Ripple has introduced a system where crypto meets traditional financial institutions to make the financial world better. The network is increasingly coming into the limelight with its quick speed, low cost, and impressive scalability. Its features are so much more upgraded that they partner with major financial institutions to perform day-to-day banking operations. Due to this, Ripple has become a hot topic in the crypto scene. In this article, we will get a good look into the world of Ripple.
What is Ripple?
Ripple is a blockchain-based network used to facilitate money transfers, including various fiat currencies and cryptocurrencies. The network is known for its ability to allow users to make transfers with optimum security, low fees, and quick speed. These features are owed to Ripple Protocol which is the ledger that Ripple is built. Just like Ethereum is often mistaken for Ether, Ripple gets mistaken for XRP. It is important to note that XRP is only the native token for Ripple and Ripple is the network itself. XRP has grown like its network to become one of the top 10 cryptocurrencies by market capitalization.
How does Ripple work?
To understand how Ripple works, we need to first recognize the problem it was made to solve. Ripple was introduced to solve the issues that banks had with money transfers. When money is transferred between two locations in the traditional banking methods, lots of processes are involved. Assume you are transferring money from the United Kingdom to Japan. The currency will have to be changed from GBP to United States Dollars, then from the United States Dollars to the Japanese yen. Following this, the transfer process will pass through various intermediary banks. Hence, why international transfers can be slow and costly.
Ripple came into the picture to solve the mentioned problems. Ripple runs on a distributed ledger called Ripple protocol. Different validators are scattered around the world to validate transactions and ensure their authenticity. Hence, transactions are quicker on the Ripple network. Ripple typically takes 3-5 seconds to complete transactions. Their fees are $0.0002 per transaction on average, according to their official site. Unlike other networks, Ripple does support not only its native currency but also other fiat currencies and cryptocurrencies.
Ripple does not use conventional consensus mechanisms like PoW or PoS. Instead, they have a unique node list that runs operations on the blockchain. The network organizes a list of trusted people that gets to validate transactions and decide what happens on the network. Another difference in the unique node list in comparison to conventional consensus mechanisms is that the validators involved do not get any rewards.
What is XRP?
XRP is the native token for Ripple. However, XRP does not depend on Ripple but uses a blockchain called the XRP Ledger. The company’s blockchain was initially released in 2012 but the team members decided to expand. This resulted in the birth of NewCoin, to later become OpenCoin and then renamed to what we now know as Ripple. Although the developers of XRP Ledger got inspiration from Bitcoin, the environmental issues of Bitcoin sparked a sustainable ecosystem in XRP. Other cons of Bitcoins created an opportunity for the developers to build a unique system. This included an upgrade in speed, scalability, and fees.
XRP has a maximum token supply of 100 billion XRP tokens. According to Coinbase, the current circulating supply of XRP has reached about 50 billion XRP tokens. While it might seem that XRP has a couple more tokens in its tank, the company locked in about 55% of the max token supply in escrow. Since then, new coins from escrow have been released for circulation every month. XRP can then be considered a deflationary token due to its limited supply and high demand.
Coinmarketcap ranks Ripple in the sixth spot according to market cap. They also reported the live market cap of Ripple to be over $20 billion. At the time of writing, the value of XRP stands at $0.41. While this may not be considered as one of the highs of XRP, the token has experienced quite a turmoil in price movements. XRP experienced significant growth in 2017, as that was the year it reached its all-time high. Since then, the token has not hit the $3 mark. The token has been at its lows compared to the bull run it experienced in 2017. However, XRP could hit an average value of $7.6 in 2030, according to Capital.
- Quick speed: Ripple is quicker, less expensive, and more convenient than other prominent networks. Transactions on Ripple take only a few seconds to complete since they can handle roughly 1,500 transactions per second.
- Low fees: Transactions involving Ripple have had pricey currency conversions and fees cut to a bare minimum due to the network’s mode of validation. You may now quickly send Indian Rupee to a buddy in the United States.
- Energy Efficient: The use of mining to validate transactions takes up a lot of energy which is bad for the environment. Due to XRP being a pre-mined cryptocurrency, the cryptocurrency is now considered more environmentally friendly.
- Centralization: People argue that Ripple is too centralized thereby deviating a bit far from the aim of cryptocurrency. Since Ripple Labs is in control of some of the XRP tokens, it calls for concern to some of their users.
- Legal issues: Ripple has also been involved in a legal dispute with the SEC (US Securities and Exchange Commission). In December 2020, the SEC sued Ripple for fraudulently selling $1.3 billion in XRP tokens, arguing that they were ‘securities’ rather than money. As a result, Ripple’s price momentarily fell, just as most other cryptocurrencies were skyrocketing.
- Security risks: It is difficult to watch the value of XRP since investors are unaware of when large quantities of it may be released into circulation. Because Ripple employs a pre-mining technique in which it distributes a tiny quantity of XRP at regular intervals, investors are concerned that Ripple may release too much at once, thereby affecting its value. Ripple employs “trusted validators” to validate transactions and ensure the blockchain’s integrity. There is little incentive to mine, which implies fewer individuals doing security checks, perhaps leading to increased security threats.
Remember that as XRP is a cryptocurrency, it shares similar hazards as other cryptocurrencies. That being said, it is important to invest only what you can afford to lose. There is no such thing as completely risk-free and lucrative investing.
Bitcoin vs. Ripple
Let’s take a look at some differences between Bitcoin and Ripple:
- Mode of verification: Bitcoin mining is used to verify transactions in Bitcoin. This mode of verification is also due to its Proof of Work (PoW) consensus mechanism. However, Ripple uses a unique nodes list which consists of nodes scattered all over the world. The unique nodes list decides the outcome of the network and verifies transactions.
- Cost: Bitcoin transaction fees are relatively more expensive than Ripple. This is because Bitcoin uses a more tasking and slower method for verifying transactions. Hence, such factors may increase transaction fees.
- Speed: Ripple typically takes seconds to process transactions, while Bitcoin takes longer due to the tasking operations of PoW. Bitcoin transactions can take about 10 minutes to 1 hour to complete.
- Supply: Both tokens have different modes of supply. When Bitcoin was developed, its supply was capped at 21 million. Hence, the highest number of Bitcoin that can ever be available is 21 million. At the time of writing, 19.27 million Bitcoins have been produced, but experts say that Bitcoin production will reach its limit by 2140. The mining timeline seems so long because the blocks in Bitcoin’s blockchain were designed to reduce the number of new Bitcoin in each block by half every four years. But Ripple already has pre-mined tokens of 100 billion XRP tokens in escrow which gets disbursed every month.
Can you mine Ripple?
It is not possible to mine Ripple the way you mine other cryptocurrencies like Bitcoin. This is because the total amount of required Ripple tokens have already been pre-mined. An alternative to mining XRP is to mine other cryptocurrencies and convert the mined cryptocurrencies to XRP.
Is Ripple XRP a good investment?
Ripple can be considered if you want to move money around the world without spending a fortune on fees. One of its primary attractions as an investment choice is that Ripple is utilized by several significant financial organizations, which may cause XRP to rise in the future.
Note that the crypto market is largely unpredictable and extremely volatile, so its success or failure is not guaranteed. However, Ripple seems to be a great fit for people entering the market with a smaller amount of money. XRP can also be used to diversify your portfolio with effective trading strategies. Check out our article here to learn more about trading strategies.
To determine whether investing in Ripple is right for you, you need to first define your financial goals and build a positive story. Although XRP seems like a viable investment, it is important to weigh the pros and cons before delving into investment.
Ebiere Watchman is a prolific writer specialized in web 3.0 and finance. Ebiere’s experience includes research projects, sales copywriting, and storytelling. She prides herself in crafting impeccable content to drive mass adoption in cryptocurrency.