Despite the scheme’s long history, multiple people are still confused about how Ripple and XRP are related.
The theory behind Ripple reportedly predates Bitcoin(BTC) by four to five years. Ryan Fugger, a Canadian computer programmer, created RipplePay in 2004-2005 as a way to provide safe payment choices to members of an online community across a global network.
However, it would take another six years for the Blockchain-based payment system known as XRP and its founding fintech company, now known as Ripple, to be launched.
What is Ripple, exactly?
Unlike the public nature of Ethereum and Bitcoin which seek to disrupt legacy finance, Ripple concentrates on improving the existing and fragmented traditional banking system. It does that by uniting a network of independent banks and payment providers with a standardized protocol to communicate and send lost-cost, direct payments worldwide.
Those products comprised xRapid, a liquidity product; xVia, a payment application programming interface; and xCurrent, a real-time agreement system. In 2019, xCurrent and xVia were connected and rebranded to RippleNet. xRapid was also renamed “On-Demand Liquidity” (ODL), which is a product utilized to speed up the transfer and exchange of fiat currencies between countries.
How does Ripple work?
There are two main components that include Ripple:
Ripple: Ripple provides a real-time gross compromise system (RTGS), currency exchange, and remittance network as a whole. RippleNet is used by the platform, which is enabled by its Blockchain payment technology, to facilitate rapid transactions between financial firms.
RippleNet: A separate network of payment facilitators and global banks, RippleNet enables participants to send and receive payments seamlessly.
How does XRP work?
XRP is the native cryptocurrency of the XRP Ledger, a public blockchain that uses the federated agreement algorithm, and that is different from the evidence-of-work and proof-of-stake mechanisms, as participants in the Ripple network are known and trusted by each other, based mostly on reputation. In March 2022, there were more than 150 validators on the network and about 36 on the default unique node list (UNL).
A particular node list is a list of nodes that a network participant trusts. There are three entities – Ripple, the XRP Ledger Foundation, and Coil (a Ripple-funded entity) – that publish lists of suggested validators based on facets like past performance, confirmed identity, and secure IT policies. These lists are the default unique node lists (dUNL). As more validators join the network.
Pros and cons
Even though it uses the open nature of blockchain to decentralize its bookkeeping and keep transitions transparent, XRP is more centralized than Ethereum or Bitcoin in that no public entity or person outside of Ripple can decide the issuance of new coins. The SEC has certainly viewed XRP as an investment vehicle, even though its primary purpose appears to be transferring value across borders via Ripple products.
Here are some advantages of Ripple and XRP:
- Fast, efficient, and transparent payments with an added liquidity tool to help facilitate the settlement process.
- XRP settlement quickness is faster than Bitcoin’s or Ethereum’s.
- Ever-improving scalability – the XRP network can operate up to 1,500 transactions per second.