Ripple's XRP- The Crypto for Banks
- Tanishq Wadhwani
- May 8, 2021
- 3 min read
Twitter: Instantly move money to all corners of the world.
What Is XRP?
To begin with, it’s important to understand the difference between XRP, Ripple and RippleNet. XRP is the currency that runs on a digital payment platform called RippleNet, which is on top of a distributed ledger database called XRP Ledger. While RippleNet is run by a company called Ripple, the XRP Ledger is open-source and is not based on blockchain, but rather the previously mentioned distributed ledger database.
The RippleNet payment platform is a real-time gross settlement (RTGS) system that aims to enable instant monetary transactions globally. While XRP is the cryptocurrency native to the XRP Ledger, you can actually use any currency to transact on the platform. The RippleNet network is currently being used by more than 300 financial institutions, including American Express and Santander.
While the idea behind the Ripple payment platform was first voiced in 2004 by Ryan Fugger, it wasn’t until Jed McCaleb and Chris Larson took over the project in 2012 that Ripple began to be built (at the time, it was also called OpenCoin).
Ripple is built upon a distributed open source protocol, and supports tokens representing fiat currency, cryptocurrency, commodities, or other units of value such as frequent flier miles or mobile minutes. Ripple purports to enable "secure, instantly and nearly free global financial transactions of any size with no chargebacks." Ripple helps make money transfers cheaper, faster, and more convenient for institutions and their customers across the globe.
XRP is consistently listed among the top five cryptocurrencies by market capitalization. Bitcoin transaction confirmations may take many minutes with high transaction costs, while XRP transactions are confirmed in seconds with little cost. Many major banks use the XRP payment system.
How Does XRP Work?
XRP was created by Ripple to be a speedy, less costly and more scalable alternative to both other digital assets and existing monetary payment platforms like SWIFT.
RippleNet’s ledger is maintained by the global XRP Community, with Ripple the company as an active member. The XRP Ledger processes transactions roughly every 3-5 seconds, or whenever independent validator nodes come to a consensus on both the order and validity of XRP transactions — as opposed to proof-of-work mining like Bitcoin (BTC). Anyone can be a Ripple validator, and the list is currently made up of Ripple along with universities, financial institutions and others.
Ripple relies on a common shared ledger, which is a distributed database storing information about all Ripple accounts. Chris Larsen told the Stanford Graduate School of Business that the network was managed by a network of independent servers which compare their transaction records, and that servers could in theory belong to anyone, including banks or market makers. Ripple validates accounts and balances instantly for payment transmission and delivers payment notification within a few seconds. Payments are irreversible, and there are no chargebacks.
XRP is a Real Time Gross Settlement System which is a ‘currency exchange and remittance network’ that independent servers validate. XRP can be exchanged for most other currencies with its unique selling proposition being the avoidance of fees and wait times often associated with banks. It isn’t made up of a blockchain but rather a Hash Tree and its currency can’t be mined because there are a finite number of coins – 100 billion. XRP is popular with banks and institutions though the XRP token isn’t necessarily required for each transaction.
Challenges
By 2018, over 100 banks had signed up, but most of them were only using Ripple's XCurrent messaging technology, while avoiding the XRP cryptocurrency due to its volatility problems. Representatives of the Society for Worldwide Interbank Financial Telecommunication (SWIFT), whose market dominance is being challenged by Ripple, have argued that the scalability issues of Ripple and other blockchain solutions remain unsolved, confining them to bilateral and intra-bank applications. A Ripple executive acknowledged in 2018 that "We started out with your classic blockchain, which we love. But the feedback from the banks is you can’t put the whole world on a blockchain."
Ripple Labs continued as the primary contributors of code to the consensus verification system behind Ripple, which can "integrate with banks’ existing networks." Since 2013, the protocol has been adopted by an increasing number of financial institutions to "offer an alternative remittance option" to consumers. By December 2014 Ripple Labs began working with global payments service Earthport, combining Ripple's software with Earthport's payment services system. The partnership marked the first network usage of the Ripple protocol. On December 29, 2017, XRP briefly became the second largest cryptocurrency, with a market capitalization of US$73 billion.
Despite its ambitions, Ripple is currently tied up in legal troubles with the Securities and Exchange Commission (SEC), although that’s hardly prevented XRP from surging in value with other cryptos.
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