Finance

What is XRP?

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XRP is a cryptocurrency used by the Ripple blockchain that primarily serves the financial services industry and businesses.

It is fast, cheap, and ranked amongst the top cryptocurrencies in the world in terms of market cap. Some in the crypto community dislike it, however, for its reliance on approved nodes, centralization, and lack of transparency.

What are Ripple and XRP?

The Ripple network is called RippleNet and was created by Ripple Labs, a San Francisco based company that was founded in 2004. The company first entered the crypto space in 2012 when its Ripple blockchain began to enable real-time global payments, an especially useful tool in financial sectors.

Just like ETH is the cryptocurrency used by the Ethereum blockchain, XRP is the cryptocurrency used by Ripple. The key difference between Ripple (XRP) and other popular blockchains is that it has been made from the ground up to be suitable for handling transactions.

The chief technologists behind Ripple and XRP are considered to be Jed McCaleb and Arthur Britto. The company was originally called OpenCoin before being renamed in 2015.

What is XRP used for?

XRP and the Ripple network are used primarily to transfer fiat currencies, such as the US dollar, across borders seamlessly. This process has traditionally been cumbersome and also costly for businesses and financial services, making XRP an especially useful tool for commercial purposes.

To this day, a lot of companies still rely on the rather cumbersome, expensive, and outdated Society for Worldwide Interbank Financial Telecommunications (SWIFT) network. XRP is a blockchain alternative that is not only faster, and easier to conduct transfers, but also cheaper.

The average Ripple transaction takes less than five seconds to complete, bridges multiple world currencies, and costs less than a fraction of a cent to send.

How does XRP work?

Ripple (XRP) works by acting as a trusted intermediary, with no fiat money actually being transferred in the process. Ripple effectively acts as a source of liquidity to facilitate cross-border transactions. The company calls this service On-Demand Liquidity.

Effectively, Ripple receives a request to send money on one end and allows the other party to access funds in the form of XRP that can be converted back to fiat. In using XRP instead of fiat to send currency across borders, the process is a lot more efficient.

Ripple’s blockchain also does not use a standard proof-of-work or proof-of-stake consensus mechanism. Instead, it has its own protocol developed specifically for handling cross-border transactions quickly and cheaply.

Bitcoin vs XRP

Unlike Bitcoin, Ripple’s blockchain infrastructure uses approved validators to approve transactions. While both networks employ the use of a ledger system, the XRP Ledger only allows those on the Unique Node List for its consensus mechanism. These are largely servers owned by banks and financial institutions.

Whereas Bitcoin allows anyone to contribute to the running of the network and maintaining the ledger, XRP is selective.

The key differences between XRP and Bitcoin are:

  • XRP is faster than Bitcoin, with transactions taking 5 seconds and 10 minutes respectively.
  • XRP is cheaper than Bitcoin, with transactions costing $0.000001 and $1.30 respectively.
  • XRP is released automatically not mined, while Bitcoin is generated through mining,
  • Bitcoin is a scarce asset, whereas there is a lot of XRP in circulation and growing.

Regulatory issues

While the adoption of XRP by institutions has grown steadily, it has faced considerable backlash from financial authorities, especially the US’s Securities and Exchange Commission (SEC).

The SEC filed a lawsuit against Ripple and some CEOS in 2020 alleging the company raised over $1 billion incorrectly. While the case is still ongoing, Ripple’s legal team has so far been successful in their defence, with the price of XRP surging with pro-Ripple news.

Takeaway

While RippleNet is largely a tool of big business and finance, those who are comfortable with the network’s lack of transparency and semi-centralization can invest in the company by purchasing XRP for themselves. As one of the world’s biggest cryptocurrencies, this can be done on any number of exchanges, including Swyftx.

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