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What Is Ripple (XRP)? | A Complete Guide to the Banking Cryptocurrency

January 15, 2019

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What Is Ripple?

Ripple is a privately held company that aims to create and enable a global network of financial institutions and banks. It does so by using the RippleNet blockchain software to lower the cost of international payments. Ripple calls the global network using this software the “Internet of Value.”

If you’re confused about Ripple (XRP), don’t worry.

The term Ripple is often used to describe the digital currency XRP, the open payment network on which that currency is transferred, as well as the holding company behind the whole project.

The XRP ledger is an open-source product created by Ripple. It was created to solve a major point of friction in international payments, pre-funding of nostro/vostro accounts. Banks can use XRP to source liquidity in real time. Payment providers can also use it to expand reach into new markets, provide faster payment settlements, and lower foreign exchange costs.

Ripple is essentially taking a stand against what they call “walled gardens” of financial networks consisting of banks, credit cards, and other institutions such as PayPal. These organizations tend to restrict the flow of money with fees, currency exchange charges, and processing delays.

In this guide, we’ll walk you through:

Ripple’s Opportunity

When you think about it, the state of the global payments industry is weirdly behind.

We can stream and download entire artist discographies on our phone in the middle of a forest. Yet, sending a few digits of currency to your grandma in Japan (if you don’t have a grandma in Japan, use your imagination) requires fees and processing time.

The technology for easy global payments already exists. So why is the global payments industry so far behind?

Well, it wouldn’t be a stretch to assume that the financial institutions collectively making trillions of dollars on payment fees aren’t racing to innovate a system that puts money in their pockets.

The financial industry also tends to keep pertinent information shrouded in complicated financial jargon tripping up the average person. Words such as “collateralized debt obligations” and “quantitative easing” have established the financial realm in an esoteric curtain.

However, instead of taking a “burn it to the ground” approach that many cryptocurrency ideologists have adopted, Ripple aims to work with the current financial world.

The equivalent of roughly $155 trillion dollars moves across borders every year. For the sake of example, let’s assume that everyone uses PayPal, which charges a 2.9% fee for each transaction. This means that about $4,495,000,000 ($4.495 trillion) of global payments goes straight to Paypal (or another institution). To add insult to injury, these payments usually take days to process.

How Does Ripple Work?

So, the opportunity for something like Ripple to shake things up is there.

You’re skeptical. We get it. There are dozens of starry-eyed altcoins saying “If we could only grab X% of this (insert incomprehensibly large, extremely competitive, and generally unattainable market), we’d be a dominant player in the industry.”

Ripple was initially launched in 2012. The thing is, it’s already a revenue-producing company with over 100 financial institutions on its blockchain network including Standard Chartered Bank, Westpac, Banco Santander, and BBVA.

A Short List of Ripple’s Customers

RippleNet

In order to understand how Ripple functions, it’s useful to know about the RTGS and RTXP (we’ll make sense of these jumbled letters soon).

When you send money via Bitcoin, the value is settled in real-time (not counting any Bitcoin delays). That’s what we mean by Real-Time Gross Settlement (RTGS).

Ripple uses gateways, which are best described as something similar to a global ledger made up of private blockchains. 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. This is the project’s pride and joy.

Once another government, company, or financial institution joins RippleNet, it can transact with other gateways at a much faster speed and a fraction of the cost. RippleNet also makes it possible to receive payments from any fiat (ex. USD, EUR,) or cryptocurrency (ex. BTC, ETH).

Ripple essentially made something for any type of entity that regularly moves large amounts of money across borders. For example, companies such as Apple and Amazon are already spending billions across borders.

It’s important to note that RippleNet also functions as a currency exchange between all types of fiat money. However, in order to do do this, it has to be able to guarantee liquidity. That’s where XRP comes in. XRP is the digital asset that provides source liquidity to payment providers, market makers, and banks.

Three Distinct Products

Although people commonly refer to Ripple as one platform, it actually consists of three different products: xCurrent, xVia, and xRapid.

xCurrent is the platform’s primary product. When you hear about a bank partnering with Ripple, more likely than not, this is what they’re using. xCurrent does not require XRP.

xVia is the project’s most recent product. It’s a payments interface and suite of APIs. Like xCurrent, xVia doesn’t use XRP.

xRapid is the only product that uses XRP. Simply put, this product is a liquidity solution.

Transaction Statistics

While the network’s infrastructure makes sense for large corporations, it doesn’t lend much to the average consumer. RippleNet doesn’t provide the average person much of a benefit. So, Ripple likely isn’t going to change how you personally receive and send money anytime soon, but it is looking to revolutionize how money moves around the world on a larger scale.

Ripple transaction times are significantly less than competitors.

Ripple has shown that is can handle a tremendous amount of transactions per second, even when compared to its fellow cryptocurrency Bitcoin. BTC handles about 15 transactions per second, whereas the XRP ledger can handle more than 1500 transactions per second.

Ripple’s Supply Structure

A key element to know about Ripple (XRP) is the sheer amount of XRP in existence. All XRP has already been created with a total supply of 100 billion. There are currently over 41 billion XRP tokens in circulation, with the rest held by Ripple Labs.

In an announcement in May 2017, Ripple stated its plans to release 55 billion of its XRP in escrow to ensure the certainty of the total XRP supply.

Ripple is Kind of Centralized

Given the fact that Ripple Labs held around 80 billion XRP tokens at one point, it’s not a far reach to say that Ripple is centralized, or at least more so than the majority of other cryptocurrencies.

However, Brad Garlinghouse (CEO and Founder of Ripple), views it differently.

Garlinghouse stated that “Ripple is not centralized. To be clear, if Ripple disappeared today XRP would continue to function. To me, that’s the most important measure of whether something is decentralized.”

He then went out to point out some of the facts that supported that the network is, in fact, decentralized.

Decentralization Strategy

In May 2017, Ripple released their decentralization strategy. They announced the plans to diversify the validators on the XRP ledger and expanded them to 55 validator nodes in July 2017. The team also shared plans to add third-party validating nodes, while removing one Ripple-operated validating node for every two third-party nodes, until there is no single entity that operates a majority of the trusted nodes on the XRP ledger.

Ripple currently has 26 unique default validating nodes. Ripple only operates seven of those, meaning that 73 percent are under the control of outside parties. This push towards more third-party validating nodes shows that the Ripple team is making an effort to make the network more decentralized.

Because of this, a more accurate way to describe whether or not Ripple is centralized or not is that it’s a weird mix of both. You’ve got this holding company that has more than half the tokens. But, they have plans to release the rest, which is likely prioritizing the acquisition and onboarding of new partners on RippleNet. At one point, Ripple controlled the majority of the validating nodes, but that also has changed.

Being centralized isn’t necessarily a bad thing, but it does dissuade many “decentralized” ideologists within the cryptocurrency community.

Competition

Ripple’s primary competitor is Stellar. In fact, Stellar founder Jed McCaleb was also a co-founder of Ripple but left the company in 2013 due to disagreements with the rest of the leadership team.

Both projects specialize in cross-border payments and have a similar architecture. However, the Stellar Foundation is a non-profit while Ripple is a for-profit company. The overall mission of each project differs quite a bit as well. While Ripple is focused on helping giant banking institutions, Stellar is aligning themselves with the little guy in an attempt to bring banking the unbanked.

Where Can You Buy and Store XRP?

You can buy Ripple at many of the most popular cryptocurrency exchanges such as Bittrex, Kraken, and Binance. You could also any brokerage platforms such as Changelly.

If you want to hold XRP for the long term, we recommend using a hardware wallet such as the Ledger Nano S or one that supports XRP.

Hard wallets are generally much safer because they’re offline and have better security than exchange and other online wallets. However, they aren’t ideal for someone trading frequently.

Should You Invest in XRP?

Well, that’s entirely up to you.

XRP has a storied trading history riddled with a few notable price movements. From 2013 to the start of 2017, XRP was a relatively uninteresting token to watch. It had one exceptional price jump at the end of 2014 in which it leaped 500 percent in one month. As there was no significant news surrounding this move, some community members believed that it was an artificial pump.

XRP began its explosive growth in March 2017, seemingly after a press release that ten more financial institutions, including BBVA, had joined Ripple. It wasn’t until the 2017/early-2018 bull market that XRP hit its all-time USD and BTC price high. In early January 2018, the coin reached over $3.80 (~0.000263 BTC).

Now, you can grab some XRP for just under $0.33 (~0.0000899 BTC).

Things to Consider

Ripple’s success is ultimately dependent on the number of partners on RippleNet (which has been growing steadily over the past year), how many people use Ripple’s products, and how effective XRP is.

Ripple seems to be doing well on those fronts, however, it’s important to note the sheer supply of XRP on the market (a total supply of 100 billion). As if that wasn’t a hard pill to swallow for investors, Ripple currently holds around 59 billion XRP (~59% of the total supply). This means they can technically inject massive amounts of their XRP into the market to control the price and keep it generally low.

However, beyond the investment metrics, it’s important to really understand the position Ripple (XRP) is in.

Do you recognize the opportunity Ripple may or may not have in front of them?
Do you think the Ripple team can pull it off?
What is the Ripple team doing every quarter to meet their goals?

You can also find more insights directly from the Founder and CEO of Ripple, Brad Garlinghouse, in a Quora Session. He talks about everything from whether you should invest in XRP and how Ripple could revolutionize finance.

Final Thoughts

So, whether you choose to invest in Ripple (XRP) or not, it’s worth watching as blockchain adoption increases. Ripple is one of the very few legitimate viable competitors to the old guard financial system, and it could play a major role in how money moves around the planet.

As far as any practical applications for use by the average person of an XRP token, there aren’t many. However, when you view Ripple (XRP) through the lens of the global payments industry, it’s a traditional high-tech David vs. the established Goliath.

Editor’s Note: This article was updated by Steven Buchko on 1.15.19 to reflect the recent changes of the project.