CADBluzelle, BTCbitstamp, and USDsnapswap. If River wanted bitcoins as payment for the services rendered to Lawrence, Lawrence does not necessarily have to be in possession of any bitcoins. He can send the payment to his gateway in Canadian dollars (CAD), and River can receive bitcoins from his gateway. One gateway is not needed to initiate a complete transaction; multiple gateways can be used, forming a chain of trust rippling across the users.
Holding balances with a gateway exposes the user to counterparty risk, a risk that is also present in the traditional banking system. If the gateway does not honor its liability, the user could lose the value of their money held at that gateway. Users that don’t trust a gateway can, therefore, transact with a trusted gateway that in turn deals with the "untrusted" gateway. This way the IOU will be transacted through the trusted, or creditworthy-certified, gateway. Counterparty risk does not apply to bitcoins (and most altcoins) since a user’s bitcoin is not another user’s IOU or liability.
How Ripple Works
The Ripple network does not run with a proof of work (PoW) system or a proof of stake (PoS) system. Instead, transactions rely on a consensus protocol in order to validate account balances and transactions on the system. The consensus works to improve the integrity of the system by preventing double-spending.
A Ripple user that initiates a transaction with multiple gateways, but attempts to send the same $100 to the gateway systems, will have all but the first transaction deleted. Individual distributed nodes decide by consensus which transaction was made first. The confirmations are instant and take roughly five seconds. Since there’s no central authority that decides who can set up a node and confirm transactions, the Ripple platform is described as decentralized.
Ripple keeps track of all IOUs in a given currency for any user or gateway. IOU credits and transaction flows that occur between Ripple wallets are publicly available on the Ripple consensus ledger. But even though financial transaction history is publicly recorded and made available on a blockchain, the data is not linked to the ID or account of any individual or business. However, the public record of all dealings (i.e. the blockchain) makes the information susceptible to de-anonymization measures.
XRP
XRP is the digital currency that facilitates transactions on the Ripple network. It effectively acts as a bridge between the two currencies being transferred, and also serves as a source of liquidity when necessary. XRP is the native asset of the XRP Ledger, an open-source blockchain that runs on a network of peer-to-peer servers.
Ripple
This is the American technology company that develops the Ripple payment protocol and network. Originally known as OpenCoin, it later traded as Ripple Labs before rebranding to Ripple in 2015
RippleNet
This is Ripple’s network of payment providers around the world. It connects the different payment networks of banks, payment providers, digital asset exchanges and corporate entities, and can accept both fiat and cryptocurrencies.
Ripplex
RippleX champions the builders of tomorrow by providing the infrastructure, tools, services, programs and support for creation on the XRP Ledger. With this support, an open community of developers can advance the solutions and innovation needed to allow businesses, consumers, institutions and governments to fuel the engine of a new digital economy. RippleX is built on the principle that the success of blockchain in realizing the Internet of Value hinges on how easily new technology works with how the world operates today.
XRP Ledger
The XRP Ledger (XRPL) is open-source technology on which anyone can build. The global XRP Ledger community—a diverse set of software engineers, server operators, users and businesses—maintains the ledger. The XRP Ledger is a decentralized, public blockchain led by a global developer community. It’s fast, energy efficient, and reliable. With ease of development, low transaction costs, and a knowledgeable community, it provides developers with a strong open-source foundation for executing on the most demanding projects—without hurting the environment.
Interledger Interledger is an open protocol that connects siloed payment networks so that value can be exchanged seamlessly. RippleX helps build and maintain the Java Connector, a Java implementation of an Interledger Connector supporting ILPv4.
PayString
PayString is an open protocol that simplifies payments across different networks with a universal payment identifier. RippleX is proud to be a member of the Open Payments Coalition, a group of companies and nonprofits that collaborated to develop and launch PayString.
How You Can Use Ripple and XRP
You can use XRP like any other digital currency, either for transactions or as a potential investment. You could also use the Ripple network to process other types of transactions, like exchanging currencies.
For example, if you are looking to swap Sterling for Euros, you could first exchange your GBP for XRP on the Ripple network, and then use those to buy Euros, rather than handling the currency exchange directly through a bank or money-changing exchange. This can be a much faster and cheaper approach versus paying the high fees banks and money remittance organizations may charge.
How to Mine XRP
“Mining” is the distributed verification system used by most blockchain-based cryptocurrencies. It both facilitates transactions and provides the mechanism by which new currency is introduced into a cryptocurrency system—typically as a reward to verifiers for their work supporting the network. For example, Bitcoin has a total supply limit of 21 million tokens that are steadily released as more and more transactions are verified.
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.
Understandably, this has led to concerns that a lot of XRP could be released at once, diluting the value of other XRP already in circulation because part of what gives any currency its value is its comparative scarcity.
Ripple Advantages
Ripple Disadvantages
