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What is Ripple?


What is Ripple?



Ripple is one of the most mainstream cryptocurrencies today, and part of its popularity is owed to the fact that it is very cheap due to a high amount of coins in circulation (almost 45 billion), with many investors including some Ripple in their portfolios.


Here is our overview of Ripple:


Initially, Ripple was rather different from typical crypto technologies. Its original brand name was Ripplepay.


A brief history of Ripple

Interestingly, it was created by Ryan Fugger, a software developer in 2004 in Vancouver, Canada, long before Satoshi Nakamoto released his first version of the Bitcoin blockchain.

Ripplepay didn’t use any blockchain technologies, but it had the same purpose – providing its users with tools to be able to securely transact money around the world.

Even Satoshi Nakamoto knew about this payment system, remarking that, “Ripple is interesting in that it’s the only other system that does something with trust besides concentrating it into a central server”.

For many years Ripple continued to function in this way until in 2012 Fugger sold it to Jed McCaleb, Arthur Britto, and David Schwartz, who wanted to use it for their future digital currency network. The new company was named OpenCoin.

OpenCoin built its new technology using Ripplepay source code and created a ledger-based payment network for financial institutions and closed two angel rounds of funding in 2013.

The same year McCaleb, the former founder of Mt.Gox, left the company, founding Stellar and forking Ripple into a new Stellar Lumens network.

As a co-founder of Ripple, he had a large amount of XRP, the network’s native coins. McCaleb has already sold 1 billion XRP and still has more than 8 billion.

In 2013 the OpenCoin company was renamed Ripple Labs, Inc and made the code of the Ripple Network open source.

In 2015 they changed the company name again, shortening it to just “Ripple.” Since 2016 Ripple has had the BitLicense from the New York State Department of Financial Services, allowing it to make operations with cryptocurrencies.

Over the years, Ripple developed its solutions for the banking industry, including xRapid and xVia, both designed to send payments globally between banks. The former requires XRP for settlement, while the latter does not need any vehicle of value transfer.

Both are built on the basis of xCurrent — the main open-sourced Ripple product. Compared to the traditional SWIFT, the network is a lot faster, providing a settlement time of 4 seconds instead of 2-3 days.

Today, the Ripple network appears to be enjoying a significant amount of mainstream success.

The RippleNet has more than 200 members, and its geographical reach includes over 40 countries and six continents. Currently, 38% of the world’s top 100 banks have joined Ripple.

Not everyone investing in crypto accepts the idea of XRP, due to the fact that there is still one centralized company behind it.

Initially, when the premise of cryptocurrency began to gain popularity, there were people on BitcoinTalk.org, who offered to pay 5 BTC ($500 at that moment) to anyone who would post a message saying that Ripple is a centralized scam.

However, over time the XRP Ledger became more decentralized, adding more nodes and removing its own nodes as validators. Added to this, people were about the amount of XRP tokens that belong to the team.

There are 99 billion tokens, only 44 billion are in circulation, meaning that more than half of all tokens have not entered the market yet, staying in an escrow account, but are expected to be released at some point in the future.




Understanding how Ripple works today

Ripple is the re-conceptualization of a very old idea that dates back to medieval times. In those days, there were no banks, so if you wanted to send money from the city to the city you had to visit a payment agent that would help you send the money.

Ripple works in much the same way, connecting payment agents to facilitate payment across borders.

Added to this, Ripple’s algorithm discovers a trusted path for transactions. If a third agent trusts both your agent and your friend’s agent, then that third party can be a middleman between middlemen.

On Ripple, the agents are called “gateways,” and they’re usually banks or other places that accept deposits to transfer money.

As such, the unique power behind Ripple is its ability to transact anything, especially multiple currencies at one time, while the IOUs between agents/gateways are posted to the Ripple ledger and can be resolved in real-time.

Ripple works as a for-profit technology platform and also a cryptocurrency (XRP), developed by Ripple Labs.

The company focuses on providing real-time payment settlements and currency exchange services to financial institutions such as banks and payment processors.

To this end, over 100 companies worldwide have adopted Ripple software to guarantee fast, frictionless transactions.

As a result of this strong financial industry adoption, the Ripple cryptocurrency, XRP, is currently the third most valuable cryptocurrency by market capitalization, after Bitcoin, with a valuation of over $90 billion in January 2018.

While you can buy XRP, it is actually not intended for consumer use. Instead, it functions as a token that provides liquidity for banks as they facilitate cross-border transfers.

Unlike most blockchain technology that is secured by a decentralized network of miners, Ripple is secured by a network of validating servers with an internal ledger that guarantees transactions based on consensus.

Instead of mining rewards, all 100 billion Ripple coins are pre-mined, and Ripple Labs controls the dispersion of new coins. So far, there are 38.7 billion XRP in circulation, and Ripple Labs will release more as needed to control the money supply.

That said, transactions on Ripple are not limited to XRP. Ripple also supports fiat currencies like dollars, euros, pounds, and yen.

As well as this, Ripple includes support for other cryptocurrencies like Bitcoin and even other markers of value like frequent flyer miles or gold.

As such, it is important to understand that Ripple is primarily a payment processor and currency exchange, and the XRP currency is necessary but secondary to Ripple’s mission.

In that sense, Ripple does not attempt to compete with Bitcoin or Ethereum. Instead, it competes with prevailing payment validation and remittance systems like Swift or ACH, and new technologies like Payoneer.

To this end, Ripple works to differentiate itself from its competitors by bringing the speed and security of blockchain to the $155 trillion cross-border payment industry.


Understanding the market gap which Ripple addresses

Today’s age is largely defined by constant, instantaneous connectivity, and financial institutions are still using technologies developed in the 1970s to resolve payments.

For cross-border transactions, which is a $155 trillion market, banks and payment processors charge high fees and can take days to process payments.

As a result of this lag, global trade and cross-border consumer behavior have not advanced at the same pace as technology.

Ripple developers recognized that reducing the fees and processing times could result in an explosion in globalization and cross-border collaboration, especially for small transactions that were previously unfeasible with fees and exchange rates.

While banks certainly enjoy growing their wealth through charging hefty transaction fees, there are reasons why cross-border transactions are currently so expensive and slow. Chief among these inefficiencies is the practice of Nostro/Vostro accounts.

Instead of using the agent/gateway model described above, a domestic bank will have an account at another foreign bank (Nostro), and the foreign bank will have an account at the domestic bank (Vostro).

These accounts are used to transact in the two currencies and have to be reconciled before transactions can be approved. Often a third, correspondent bank enters the equation to facilitate and verify the reconciliation process.

The indirect nature of Nostro/Vostro accounts reconciliation results in the payment process being expensive and time-consuming.

Additionally, there is no established standard for cross-border transactions. Each bank must follow its home country’s regulations, and each bank has different processes for verifying incoming foreign transactions.


How Ripple’s payment processing works

Ripple’s ultimate purpose is to facilitate payment transactions with the same ease and speed with which digital information is processed today.

As such, this would result in low-fee, instantaneous payments in currencies that people actually use in their daily lives.

But one of the main areas in which Ripple is different from other cryptocurrencies is that it does not seek to undermine the banking system, but rather to upgrade the underlying infrastructure, making transactions faster and cheaper for the average user.

To this end, xCurrent is the first step in Ripple’s implementation of global payment verification.

Unlike the above-described Nostro/Vostro accounts, xCurrent is enterprise software that allows banks to instantly settle transactions.

The technology also allows banks to review information about transactions and resolve any compliance issues before authorizing the transaction. This allows for high straight-through processing rates and lowered overhead on fixing or reversing bad transactions.

The result for financial institutions is reduced costs and increased processing rates.

To this end, if you make cross-border transactions instantaneous and cheap, more customers will choose to use your bank’s services, and the overall market for cross-border transactions grows with each cost and time reduction.

As such, many people do question whether there is in fact any inherent difference between Ripple and a company like PayPal or Stripe in terms of payment processing.

The answer is that while PayPal and Stripe are direct-to-consumer solutions, Ripple operates more as infrastructure for banks than as a standalone solution.

Added to this, RippleNet does not need to rely on its parent company in order to continue to function successfully.

If PayPal were to shut down, so would their payments. If Ripple shuts down, the RippleNet will continue to exist.

Finally, PayPal still relies on older technologies like ACH to process its transactions. Ripple is a payment processing technology itself that directly integrates with banks and other partner gateway institutions, with faster processing times and lower fees than PayPal.

Ripple also has the ultimate growth strategy goal of becoming the industry standard. Their system of verifying servers is meant to act as a third-party authority that sets standards for cross-border transactions.

Some banks could try to implement a similar technology to Ripple, but ultimately that technology would be limited to the banks that created it and would be less useful compared to an open-source, international standard that any bank could join.


The value of the open-source nature of RippleNet

The RippleNet is an open-source project, and its cryptography is different from other crypto projects in that unlike other blockchain projects, Ripple relies on institutions to operate its network.

While anyone can run a node of the Ripple network, these trusted gateways (like banks and other institutions) are the ones who facilitate transactions on Ripple, providing currency exchange, fiat deposits, and other means of transfer.

Gateways accept deposits from individuals or institutions and issue balances on the Ripple ledger.

Gateways can also have their own requirements like Know Your Customer (KYC) and Anti-Money Laundering (AML) processes that require identifiable information about individuals involved in transactions.

RippleNet operates as the infrastructure beneath these institutions, connecting them to one another to resolve payments and transfer funds.

The gateways on the network do not mine or stake their Ripple. In fact, all 100 billion XRP is pre-mined. Since RippleNet does not rely on mining, its transaction times can be very quick.

Typically, a payment between gateways takes four seconds between initiation and completion. Ripple’s network is capable of processing 1,500 transactions/second, far outstripping Bitcoin’s 4 transactions/second or Ethereum’s 15 transactions/second.

Since its coins are pre-mined, the only incentive to join the RippleNet and contribute computing power to the ledger is access to the system.

As such, most of Ripple’s computing power comes from the institutional gateway users who use Ripple to process payments.

The RippleNet uses a consensus-based approach to creating the ledger, with each verifying node compiling its own version of the next block based on the transactions it has received.

The nodes compare their proposed blocks and a new block is verified when a supermajority of nodes agrees on the block’s contents.


The benefits of Ripple

Ripple is the third most valuable cryptocurrency in the market today, estimated at slightly over $20 billion dollars.

It is also one of the fastest-growing currencies and has more than 39 billion dollars of tokens in circulation. While Ripple is a late entrant into the crypto market, it has captured the attention of industry players and is making huge leaps in value.

In a market that has doubled in value to $237 billion, it is necessary to watch the good performers and identify why they are the preferred currencies.

Cryptocurrencies are designed to serve a particular market or solve a specific trading solution. Ripple XRP crypto offers unique benefits to users and the market, making it a preferred mode of trading as opposed to others in the same league.


It has widespread usage

The legitimacy of any mode of the transaction lies in its uptake in the market. With more than 39 billion tokens issued worldwide, there are enough coins for as many transactions as you would wish to complete.

While there are more than 1500 altcoins in circulation, Ripple has been adopted by more than 100 companies around the world and is helping them to move money around.

This adoption is part of the original development aim that was to assist companies and banks, among other financial institutions, to transport money. The ease of acceptance by financial institutions is also adding to its legitimacy and growing value.


It allows for speedy transactions

Buyers and sellers gain confidence in transactions based on the speed of completion. Delayed transactions give room for fraud and lost faith in a system.

Still, the speed in the completion of transactions should not come at the expense of errors. Ripple XRP enables you to complete a transaction in 3 seconds.

The speed beats the nearest cryptocurrency which completes the transaction in 2 minutes while the third-fastest cryptocurrency will have you wait for more than an hour. Traditional systems would require you to wait for days.


Ripple is scalable

The strength of a system is determined by its ability to serve the market. XRP can handle more than 1,500 transactions per minute with incredible accuracy and consistency.

It is scalable to manage the same throughput as some of the widest used financial systems as VISA. The nearest altcoin can only handle 15 transactions per second followed by a 3-6 transactions-per-second cryptocurrency at a distant third.

The impressive speed gives you greater confidence in transactions and partnerships.


It allows for a decentralized remittance system

Ripple is built on open-source technology. The technology allows the distribution of capability and customization to fit the needs of different users.

The set of validators is growing by the day, allowing access to different markets and platforms. The distribution also allows you to transfer value in terms of fiat currencies, commodities, and digital currencies.

This is one of the aspects facilitating faster adoption and widespread usage.


It provides stability

One of the reasons slowing down the uptake of cryptocurrencies is stability or the level of risk involved.

Ripple is in a different league compared to the other dominant currencies in the market. Since its inception in 2012, it has experienced stable growth, delivering excellent value to investors.

It is the stability that has attracted institutions and enterprises to use the coin over others.


The drawbacks to Ripple


It is not decentralized

For blockchain purists, XRP isn’t a ‘real’ cryptocurrency.  Many argue that it goes against the principles of decentralization and economic autonomy.

Unlike Bitcoin, which is mined and then exchanged anonymously between users, Ripple was specially designed for the banking and finance industry.

Its primary purpose is to solve issues within the banking industry, rather than revolutionize the way ordinary people exchange or store value.


The allocation of altcoins

Unlike Ethereum and Bitcoin, all of Ripple’s XRP coinage is pre-mined, meaning that no more coins will be released to the market.

This has resulted in its developers owning a substantial percentage of them (Ripple chairman, Chris Larsen, currently holds almost a third of all XRP), which is a concern, as it runs counter to the idea of decentralization which is core to the cryptocurrency philosophy.


The difference between Ripple and Bitcoin


Transaction validation

Instead of using the blockchain mining concept, the Ripple network uses a unique distributed consensus mechanism through a network of servers to validate transactions.

By conducting a poll, the servers or nodes on the network decide by consensus about the validity and authenticity of the transaction.

This enables almost instant confirmations without any central authority, which helps to keep XRP decentralized and yet faster and more reliable than many of its competitors.11

While the Bitcoin network is accused of being energy-hungry due to its mining system, the Ripple system consumes negligible power owing to its mining-free mechanism.


Processing times and costs

While Bitcoin transaction confirmations may take many minutes and may be associated with high transaction costs, XRP transactions are confirmed within seconds at very low costs.

BTC has a total supply of almost 21 million crypto coins, and XRP has a total of 100 billion pre-mined crypto coins.


Mining and circulation

Bitcoin uses a proof-of-work system and mining for releasing new BTC tokens, forming an essential part of the validation process, while all of the XRP tokens are pre-mined.

For this reason, XRP mining does not exist in the same way that Bitcoin mining does.

The cryptocoin release mechanism is different for both BTC and XRP. While Bitcoins are released and added to the network as, and when, the miners find them, a smart contract controls the release of XRP.

Ripple planned to release a maximum of 1 billion XRP tokens each month as governed by an in-built smart contract; the current circulation is over 50 billion.

Any unused portion of the XRP in a particular month will be shifted back to an escrow account.

This mechanism ensures that there will be no possibility of misuse due to an oversupply of XRP crypto coins, and it will take many years before all the crypto coins will be available.

Similar to the Bitcoin transaction processing fee, XRP transactions are charged. Each time a transaction is performed on the Ripple network, a small amount of XRP is charged to the user (individual or organization).

The primary use for XRP is to facilitate the transfer of other assets, though a growing number of merchants also accept it for payments in a way similar to accepting Bitcoins.


Real-world applications

While Bitcoin is seeing increasing use by individuals and organizations as a virtual currency, the Ripple payment system is more popular among banks.

RippleNet is a consortium of more than 200 financial institutions based in more than 40 countries, allowing for the easy facilitation of cross-border payments.

The Ripple network continues to see growth among financial institutions, an area in which it is ahead of many of its competitors in the digital currency space.


A closer look at XRP

One of the more ambitious cryptocurrencies to go live in the wake of Bitcoin, XRP is notable for a design that sparked continuing discussion about how blockchains can be architected and the use cases they should attempt to address.

This is because the XRP Ledger introduced a new way of operating a blockchain’s transaction and records system, one proponent argue makes it more suitable for regulated entities that must follow strict laws on money transmission.

Unlike other cryptocurrencies, XRP does not have a single prominent creator or founding figure.

Yet, there are a number of individuals who have been involved in jumpstarting its technology and associated business entities.

This includes the founders of OpenCoin (now Ripple), technologist Jed McCaleb (who founded Mt Gox, the first successful Bitcoin exchange, and Stellar, the software that powers the XLM cryptocurrency), and Chris Larsen, founder of the fintech companies E-LOAN and Prosper.

McCaleb is credited with coming up with the XRP Ledger’s novel technical design.

The XRP Ledger was not a fork of the Bitcoin (BTC) blockchain, meaning it did not use its code. However, it did draw on a number of aspects of Bitcoin’s design.

Like Bitcoin, the XRP Ledger allows users to send and receive cryptocurrency using public- and private-key cryptography. Transfers between addresses require digital signatures.

The XRP Ledger, however, does not use mining or require specialized computing hardware to secure its ledger and validate transactions. Rather, the XRP Ledger enables servers to send transactions for consideration by its network.

Only transactions validated by “unique nodes,” permission servers that maintain a “unique node list,” can create consensus on the network as to which transactions are valid.

Using this more trusted design, XRP nodes can quickly validate transactions, provided at least 80% of participants deem them to be valid according to software rules.


How does Ripple make use of its XRP currency?

Although Ripple and XRP were created at the same time, the ambitions of the Ripple company have arguably expanded beyond XRP.

As of 2019, only one Ripple product used the XRP cryptocurrency by default, its liquidity solution xRapid.

Other legacy Ripple products including xVia and xCurrent (which focused on sending and processing payments) did not require XRP but could connect to the XRP Ledger.

However, as of 2020, Ripple has united all three products under a common product offering called RippleNet, a single offering for the 300 financial firms with whom it has so far partnered.

With RippleNet, these companies can receive access to what Ripple calls “on-demand liquidity,” funding foreign accounts by selling XRP for fiat currency on one digital asset exchange and converting those funds into their desired currency.

Ripple is also affiliated with a separate effort called the Interledger Protocol, a software aiming to facilitate transactions between cryptocurrencies and bank ledgers. An open-source effort, it does not require XRP, though it can connect to the XRP Ledger.

The company has maintained that all its tools, including XRP, will someday fuel an “Internet of Value,” in which government currencies, traditional assets, and cryptocurrencies can be traded freely and with little friction across the globe.


What gives the XRP currency its value?

The XRP Ledger’s software maintains a limit on the amount of its cryptocurrency that can ever be created, capping this total at 100 billion XRP.

Of this supply, Ripple initially released 55 billion to users on forums through giveaways. The remaining XRP was to be escrowed by the company to fund its technology development.

While the XRP Ledger does not require “transaction fees,” it does mandate that a small amount of XRP be put up by the sender to be destroyed and deducted from the total supply.

Still, this doesn’t put a large upward force on price activity. According to the XRP website: “At the current rate of destruction, it would take at least 70,000 years to destroy all XRP.”

Prompting debate is that Ripple acts as a principal market maker for the XRP economy, selling the cryptocurrency to help pay the costs of maintaining the XRP Ledger’s technology.

Since 2017, Ripple has locked away some funds in an XRP Ledger-based escrow system, where they are released on a monthly basis.


Is Ripple a good investment?

Ripple is becoming more and more mainstream and has the backing of some major financial institutions.

Plus, the current price is a low barrier of entry for crypto newcomers, as well as a good opportunity for established investors to diversify their portfolios without taking a large amount of value out of other assets.

Put simply, Ripple is a low-risk investment with lots of potential rewards. It’s something you should definitely do some research on before you consider adding it to your portfolio.


How to trade Ripple/XRP

The first step to speculating on ripple is deciding how you’d like to take advantage of its price movements. You can deal with ripple in one of two main ways:

  • Buy Ripple on an exchange, and hold it in the hope of selling it on for a profit
  • Use leveraged trading to speculate on ripple price movements


When you open a leveraged trade, you won’t have to put down the full value of your position upfront – so you can get much larger exposure without committing extra capital.

Your profit or loss will be based on the full size of your position, though. So while profits can be magnified, so can losses.


The factors which affect the price of Ripple

Ripple functions in a markedly different way to other cryptocurrencies and was never intended to be a replacement for fiat currency. Because of this, there are a lot of unique factors affecting the price movements of XRP.


The supply of XRP

Unlike other cryptocurrencies, XRP isn’t produced by mining. Instead, the company behind ripple completely controls supply. This gives them a lot of control over ripple’s price – which has some traders worried.


Market sentiment

Ripple is often referred to as the world’s most misunderstood cryptocurrency. Much of its rise in 2017 was due to investors believing it could be a challenger to Bitcoin and others, as opposed to a global payment solution.


The adoption of Ripple by banks

Ripple’s key users are banks and other major institutions. With Bank of America, Royal Bank of Canada, and UBS among those already on board, announcements that more companies are adopting the technology see XRP’s profile raised further.


The effect of other cryptocurrencies

Investors looking for the next big cryptocurrency can see XRP’s large market cap and low cost per coin as a buying opportunity – so when the digital currency market is rallying, a ripple may follow. But if the market turns bearish, XRP could drop fast.


The adding of XRP to an exchange

If a major cryptocurrency exchange such as Coinbase announces that it is listing XRP, then millions of prospective buyers would have access to the currency. That could see ripple’s price spike.


Trading Ripple: step-by-step


Start by opening an account

Before you open your first CFD trading position, you’ll need an account with a leveraged provider.


Create a trading plan

A comprehensive trading plan can be beneficial as you get to grips with the markets, helping you maximize your profits and minimize your losses.

When developing your trading plan, it is helpful to consider the following points:

  • What you want to achieve from your trading – including daily, weekly, or monthly goals
  • Whether you want to trade ripple exclusively, or include additional markets like Bitcoin, fiat currencies, or stock indices
  • How much you are willing to risk on each trade. This can help you choose where to place stop-losses
  • Your risk-reward ratio – or the potential profit you need to justify your risk


At this point, you might also want to consider employing a trading strategy. Day trading, for example, involves taking advantage of short-term price movements and closing each position at the end of the trading day.

Swing traders, meanwhile, will try to open a trade as a trend is forming, and close it once the move has run its course.


Do enough research

You’ve learned how ripple works and the factors responsible for driving its price movements – but before you open your first trade, you’ll still need to ensure that you’re aware of all the latest developments surrounding XRP.

Take a look at our news and analysis section for regular cryptocurrency updates.

At this point, you might also want to consider using technical analysis to decide when you should open your trade. Take a look at an XRP chart to see data on previous price movements, and identify trends that could give an insight into where it’s headed next.


Place your trade

Enter the size of your position in the deal ticket. This will determine your total profit or loss. You can also add a stop, which will close your position if the market moves against you by a certain amount.

If you expect ripple to go up in value, then hit ‘buy’ to open the trade. If you think it will fall, hit ‘sell’.

To close your position, you simply reverse the original trade. So if you bought to open, you’d sell to close. If you’d sold to open, you’d buy to close.



Ripple is a technology that acts as a cryptocurrency (XRP) and a digital payment network for financial transactions. It was co-founded by computer programmers Chris Larsen and Jed McCaleb and released in 2012 through their US-based company, Ripple Labs Inc.



Author Details

Louis Schoeman

Louis Schoeman

Featured Forex and Stocks writer

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