Bitcoin and Ethereum is the pioneer in the crypto industry – the cryptocurrencies that occupy first and second place in market capitalization . But there are another 5,100 other coins (altcoins) out there – each tied to a specific project or blockchain. With the XRP actively appearing as a headline in major crypto news, it’s only natural you ask what is XRP and what’s going on with Ripple?
XRP refers to a cryptocurrency that was developed by Ripple. Its original use was to serve as a “digital asset built for global payments.” Generally, Ripple is a networking company that released XRP as its native cryptocurrency. Since then, it has grown exponentially to be the third-largest digital currency in terms of market capitalization.
What Is Ripple (XRP)?
The company’s name behind the XRP crypto – Ripple – is often used to describe the digital currency XRP. The digital asset underpins the open payment network on which it is transferred and the Ripple project’s holding company.
On the other hand, Ripple Labs is the company behind the project. It focuses on real-time payment settlements and currency exchange services for financial institutions such as banks and payment processors.
Since its launch in 2012, over 100 companies worldwide have implemented Ripple’s software for faster, frictionless transactions.
Unlike Bitcoin or Ethereum, Ripple does not refer to a blockchain network with a native cryptocurrency. There is an XRP Ledger, a blockchain-like network that facilitates payments in XRP, the digital currency issued by Ripple. The XRP crypto fits into its business model by serving as the fuel that powers its cross-border payments technology.
Hence, XRP value is derived directly from its digital payment network and protocol. The cryptocurrency XRP ties into the digital asset’s use and the platform behind it as a payment settlement, asset exchange, and remittance system that works similarly to the SWIFT system. It serves as a service for international money and security transfers that is global, centralized.
How Does Ripple Work?
Unlike other cryptocurrencies, Ripple is secured by a network of validating servers overseen by a private company. That is what makes it centralized, as it is the servers’ internal ledger that guarantees transactions based on consensus. XRP runs on the XRP Ledger Consensus Protocol, where Ripple Labs controls the dispersion of new coins, and there are no mining rewards. All 100 billion Ripple coins in existence are pre-mined, with over 45 billion XRP coins currently in circulation. Though, more coins will be released by Ripple Labs as needed to control the supply and demands.
The interesting part about the Ripple platform is that transactions are not limited to XRP. The protocol also supports fiat currencies like Dollars, Euro, Pound, and Yen and cryptocurrencies like Bitcoin.
Ripple is primarily a payment processor and currency exchange where the XRP currency supplements Ripple’s mission. But Ripple thrives on something else. It mainly derives its value from it and competes with traditional payment validation and remittance systems like Swift, ACH, and Payoneer.
However, the XRP’s centralized model makes the network is less secure than Bitcoin. But, on the other hand, it’s capable of processing transactions more quickly than Bitcoin. That is mainly because the UNL of validators is centralized; hence, they can agree on consensus and share data quicker.
How Is Ripple Different from RippleNet?
Ripple comprises a real-time gross settlement system (RTGS), currency exchange, and remittance network. The platform functions based on a blockchain-based distributed payment protocol for facilitating instantaneous and low-cost transactions between traditional banks, payment processors, and financial institutions. It achieves this by leveraging two core elements: RippleNet and Ripple xCurrent.
RippleNet, on the other hand, is a distinct global network of banks and financial institutions that send and receive payments through Ripple’s distributed platform. RippleNet was designed to offer real-time and low-cost payments. It serves as a unified decentralized global network of banks and financial institutions, delivering a frictionless global payments experience.
What Is The Ripple Protocol Consensus Algorithm (RPCA)?
The Ripple Transaction Protocol (RTXTP) is a blockchain protocol similar to the protocols used by Bitcoin and Ethereum. Its difference aims for affordable and efficient transfer of funds globally. The protocol achieves this efficiency in terms of speed thanks to the Ripple Protocol Consensus Algorithm.
The RPCA is applied every couple of seconds by all participating nodes to maintain the network’s correctness and agreement. Upon reaching a consensus, the current ledger is considered “closed” and becomes the last-closed ledger.
The Retrospective of Ripple (XRP)
XRP has come a long way since its introduction in 2012. XRP charts showed a massive community rallying behind the platform and the XRP crypto asset over the years. In 2017, the token’s market cap went from under $10 billion to almost $90 billion in 3 weeks – something no other cryptocurrency could achieve.
The association with the highly successful Ripple payment network has always been the primary driver behind XRP’s growth in value. Additionally, the release of additional products proved to be a prudent move for the company behind Ripple.
The rollout of xCurrent, xVia, and xRapid increased the Ripple platform’s functionality by creating new use cases.
Who Created Ripple (XRP)?
Ripple origins can be traced to 2005 when Ryan Fugger launched RipplePay.com as a precursor to blockchain currencies. RipplePay provided secure online payment options for communities. In 2011, Fugger was approached by Jared McCaleb and Chris Larsen to replace RipplePay with a digital currency system with community consensus verified transactions rather than miners like on the Bitcoin network.
The Ripple Transaction Protocol was then developed in 2012, which created a new value token known as XRP.
In 2014, several banks and payment processors signed on to utilize Ripple in a testing capacity. As of 2020, over 300 institutional clients, including Standard Chartered and Santander to facilitate international payments.
What Is Ripple Used For?
Ripple draws its value from the Ripple Transaction Protocol, which connects payment agents to facilitate payment across borders. Ripple’s algorithm discovers a trusted path for transactions in a centralized node network (UNL list). It is easy to integrate with any traditional payment provider’s existing infrastructure, banks, or other institution where a third agent needs to act as a middleman between intermediaries. On Ripple, the agents are called “gateways,” and they’re usually banks or other places that accept deposits to transfer money.
Ultimately, XRP’s centralization makes it less censorship-resistant than open-source blockchains like Bitcoin and Ethereum.
XRP is thus used to facilitate faster transactions because there is no mining involved in the transaction process. The validators who verify transactions without a promise of reward are vetted and trusted by Ripple, and this trust is necessary to XRP’s design to prevent double-spending.
How Is Ripple Different from Bitcoin?
One of the main differences between Bitcoin and Ripple is in the consensus protocol they use. Bitcoin uses the Proof of Work (PoW) algorithm. On the contrary, Ripple uses the XRP Ledger Consensus Protocol where validators, not miners, maintain the transaction ledger and keep a record of the transaction.
Bitcoin also runs on a permissionless node network, whereas Ripple runs on a Permissioned node network. While Bitcoin is entirely decentralized, Ripple is overseen by a private company.
The Pros & Cons of Ripple (XRP)
XRP transactions better than many other currencies trading in the open market, although certain limitations are binding the investors from betting on it.
Here are Ripple’s pros and cons:
Pros:
- Ripple Boasts of a well-structured infrastructure
- Great Partnerships and Better Investors
- Stability and price factor
Cons:
- The absence of Real World utilization
- A Regulation Headache and ‘Centralized System’ controversy
What Happened to Ripple’s Price Drop?
When studying XPR charts, we see that XRP hit an all-time high in early 2018 – reaching $3.84 on 4 Jan.
Since then, the XRP value has tailed-off. The SEC’s latest legal action against XRP and US-based platform Coinbase suspending all XRP trading pairs from the marketplace contributed to the drastic declines in XR’s price trading only at $0.21 on 31 Dec— just a day to a new year.
But, what are the reasons behind these lawsuits? Theoretically, the reason for this slump is mainly due to Ripple’s malpractice. The complaint explains XRP violates the provisions set in which a security token (investment contracts) must fulfill specific requirements upon disclosure.
“We allege that Ripple, Larsen, and Garlinghouse failed to register their ongoing offer and sale of billions of XRP to retail investors, which deprived potential purchasers of adequate disclosures about XRP and Ripple’s business and other important long-standing protections that are fundamental to our robust public market system.”
Source: CNBC, Stephanie Avakian, director of the SEC’s enforcement division.
In the allegation, XRP was accused of market manipulation and failure to properly label the $1.3 billion XRP as a security rather than a utility token during the capital raise. Besides, the SEC later unveils the alleged Ripple’s co-founder and the company CEO discretely profited $600 million by selling their unregistered XRP stash during the price rally during the investigation.
Since then, the price of XRP has recovered somewhat. At the time of writing (late March 2021), its price was hovering around the $0.55 mark.
Ripple’s Criticisms
Ripple drew considerable criticisms because of its capital raise, which many experts saw as a Security Offering rather than an Initial Coin Offering (ICO).
What’s even more, investors have been pressured by the dumping of XRP coins by Ripple Labs and/or the company’s managers in a move that has affected the market price of the crypto.
Many in the crypto community see a direct correlation between Ripple “dumping” its monthly escrow released XRP and the stagnant XRP price. The oversupply of XRP on exchanges was first thought to contribute to poor price performance throughout that period. However, the truth action says otherwise.
Responses About Ripple’s Allegations
Ripple has been accused of violating laws in the US, and some major crypto exchanges like Coinbase is halting XRP trading. Still, banks continue to adopt the technology that underpins Ripple. That could potentially create more real-world applications for Ripple and its platform.
Here are some of the the highlighted responses from the lawsuits:
“I think we have to stand up for all of crypto—and not let the SEC bully the entire industry. We’re going to be on the right side of history.”
Ripple CEO, Brad Garlinghouse.
“This potential court case is deadly serious for XRP, possibly even lethal,” who has bought and sold XRP “at various times in the past.”
Quoted on Forbes by trading veteran, Glen Goodman.
“I think it is the beginning of the end.” Who has publicly criticized the company and the XRP token in the past. “Investors are already dumping XRP as quickly as they can.”
Quoted on Forbes by financial analyst, Frances Coppola.
Many investors still ask, ‘What is XRP worth’ and how will XRP change in five years? It’s challenging to know the answers to these questions – and XRP’s value is tied to how the crypto industry is performing as a whole. There is no consensus on whether XRP will surpass thrive again nor to gain confidence from the public again.
What Are The Upcoming Projects for Ripple?
Ripple’s main focus is on resolving the brewing lawsuit with the US Securities and Exchange Commission that has successfully taken crypto projects to court. Usually, dramatic declines in a token’s valuation will follow. With Coinbase suspending all XRP trading and others having followed in removing XRP trading pairs, it’s only the future that can tell what’s next for Ripple.
Closing Thoughts
Though Ripple’s open-source code is secure and many banks are adopting it, Ripple’s centralization raises issues, and this will not not go away any time soon. Ultimately, it’s only fair to see how the game plays out in the crypto ecosystem and to make a judgment for yourself.
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