A beginner's guide to Ripple crypto (XRP), the global payment asset claiming to offer financial institutions the fastest, most reliable option for sourcing liquidity on demand.
Ripple (XRP) is a digital currency that has gained significant attention and popularity in the world of cryptocurrency since its launch in 2012.
Unlike other cryptocurrencies such as Bitcoin or Ethereum, which are focused on decentralisation and independence from traditional financial systems, Ripple is designed to work within existing financial infrastructure, enabling faster and more cost-effective cross-border transactions.
Introduction to Ripple (XRP)
At its core, Ripple is a blockchain-based payment protocol that was created to facilitate secure and efficient global payments.
The protocol is designed to be fast, scalable, and interoperable, making it an attractive option for financial institutions and businesses that need to move money across borders quickly and reliably.
One of the key features of Ripple is its use of a distributed ledger technology called the XRP Ledger.
This ledger is used to record all transactions on the Ripple network and provides a secure and transparent way for parties to exchange value.
Unlike traditional payment systems that rely on intermediaries such as banks or payment processors, the Ripple network allows for direct transactions between parties, reducing costs and increasing speed.
In addition to its payment protocol, Ripple also offers a suite of tools and services designed to help businesses and financial institutions integrate with the Ripple network.
These include the RippleNet network of banks and financial institutions, which allows for seamless cross-border payments, and the XRP digital currency, which is used to facilitate transactions on the Ripple network.
Overall, Ripple (XRP) represents an innovative and practical approach to global payments and financial infrastructure, with a focus on speed, efficiency, and accessibility.
As such, it has attracted significant attention and investment from both the cryptocurrency community and the wider financial industry, making it a fascinating and potentially lucrative area of exploration for investors and enthusiasts alike.
How does Ripple (XRP) work?
A look at how Ripple (XRP) works as both a payment system and a cryptocurrency.
The international payment system that we see today is a highly fragmented system.
Ultimately, this leads to delays and frustrated end users who can’t get their money where they want it to be in a timely manner.
Forcing users to jump through hoops to send their own money across borders is not ideal.
Long wait times and high fees shouldn’t be something that people are forced to simply accept because it is the way things have always been.
Ripple (XRP) aims to deliver a platform that offers instant, reliable, and low-cost cross-border transactions.
In order to address all of these above issues that we currently see within the current banking system.
A quick look back at what Ripple (XRP) is:
Essentially, Ripple is a peer-to-peer network that functions to provide a digital technology for financial institutions to use for payments.
Ripple permits seamless digital money transfers of fiat or cryptocurrencies on a global scale.
To understand how Ripple works, it is necessary to examine it from two points of view.
- Ripple as a payment system
- Ripple as a cryptocurrency (XRP)
In this subsection of our LeoFinance Ripple (XRP) guide, we take a separate look from both points of view, with the ultimate goal of gaining a true understanding of how Ripple works.
1. Ripple as a payment system
The basics
To begin with, in the Ripple ecosystem, actual money is not transferred from one place to another.
It is the promise of money that is transferred within the protocol.
Now, how this is accomplished relates back to an 8th century South Asian transfer schemata known as the Hawala System.
This system is still used today, mostly in Islamic countries, and by immigrants living in developed areas who wish to send funds to their home country where there is limited and expensive bank access.
You might be thinking this is a crazy way of looking at this system, but the Ripple protocol operates in much the same way.
In place of Hawala Dealers however, there are Ripple Gateways.
These gateways are validators and/or servers which typically are financial institutions the likes of Bitstamp.
Ripple is quite large and not everyone in the system trusts one another.
To alleviate this trust dilemma, Ripple utilises 'chains of trust' or links between gateways that trust one another.
An example of this may be Gateway B does not directly trust Gateway A, so a direct link is missing to complete the transfer.
But Gateway A does trust Gateway C, which in turn trusts Gateway B, creating the indirect link between Gateways A and B.
The Ripple Gateways transfer this 'IOU' information using the https protocol (already in use for secure credit card payments).
Three to four seconds following the making of a payment, Ripple's network causes the gateways included in the transaction to make a ledger update.
On average, each such transaction costs 0.00001 XRP but may be increased during times of high system load.
These fees are neither retained or distributed, but instead burned.
Thereby benefitting all XRP holders by way of a decrease in token supply.
Verification of transactions
As per the Ripple whitepaper, the network works by consensus rather than by mining.
Ripple is a peer-to-peer system where all participating devices must be connected to the network.
Some of the nodes present in the Ripple system exist solely to make and receive payments, while other nodes operate solely as validators to facilitate the consensus process.
It is the function of the validators to view a snapshot of the ledger and come to an agreement on the current state using the RPCA (Ripple Protocol Consensus Algorithm).
Prior to the verification event, each validator takes the verified transactions it has viewed, but has not as yet been added to the current ledger, and makes them public as the 'candidate set'.
Then each validator groups all of the validators candidate sets on its UNL (Unique Node List) thereafter voting on the accuracy of all of the transactions listed.
At this stage, one of two results are possible:
- Transactions receiving more than a minimum percentage of affirmative votes proceed to the next round
- Transactions receiving insufficient affirmative votes are either rejected and discarded or moved to the candidate set for the beginning of this process on the next ledger.
The final round requires 80% of a validator UNL agreement on a transaction and each transaction satisfying this requirement are applied to the ledger.
2. Ripple as a cryptocurrency (XRP)
The XRP coin is the native utility coin on the Ripple network.
However, the network can be utilised for any type of asset or currency the gateways are willing to accept.
If the network is unable to establish a chain of trust between two gateways, the two gateways may still conduct the transaction using only XRP coins.
The gateways actually have the functionality to send and receive XRP.
However, other currencies used by the Ripple System must rely on the 'IOU' Hawala System discussed above.
Final thoughts on how does Ripple (XRP) work?
It is very true that for many reasons, Ripple (XRP) has gained a poor reputation within the cryptosphere.
Nonetheless, in light of the foregoing, it can not be said that the working mechanics of the Ripple System, in all its simplicity, has contributed to this reputational failure.
Ripple's underlying mechanics appear to be sound.
What is Ripple (XRP) used for?
In order to understand what Ripple (XRP) is used for, it’s necessary to examine it from two perspectives.
This section of our Ripple (XRP) guide investigates what Ripple (XRP) is used for,
From both the perspective of Ripple (XRP) as a cryptocurrency and as a digital payment network for financial transactions.
Let’s dive straight in.
Ripple (XRP) as a cryptocurrency
In short, XRP is a cryptocurrency token designed to migrate transactions from central databases controlled by financial institutions, to a more open infrastructure.
XRP transactions are trustless, instant and cheap, all contributing to give XRP an advantage over other currencies when it comes to cross-border movements.
The XRP cryptocurrency may be bought, sold, traded or held onto by investors, in the same manner as any other.
Yield Farming and Liquidity Pools are other alternative investment avenues for the XRP coin.
XRP may be utilised on-chain for any relevant purpose the same way as other cryptocurrencies like Bitcoin.
But here the lines begin to blur.
You see, while XRP has stand-alone investment uses for investors, the coin also finds further utility in the other products offered by Ripple Labs.
While in essence, both utilities are separate and distinct, the commercial utilisation of XRP in Ripple Labs’ products add value to the token on the investment level.
Let’s move on and explore the added value that Ripple Labs’ adds to XRP via their digital payment network.
Ripple as a digital payment network
Again in short, XRP's involvement in the market is a result of a for-profit company called Ripple, which is the main actor in its ecosystem today.
In addition to maintaining the XRP Ledger, Ripple is a significant XRP token holder and plays an important role in its development.
XRP serves as a bridge currency to other cryptocurrencies or even fiat.
The XRP coin displays no preference for one fiat or cryptocurrency over another, so within the network, any currency is easily able to be exchanged.
The Ripple enterprise payment network was created for the purpose of increasing the use cases for the XRP coin.
All XRP products have now been combined by the company into what is known as RippleNet.
Using a single API, RippleNet provides access to hundreds of financial institutions around the world.
You and your customers can move money faster, cheaper, and more reliably.
Additionally, it reduces or eliminates the need to pre-fund accounts with On-Demand Liquidity (ODL), a service that sources liquidity during cross-border transactions from XRP, an alternative to traditional methods.
While the difference is clear, it’s easy to see why many people use 'XRP' and 'Ripple' interchangeably.
However, in adamantly stressing that 'XRP' and 'Ripple' are separate entities, the company emphasises its involvement with XRP as follows:
“Ripple is focused on building technology to help unleash new utility for XRP and transform global payments. Third parties are also pursuing other XRP-related use cases.”
Final thoughts on what Ripple is used for
This section of our guide to Ripple (XRP) should have cleared any confusion around the two use cases for the XRP token and payment network.
You should now have an understanding of the investor/enterprise distinction.
Just keep in mind that although XRP is available for individual investor speculation, the company stresses that the main use of the XRP coin is for financial transactions by financial institutions.
Make of that what you will.
Ripple (XRP) vs Stellar Lumens (XLM)
A head to head comparison of competitors Ripple (XRP) and Stellar Lumens (XLM).
The Ripple network (and its XRP token) was one of the first altcoin networks to be made during the early years of cryptocurrency, when people were still trying to figure out what use was Bitcoin.
The Stellar network (and its XLM or "Lumens" token) was another early altcoin network.
Both networks were co-founded by Jed McCaleb, so there are many similarities between them.
This section of our Ripple (XRP) guide offers a comparison between two competing blockchains:
- Ripple (XRP)
- Stellar Lumens (XLM)
This section of our guide will offer an unbiased feature set comparison of each project and its associated cryptocurrency token.
Introduction to Ripple vs Stellar
Both Ripple and Stellar are meant to facilitate the transfer of funds locally and internationally in less time and at near-zero cost.
With Stellar being forked from Ripple, the two networks are very similar.
Ripple was made to work with banks and financial institutions, and the resources used to promote Ripple to that market reflect that audience focus.
Stellar was made as a network to bring banking services to the unbanked, and it considers itself a non-profit.
Ripple (XRP) was made to be "just money" as its predecessor’s Bitcoin (BTC) and Litecoin (LTC).
Stellar Lumens (a.k.a. XLM) was made to be programmable money, with all that implies.
What Stellar (XLM) lacks in resources compared to Ripple (XRP), it makes up for in additional functionality and greater decentralisation.
Similarities between Ripple (XRP) and Stellar (XLM)
Founder (or Co-Founder)
Jed McCaleb was the CTO of Ripple before he left to found Stellar in 2014.
Before founding or co-founding Ripple and stellar, Jed McCaleb had also founded Mt. Gox, the centralised Bitcoin exchange.
Code Base
Due to conflicting visions for Ripple, Jed McCaleb left Ripple in 2013.
Joining Jed McCaleb to form Stellar in 2014 was Joyce Kim, who had been a venture capitalist at Freestyle Capital.
When they joined to found Stellar, they forked it from Ripple.
Over time it incorporated a number of technical changes to distinguish itself from Ripple.
Purpose
Both Ripple and Stellar were designed to make transfers of funds in a matter of seconds at almost no cost (since, generally, there is always a cost even if it costs nothing to the user of the network).
Ease of Use
If you've tried to wire money overseas or even to locations in the same country using banks or services such as Western Union, you've encountered both high fees as well as delays which are part of the money transfer process.
Ripple and Stellar networks were built to facilitate international transfers instantly at almost no cost.
Accessibility
Anyone can use Ripple and Stellar, although both were made with different audiences in mind.
At current price levels, Ripple (XRP) and Stellar (XLM) tokens can be easily acquired and used between institutions, peer-to-peer, or between an institution and an individual.
Differences between Ripple (XRP) and Stellar (XLM)
Target Audience
This is the most fundamental difference between Ripple and Stellar.
Ripple is geared for use by banks and other financial institutions.
The Ripple network was made to connect banks, digital asset exchanges, and payment providers, thus making possible real-time settlement and lower transaction fees.
At least 100 banks use Ripple in some way; among them are the Royal Bank of Canada and Bank of America.
Meanwhile, Stellar is meant for use by unbanked individuals.
Profit-Making Status
Ripple's intended audience is banks and other financial institutions, so it has greater opportunities for making profits.
Stellar, on the other hand, operates as a non-profit bringing services to unbanked individuals.
Exchange Functionality
Anyone who holds XRP and wants to exchange it for another asset needs to take the XRP to another exchange.
Meanwhile Stellar allows people to convert their XLM/Lumens to other assets thanks to the exchange that's built-in to the Stellar network.
Smart Contracts
Although Ripple is a network that caters to banks and other financial institutions, its XRP token is "just money" like Bitcoin or Litecoin.
On the other hand, Stellar Lumens is programmable money thanks to smart contracts used by XLM.
This would be of more use to individuals since it would also permit decentralised finance.
Degree of Decentralisation
Compared to fiat currencies and Central Bank Digital Currencies, both Ripple and Stellar are decentralised.
However, Ripple is a more centralised network than Stellar.
Consensus is reached on Ripple by a limited number of individuals or participating institutions.
This is in contrast to Stellar, where anyone can participate in the consensus process.
Ripple (XRP) vs Stellar Lumens (XLM) comparison table
The table below shows some of the major comparison points between the two blockchains.
Before you choose to invest in either Ripple or Stellar, having these points compared side by side will help you make a final decision.
| Ripple (XRP) | Stellar Lumens (XLM) | |
|---|---|---|
| Ripple started in 2012 as Opencoin and the company was later renamed Ripple Labs. | The Stellar network began working on XLM in 2015. | |
| Ripple Labs has (XRP) as its crypto coin built for the Ripple blockchain. | Stellar network developed LUMENS (XLM) as its crypto coin for the blockchain. | |
| Ripple XRP has the supply of max. supply of 100,000,000,000 XRP coins and circulating supply of 47,081,679,946 XRP coins. | Stellar Lumens has a max supply of 50,001,806,812 XLM coins and a circulating supply of 24,206,630,150 XLM coins. | |
| Ripple network makes use of the XRP ledger protocol for its network consensus. | Stellar network makes use of its own Stellar consensus protocol. | |
| Ripple Labs XRP is being used in the financial network remittance and cross border payments space, via internal private banking networks. | Stellar Lumens makes use of its decentralised and open-source blockchain network for remittance and cross border payments. | |
| Ripple Labs is a private entity and its blockchain has private nodes for the banks and financial institutions. | Stellar Lumens has a foundation governing the code, team and its blockchain network. | |
| Ripple Labs makes use of C++ as its primary programming language for crypto development. | Stellar network makes use of the C/C++, JavaScript and GO language for its blockchain development. | |
| Ripple lab's XRP crypto network has transaction fees in the range of 0.002 to 0.42. | Stellar Lumen's XLM has transaction fees of around 0.00001 XLM per transaction. | |
| The Ripple network has transactions per second recorded as 3 to 5 TPS on its blockchain. | The Stellar network has 250 transactions per second on its own network. | |
| Ripple Labs has an XRP ledger for smart contracts, specific to its private network nodes. | Stellar network makes use of constraint based smart contracts, expressed through its execution. | |
| Ripple Labs XRP is available on external exchanges for staking, lending and other exchange usage scenarios. | Stellar Lumens is also available on the external exchanges, staking, lending and other exchange usage scenarios. |
Ripple (XRP) or Stellar Lumens (XLM)? - Final verdict
Ripple Labs is a private entity controlling the centralised Ripple blockchain.
Its XRP cryptocurrency is therefore centralised and primarily used within the private payment networks of legacy banks.
Stellar Lumens’ network on the other hand, has the XLM token that connects banks through an open-source and decentralised blockchain.
Choosing between Ripple and Stellar Lumens largely depends on market demand and investor interests.
For the average consumer who wants to make use of one from the two without a third party, they'd likely find that Stellar’s XLM is a lot better for cross-border payments.
Ripple Labs is a centralised entity and its private payment network is not really the right choice for those who are seeking a decentralised and open-source crypto blockchain.
Stellar Lumens despite having leadership problems you see plaguing most decentralised projects, presents an open source blockchain.
Both are tokens are affordable and easy to acquire, but given the legal woes surrounding XRP due to the lawsuit filed against Ripple by the U. S. Securities and Exchange Commission, enthusiasm for XRP isn't what it would normally be.
Legal woes aside, both XRP and XLM are winners and the final choice between Ripple and Stellar ultimately comes down to personal preference.
Will Ripple (XRP) win their lawsuit against the SEC?
A look at whether Ripple has a chance to win their SEC lawsuit and what this means for XRP going forward.
While they might not ‘win’ their lawsuit per se, it’s looking likely that Ripple will receive a favourable outcome.
In the grand scheme of things, this is all that matter for not only XRP token holders, but also the wider crypto community looking for a legal precedent to be set.
This section of our Ripple (XRP) guide will introduce the SEC lawsuit and then discuss some of the key points that an XRP investor needs to be across.
Ripple Labs vs the SEC
On December 22, 2020, the Securities and Exchange Commission (SEC) filed a lawsuit against Ripple Labs Inc, as well as two of its executives Christian Larsen and Bradley Garlinghouse.
They allege that the company raised over $1.3 billion through an unregistered digital asset.
But the lawsuit between Ripple (XRP) and the Securities and Exchange Commission(SEC) appears to finally be coming to an end, with the decision likely to be favourable to Ripple.
After ruling in favour of Ripple's appeal to include three other documents from the SEC privilege log, Judge Sarah Netburn has indeed handed Ripple the edge.
Ripple was also alleged to have distributed billions of XRP in exchange for non-cash considerations, such as market-making services and labour.
The allegation is that all up Ripple violated the registration provisions of federal securities law as it is expected that any issuer seeking public investment will register with the securities agency.
Only through the SEC may their financial condition be assessed and made known to the public.
Ripple’s successful appeal
As mentioned above, the judge ruled in favour of Ripple's appeal to include three other documents from the SEC privilege log.
Ripple was able to discover through a SEC privilege log, the existence of an email between the SEC and a third party.
This email featured the SEC telling them to assess a digital asset by using factors from a speech made by Former SEC chairman William Hinman on June 14, 2018.
In this speech, Hinman possibly set a precedent by confirming that Ethereum is in fact not a security.
The SEC however, counters this argument by claiming that it was a personal opinion of Hinman, rather than official policy.
There’s definitely doubt here and as a result, Ripple could be seen as favourites to now win the lawsuit.
When will Ripple’s lawsuit against the SEC be decided?
It’s looking like Ripple Labs vs the SEC won’t actually be decided until March 2022 at the earliest.
Financial cases, especially those of this magnitude, are notoriously slow moving.
But with a two month discovery extension to January 2022 dragging things out further again, there are a few more twists to come yet.
If no settlement is reached, which is still the likely outcome, the case won't be decided until March 2022 at the earliest.
With a higher likelihood of a decision not actually being reached until late spring if the court decides not to rule on some of the pending motions until after the discovery deadline.
While this could be construed as bad news for XRP token holders, it certainly hasn’t had that effect on price yet.
Will Ripple survive?
In one way or another, this section of our guide to Ripple (XRP) has shown that the token is most likely not only going to survive, but likely also thrive.
The longer things drag out, the more likely it is that Ripple either win their lawsuit against the SEC, or at the very least, reach a favourable settlement.
It’s true that initial news of the lawsuit made Ripple Investors dump their XRP which crashed the price of XRP below $1.
It also saw XRP delisted on many centralised exchanges as they were forced to weigh up the legal risks accompanying the suit.
However, with this particular lawsuit now the longest that the SEC has ever faced, the tide is turning.
We could actually see a favourable outcome propelling the price of XRP to new highs as exchanges relist the token.
Ripple (XRP) pros and cons
The pros and cons of Ripple (XRP).
In an increasingly interconnected world, there is a great need to move money cross-borders quickly and without any commissions.
In the past, banks were the main payment gateways.
But their policies and bureaucracy have made making a simple payment from one country to another costly and slow.
Cryptocurrencies came to change that because you could immediately transfer money from one country to another, without the need for an intermediary.
While the original cryptocurrency was bitcoin, we now see a plethora of different cryptocurrencies available.
Each with different characteristics, offering different solutions to make it easier and cheaper for individuals.
One such alternative cryptocurrency is Ripple (XRP), a cryptocurrency created to provide a hassle-free experience for sending money worldwide.
In this section of our Ripple (XRP) guide, we take a look at the pros and cons of choosing Ripple over an alternative money transfer method.
Ripple (XRP) pros
A list of the pros of Ripple (XRP).
Fast and secure transactions
When Ripple was created, it was thought of as a faster alternative to both Bitcoin and the traditional banking system.
Its objective was to serve as a means of electronic payment and so far it has had a significant advance in the field.
This has allowed XRP to have fast, secure and above all economical transactions since the minimum transaction fees are $0.00001.
Trust
Because Ripple (XRP) was created to serve as a means of payment, it has earned the trust of major banks worldwide.
Among which are
- Santander
- Axis Bank
- Yes Bank
- Westpac
- Union Credit
- NBAD
- UBS
No inflation
One of the biggest advantages of Ripple’s XRP token is that it has no inflation.
This is possible because all the available XRP coins already exist.
That is to say, that there is no XRP to be mined.
This gives you the advantage that the price is not affected by the appearance of new coins.
Ripple (XRP) cons
A list of the cons of Ripple (XRP).
High centralisation
One of the main characteristics of cryptocurrencies is that they are decentralised.
But since the operation of the network and the cryptocurrency is more similar to a bank than to a cryptocurrency, we cannot say the same about Ripple.
This is and always will be something for which it will be criticised, in the wider cryptocurrency community.
Monopoly
60% of the entire circulating supply is in the hands of Ripple Labs, meaning they have a total monopoly.
This centralised company makes the developers decide on everything that happens with the currency, such as when and how they release changes.
This is another major risk of holding XRP.
Testing alliance
It is well known that major banks worldwide have deals with Ripple.
But most of these are still in a testing state.
As a result, this does not generate much confidence.
While these banks use the Ripple network, they don’t yet actually use XRP and possibly never will.
Banks are not yet 100% integrated with Ripple (XRP).
Should I buy Ripple (XRP) in 2023?
In conclusion, Ripple (XRP) represents a unique and innovative approach to global payments and financial infrastructure.
With a strong focus on efficiency, speed, and accessibility.
As such, it has gained significant attention and popularity from both the cryptocurrency community and traditional financial institutions alike.
While there are certainly risks and uncertainties associated with investing in any cryptocurrency, XRP has shown resilience and adaptability in the face of market volatility.
All in the midst of regulatory challenges.
Additionally, its use case as a payment protocol within existing financial infrastructure gives it a certain degree of stability and longevity that other cryptocurrencies may not possess.
That being said, investors considering XRP should carefully weigh the pros and cons of investing in this digital currency.
As well as take into account their own risk tolerance and investment goals.
Factors such as market conditions, regulatory developments, and technological advancements will also play a role in the future performance of XRP.
Overall, while there is no one-size-fits-all answer to the question of whether or not to invest in Ripple (XRP) in 2023, the cryptocurrency's unique value proposition and strong track record make it a compelling option for those looking to explore the world of digital assets.
As always, investors should conduct thorough research and seek professional advice before making any investment decisions.
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