What is Ripple? How is XRP Related to Ripple?
Ripple is a financial settlement protocol to facilitate near-instant monetary transfers between two parties.
It is a product of the San-Francisco based fintech company Ripple Labs. Chris Larsen and Stellar founder Jed McCaleb created Ripple to connect banks, payment providers, cryptocurrency exchanges for real-time, cost-effective, global money transfers.
What is XRP
The protocol’s native crypto asset XRP powers all transaction activity on the Ripple Network or RippleNet. A shared public database/ledger called the XRP ledger records all XRP transactions.
Independent validating servers maintain transparency in the XRP ledger by comparing these records. Ripple Labs’ patented Ripple Protocol Consensus Algorithm (RPCA) helps achieve consensus.
But even with a consensus mechanism in place, Ripple is not a blockchain-based technology.
The protocol doesn’t involve established blockchain practices like mining or staking. Pre-issued 100 billion XRP tokens fuel all transaction activities.
Ripple facilitates peer-to-peer transactions, but that’s not the primary focus. Antithetical to leading blockchain projects, the system’s goal is to prove instrumental in large-scale financial transactions between major national and private banks across the globe.
As of now, a currency that needs exchanging is spent to buy an equivalent amount of XRP. Upon being transferred it is converted into the final output currency. But a future isn’t a way where digital assets powered by banks themselves replace XRP for value transfer.
What About XRP Supply
Ripple’s value proposition lies with the protocol itself, and not the XRP token. Ripple Labs claims that no more than 100 billion XRP coins will be issued. But is it under a restriction to issue more tokens? Nope.
In 2017, the company locked 55 percent of the total XRP supply (55 billion XRPs) into a smart contract-based escrow account, which would release 1 billion of tokens per month for 55 months for sale to investors.
At the end of each selling period, Ripple originally planned to return the unsold tokens to the escrow for distribution beyond the 55 months. To date, the company has not sold more than 300 million XRP per month, according to data gathered from 2016 to 2018.
It is important to note that Larsen, McCaleb and another contributor retained 20 billion XRP collectively for starting the company.
XRP transactions take a maximum of 5 seconds. The system itself can comfortably manage more than 1500 transactions per second.
The minimum transaction fee is 0.00001 XRP which is in turn destroyed to avoid RippleNet from being spammed.
What advantages does Ripple have?
Not all consensus-based platforms have a blockchain base and are totally in-line with the ‘decentralized ideals’ put in place by Bitcoin. Ripple is one of those platforms and has its fair share of pros and cons. Here are the pros:
- Almost forgery-proof
- Fast transactions within seconds
- Open standard
- Can act in its final stage as a universal translator of any currency
- Enables quick lending and borrowing of money amounts
- Loans by IOU (a type of promissory note)
- Simple connection of payment networks
- Many new possibilities due to maximum compatibility
And the cons:
Lately, Ripple has been in the news for the wrong reasons and has been criticized for various business practices. One of the claims states that although the company promised to pass on a large proportion of the XRP to the users of the network, so far only small amounts have been transferred. In addition, Ripple Labs has held on to nearly half of all existing XRP in circulation to benefit from future value creation.
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