A Simple Guide to Ripple Cryptocurrency

Blockchain has gained a lot of hype in recent years, especially due to its contributions in the field of finance in the form of Cryptocurrencies. 

 

There are many cryptocurrencies available in the market like bitcoin, ethereum, Ripple, and many others, and all of them have different characteristics that distinguish them from one another. 

 

In this article, we are going to understand everything about Ripple, one of the popular and leading cryptocurrencies. 

 

(Related read: What is the Future of Cryptocurrency?)

 

Understanding Ripple

 

If we are going to talk about Ripple, it is essential to first understand what Ripple is. Ripple was co-founded by Chris Larsen and Jed McCaleb in the year 2012, and it is a financial transaction system that functions as both a cryptocurrency and a digital payment network. 

 

Ripple's core procedure is a payment settlement asset exchange and remittance system that banks and financial intermediaries use to transact in different currencies.

 

Ripple has its token known as XRP that is used for all cryptocurrency transactions. The objective of XRP is to act as a type of transitory settlement layer denomination, acting as an intermediary mechanism of trade between two currencies or networks. 

 

Even though the Ripple business uses the XRP Ledger and the XRP currency in various capacities, the XRP Ledger and the XRP coin are completely independent of the Ripple company, according to several comments and materials released by the firm over the years.

 

So far, Ripple sounds exactly like other cryptocurrencies, and hence the one question that should be asked in this case is, How is Ripple different from other cryptocurrencies?

 

Although cryptocurrency has made considerable advancements in the domain of value transmission, it still lacks degrees of interoperability with traditional money systems in a broad sense. Ripple promises to improve the speed and ease of money transfers by utilizing blockchain technology. 

 

It is a peer-to-peer decentralized open-source network that enables the smooth movement of money in any form, including dollars, yen, euros, and cryptocurrencies such as litecoin and bitcoin. 

 

Ripple is a worldwide payments network with a customer base that includes major banks and financial institutions. 

 

(Must read: Centralized and Decentralized Cryptocurrency Exchanges)

 

1. Digital Hawala Service:

 

Hawala is an informal means of transferring funds, generally across borders, without the use of real funds. Ripple works as a digital Hawala service. 

 

According to this example given by Investopedia, consider a money transfer system in which both parties to the transaction utilize their chosen intermediaries to receive the funds.

 

For example, suppose Person A has to transfer $100 to Person B, who resides in another city. 

 

• Person A arranges for Person B's cash to be delivered to his local agent, Agent C. Person A also gives Person B a secret code, which he must successfully answer to collect the cash in his city. 

 

• Agent C informs Person B's agent, Agent D, of the transaction information, including the receiver, amount to be refunded, and password. Agent D will offer Person B $100 if he provides her with the correct password. 

 

• The money, however, comes from Agent D's account, implying that Agent C owes Agent D $100. (which will be settled at a later date). Agent D can either keep a diary of all Agent C's debts, which Agent C would pay on a set date, or she can perform counter transactions to bring the debt into balance.

 

• If Agent D was also Person E's agent and Person E wanted to send $100 to Person F, whose agent is Agent C, the $100 owing to Agent D would be balanced out since Person F would be paid from Agent C's account.

 

2. Gateway Medium:

 

This example somehow describes the working of the Ripple network as it deals with the trust between two points (people) that is required during transactions. Ripple employs a medium known as Gateway to function as a link in the trust chain between two parties wishing to do business. 

 

Over the Ripple network, Gateway works as a credit middleman, receiving and sending currency to public addresses. Anyone or any company may register and create a gateway, which allows them to function as a mediator for exchanging currencies, maintaining liquidity, and moving payments throughout the network.

 

(Related read: Digital Currency and Cryptocurrency: Types and Benefits)

 

Working of Ripple:

 

1. The Ripple network or the XRP Ledger does not use a proof-of-work (PoW) algorithm like Bitcoin or proof-of-stake (PoS) method like Nxt or Ethereum 2.0. 

 

Instead, to confirm account balances and transactions on the system, transactions rely on a consensus mechanism called XRP Ledger Consensus Protocol. By eliminating double-spending, the consensus aims to strengthen the system's integrity.

 

2. Individual distributed nodes determine which trade was made first by consensus. The approvals are instantaneous and take around five seconds to complete. The Ripple technology is defined as decentralized since no central authority selects who may set up a node and confirm transactions.

 

3. For each user or gateway, Ripple keeps track of all IOUs in a particular currency. The Ripple consensus ledger makes IOU credits and transaction flows between Ripple wallets publicly visible.

 

4. Although financial transaction history is publicly recorded and made available on a blockchain, the information is not connected to any individual or business's ID or account. However, because all transactions are recorded in a public ledger, the data is vulnerable to de-anonymization techniques.

 

Working of RippleNet:

 

RippleNet is essentially a worldwide network that adheres to a set of guidelines and norms, making interactions between members easier, smoother, and more transparent while lowering costs and transaction times. Due to the various systems involved in the process, traditional centralized financial institutions might take days to execute transactions. 

 

When it comes to cross-border transactions, RippleNet has a feature called On-Demand Liquidity (ODL), which eliminates the requirement for pre-funding. When one entity wishes to transmit money across national borders, it may have various currencies on hand. RippleNet's ODL can allow transactions with each party sending and receiving their native currency by using XRP as a go-to between two separate fiat kinds. 

 

Sending money overseas in the conventional world, as far as centralized financial institutions are concerned, might require several steps. Transaction timeframes and prices vary, but they are typically costly and take a day or two to complete, with the sender incurring the transaction expenses. RippleNet, on the other hand, shortens transaction times and lowers transaction costs.

 

Advantages and Disadvantages of Ripple:

 

Like any other cryptocurrency, Ripple has its merits and demerits, and one must be familiar with both of them before choosing it over other currencies.

 

Advantages:

 

1. Ripple is fast and makes the job easier for people who are suffering from long waiting procedures for their cross-border payments. It sends capital quickly regardless of the involved regions or the payment type.

 

2. Because RippleNet has so many players engaged, the solution isn't unusual. The more conventional firms that join Ripple's solution, the bigger the influence Ripple will have in the future, according to the expanding network phenomenon.

 

Disadvantages:

 

1. The ultimate competitor of Ripple in its goals related to this field is Society for Worldwide Interbank Financial Telecommunications (SWIFT), and setting up a space in the traditional market against a well-established brand can take up more time, effort, and research.

 

2. To stay ahead in the competition, Ripple needs to constantly upgrade its services and check on its growth within the crypto space, as there are other competitors in the market other than SWIFT, like Stellar. 

 

3. The rules and regulations in the field of crypto-trading are unclear as it is a relatively new industry. It is hard to decide if the trades and exchanges should follow the existing traditional laws and guidelines, or should a new set of laws be prepared for it. Ripple would need a clearer decision from regulatory authorities on what sort of asset categorization XRP comes under before it could replace existing systems with XRP in any capacity.

 

(Suggested blog: Altcoin - Meaning, Types and Examples)

 

Applications of Ripple in Business:

 

The following are the applications of Ripple in business:

 

1. Due to the usage of SWIFT, banks are facing issues like an increase in costs and operational overhead as compared to the recent technologies. Ripple seeks to create an efficient method for the direct transfer of money that settles in real-time, while being cheaper, more secure, and more transparent than existing transfer systems used by traditional financial institutions, using a variety of solutions.

2. Ripple promotes the Internet of Value, or IoV, as a concept. Ripple thinks that individuals should be able to send money and information at the same time.

3. Ripple is a business dedicated to improving the world of payments, which has been cumbersome and fragmented in the past. RippleNet, the XRP Ledger, the XRP currency, and RippleX are just some of the branches and solutions that fall under the Ripple brand umbrella.

4. RippleNet is a worldwide network that allows financial institutions to send money more rapidly, transparently, and at a lower cost using a single system. It just needs the use of a single application programming interface (API).

 

 

Conclusion

 

Ripple has acquired a lot of traction, and the fact that so many companies are adopting it suggests that the tokens will become valuable commodities in and of themselves. Last year, the value of one XRP token increased faster than the value of Bitcoin or any other cryptocurrency. 

 

(Also read: 8 Most Stable Cryptocurrency in 2022)

 

XRP is generally exchanged in cryptocurrency exchange platforms like Binance and Poloniex. It is generally important to learn about any cryptocurrency before investing in it. So, in this article, we have discussed the basic working and definition of Ripple, along with its working, advantages, disadvantages, and applications.