What is Ripple?

What is Ripple? How does Ripple work

Everyone knows about Bitcoin these days and wants to buy and trade it. However, Bitcoin is not the only cryptocurrency out there. So, today we’re going to talk about another currency which appeared in the spotlight recently. That’s Ripple, whose value spiked after Japan and South Korean announced that they are thinking about adopting the Ripple protocol.

If you want to know what Ripple is and how Ripple works, keep on reading.

Ripple history

Although Ripple emerged in 2012, the concept existed way back in 2004. Back then the web developer Ryan Fugger wanted to create a decentralized monetary system. And that’s how RipplePay.com appeared in 2005 as a financial service. Its purpose was to provide payment options to members via the global network.

In 2012, Chris Larsen and Jet McCaleb approached Fugger with an idea about digital currency. After long discussions, Fugger agreed with their proposition and stepped down from the Ripple project. A month later, Larsen and McCaleb co-founded OpenCoin, which started developing the Ripple Transaction Protocol based on Fugger’s ideas as well as their own digital currency named XRP.

OpenCoin changed its name to Ripple Labs in 2013 and released its technology as a free open-sourced software. Since then the Ripple Protocol has been adopted by many banks as an alternative to traditional transactions. Among them are:

  • UniCredit
  • UBS
  • Santander

We can conclude that when we talk about Ripple, we talk about three things:

  • The company responsible for developing it – Ripple Labs
  • The Ripple Transaction Protocol and network
  • The digital currency XRP, which is used within the Ripple payment network

The fact that Ripple Labs promotes, backs, and develops XRP and the Ripple network means that this cryptocurrency is not as decentralized as other virtual coins like Bitcoin or Litecoin. Furthermore, Ripple Labs can control the amount of XRP on the market.

Nevertheless, at the moment, Ripple takes third place by market capitalization, right after Bitcoin and Ethereum.

What is the Ripple protocol?

Currently, transferring money from one bank to another is a complicated process, which takes several days to process. But you know that, right? You send money to someone, for example, in Germany, and it takes around 3-5 days for the funds to arrive. In fact, sometimes it will be faster to go on a plane and deposit the money in the German bank.

But Ripple wants to change this sluggish system. The Ripple protocol an open-sourced payment system, which aims to facilitate transactions between financial institutions. It relies on a shared, public ledger, which stores information about all Ripple accounts. To verify the transactions, it implements a consensus between independent, validating servers, who manage it. Among the validators are:

  • Companies
  • Internet service providers
  • MIT

Using Ripple, you can transfer fiat currency, several cryptocurrencies, and some commodities like gold and silver. While a single Bitcoin transaction takes about 10-15 minutes to process, Ripple transactions are processed in seconds.

How does Ripple work?

Understanding how Ripple works might be complicated for non-technical individuals. So, let me illustrate it to you with an example. We have two people – Jane and Jack who live in different cities. Jane wants to send $200 to Jack. So Jane goes to her agent – Angela and gives her $200 and instructions who should receive them. Jane also gives a password which Jack has to provide to get the money.

Jane’s agent contacts Jack’s agent Bob - and informs him about the recipient, the sum, and the password. Then Jack goes to his agent, provides the correct password and gets the money. But the money comes from Bob’s account, not Jane’s. So, Angela owns Bob $200.

Ripple functions in the same manner by taking on the role of the intermediary. You log into your gateway, deposit the money you want to send and give instructions to whom the funds should be released. The receiving party gets the money through their gateway. And all these transactions and IOUs are kept in the public ledger, maintained by the validators.

But how about trust? For the above scenario to work, all parties must trust one another that everyone will do what he is supposed to do. So, gateways – businesses who act as mediators for exchanging currency, cryptocurrencies, and commodities - should have a trust link between them.

However, what you’re doing to do if such a trust link doesn’t exist? If there is no direct trust gateway between the sender and the receiver, Ripple will try to find the shortest intermediary trust path to make the transaction possible.

But what if such a path simply doesn’t exist? What happens then? Well, that’s where XRP proves its worth. You can convert any currency to XRP, send it through the gateway and converted it back at the end gateway.

And the best thing is that in time it will be possible to transfer anything through Ripple as long as both gateways are dealing with it.

Is Ripple free?

Ripple doesn’t tax you the same way banks or PayPal does. And it doesn’t pay fees to the parties maintaining the ledger like Bitcoin. For every transaction, a small portion of XRP is taken and destroyed. That’s a safety measure in case someone tries to send millions of transaction at once.

How many XRP are there?

The markets rely on supply and demand. That’s why Ripple Labs has put a limit on how many XRP exist in distribution. The total amount of XRP is 100 billion ripples, and only half will be released in circulation, while Ripple Labs will remain in control of the other half.

What’s more, since a small portion of XRP is destroyed with every transaction, XRP supply will decrease with time. This fact is significant because XRP will increase its value with time.

Is Ripple different from Bitcoin?

From everything we’ve said until now, we can conclude that Ripple is not very similar to Bitcoin. Let’s summarize the main differences:

  • Ripple is more centralized than Bitcoin
  • You can’t mine XPR, it’s already pre-mined
  • ​The ledger is maintained by independent servers rather than people
  • Ripple transactions takes seconds to complete
  • Transaction fees get destroyed
  • Ripple is created to help the financial sector, while Bitcoin strives to make banks and intermediary useless
  • Ripple tracks more information than Bitcoin

However, Ripple does share some similarities with Bitcoin:

  • Both use open-sourced protocols
  • Both use hash algorithm to secure payments
  • ​Bitcoins and XRP supply is limited
  • Both can be used to transfer money peer-to-peer without a mediator

Ripple also allows its user to send any currency to a bitcoin address with a Ripple account even if you don’t own any bitcoins. That’s very handy because you can pay a merchant in bitcoins without going to an exchange platform and buying bitcoins.

How much XPR is worth?

As of 16.01.2018, XPR is worth $1,26. As you can see, this is not at all near the price of Bitcoin. Nevertheless, rumors and speculations that Coinbase might be adding XPR led to a sudden spike in the price a few days ago. But the price dropped later when Coinbase denied having plans to include another cryptocurrency.

For some Ripple is a controversial matter and not a real cryptocurrency. However, since Ripple Labs backs the cryptocurrency and a lot of banks are using the Ripple payment protocol to facilitate payments, it seems Ripple is here to stay for good.

So what do you think about Ripple? Do you think that it has a bright future in the cryptocurrency world? Share your opinion in the comment sections.

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