What is Ripple (XRP)? 

Global bank transfers can be costly and slow. SWIFT transactions can take up to 4-5 bank days and cost 10-15 % in transaction costs. Is there a better way? Yes, there is. Ripple (XRP) offers blockchain-based payment settlement between international banks – in real time at practically zero cost.  

Ripple’s success has made the XRP token one of the 5 biggest cryptocurrencies by market capitalization. Yet, the Ripple network with its XRP token is special and unique in a variety of ways.  

Thinking about buying XRP and adding it to your crypto-portfolio? Wait! Before you do, you must know: What Ripple (XRP) is, how it works and how it differs from other cryptocurrencies like Bitcoin. 

What is Ripple Cryptocurrency? 

Ripple is a centralized blockchain protocol/ledger designed with a specific use case in mind: allowing banks to settle global cross/interbank transactions cheaply, efficiently and securely via the blockchain. 

The Ripple ledger was conceptualized and developed in 2012-2013 by software developers Ryan Fugger and Jed MacCaleb. They founded RippleLabs, a San Diego-based legal entity that controls and operates most of the 100+ nodes of the RippleNet blockchain. 

It is important to distinguish a number of names and terms as well as entities around the Ripple project: 

  • Ripple (XRP) is the name of the utility token in the network; it is used as a bridge currency between global banks who settle fiat payments between each other. 
  • RippleNet is a decentralized global network of banks and payment providers using Ripple’s distributed financial technology 
  • Ripple Labs Inc. is the San Francisco-based company behind the development and operation of RippleNet. 

How does Ripple (XRP) work? 

Ripple is a centralized/permissioned ledger and blockchain network. All participants / nodes of the network must manually be approved by RippleLabs, the network operator. To this day, over 80 Ripple nodes are run by RippleLabs itself while some are run by Ripple partners/client banks like Santander, Bank of America, Siam Commercial Bank (SCB). 

This is in stark contrast to Bitcoin, a decentralized peer-to-peer-currency where anyone can download the Bitcoin client anf participate and join the network (permissionless). 

The distribution method varies too, as all XRP tokens were pre-mined at token generation event. Hence, all XRP tokens have already been issued; a large part of them however is held as a reserve by RippleLabs and hence not in circulation. There is no ongoing mining process in the Ripple network, all transactions still have to be validated by the permissioned RippleNet nodes. 

The Ripple ledger is extremely fast, secure and (energy-)efficient – exactly what is required for its specific use case. However, many crypto-enthusiasts hate Ripple and XRP exactly for its characteristics: It is too centralized and „not a real cryptocurrency“ they argue.  

That doesn‘t keep many from buying it. Since 2018, Ripple has consistently ranked among the top 5 cryptocurrencies by market cap. 

Ripple vs. Bitcoin – 3 main differences 

As the Ripple ledger is quite unique among crpytocurrencies, it is worth comparing and contrasting it with the Bitcoin blockchain. 

  • Mining: XRP tokens were premined – all of them were issued during token generation, all tokens are already “in circulation”. Bitcoins are mined over time in the PoW consensus transaction validation/mining process. 
  • Centralization: Ripple ledger is centralized, managed and run by Ripple Labs Inc.. Most nodes in the network are operated by Ripple Labs. Bitcoin blockchain is decentralized, run by a large number of independent node operators.  
  • Permission: Ripple Ledger is a permissioned ledger, all nodes must be explicitly permissioned to operate a node (permissioned by Ripple Labs Inc.). The Bitcoin blockchain is permissionless, any party can download the Bitcoin client and join as a node in the mining process.  

The Ripple Use Case 

Global bank transfers are a cumbersome and costly process. Bank customers sometimes have to wait up to 5 bank days and 10-15 % transaction fees to transfer money globally. 

With SWIFT, with 5tn $ daily transaction volume the global leader in global payments settlement, bank transfers can still take 2-3 days and are only processed on bank days. As transactions are entered and reviewed manually, the potential for human error is high.  

Ripple is a blockchain-based alternative to SWIFT et al.. Using permissioned blockchain technology, it enables nearly instant global transaction settlement at practically zero cost. The risk of human error is eliminated, as transactions are processed and settled automatically.  

Hence, Ripple is faster, cheaper and more secure than SWIFT.  

How does an XRP Transaction work? 

The Ripple ecosystem basically consists of banks as stakeholders: 

Banks use the XRP ledger in order to settle global cross-bank-payments in real time, with practically zero transaction fees. 

An XRP transaction between banks works in the following way: 

  1. Bank A wants to send a fiat currency amount to Bank B. 
  1. Bank A converts that fiat amount into XRP using the Ripple payment system. 
  1. Bank A sends XRP via the Ripple ledger to Bank B. The transaction takes only a few seconds and has negligible fees. 
  1. Bank B receives the XRP and converts them into the respective fiat currency to credit their account accordingly. 

This is not financial advice. Mentioning coins and tokens is not a recommendation to buy, sell, or participate in the associated network. We would like to encourage you to do your own research and invest at your own risk.