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What is Ripple (XRP)?

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2022-11-17
What is Ripple (XRP)?

Hello, and welcome to this new article from Bitget Academy. In this article, we will explain what Ripple is.

Ripple (XRP) Introduction

Ripple is a primary cryptocurrency whose sole purpose is to offer fast and low-cost financial transactions. While other cryptocurrencies provide advanced features like smart contracts, Ripple focuses on the basics.

It should also be noted that, unlike Bitcoin, the Ripple currency is designed to be controlled by its issuing company, the Ripple Corporation. This company, founded in 2012 in San Francisco, is behind the Ripple payment protocol and the Ripple currency, which all have the same name but should not be confused. The company's goal is to replace the SWIFT system, a system that allows funds to be transferred securely between two banks. The main problem with this method is that it is slow compared to a cryptocurrency since a minimum of 1 day is needed to validate a transaction, while the Ripple protocol allows this transfer in a few seconds.

Differentiation

As you have noticed, the company, the cryptocurrency, and the protocol all have the same name as Ripple, but it is important to differentiate them. The Ripple company is, therefore, the issuer of the Ripple currency, which more or less controls the network and decides on the evolution of the protocol.

Ripple describes itself as a company that provides solutions for making money transfers on a global scale. The Ripple currency is an independent digital asset with an open-source blockchain, but it is still somewhat of a product sold by the Ripple company. When we talk about XRP, we are actually talking about the Ripple currency that is referred to by this identifier on exchange platforms.

Finally, there is the Ripple protocol which is the code base used to create the Ripple currency. This code can be used to create something else, such as the Stellar currency, which was initially based on the Ripple protocol. Even if the Ripple currency has a strong link with the company of the same name, its success is not guaranteed by the company's success. Indeed, it may decide to create another currency based on the same protocol to serve its customers, such as a cryptocurrency for exclusive use by banks.

XRP

There are currently just under 44 billion Ripple coins in circulation, but that's not even half of the total number of Ripples in existence, which is almost 100 billion. The reason is that the creators of Ripple have 55 billion locked up in an escrow. The escrow in question is a semi-automated system with unclear triggering conditions. The escrow in question is a semi-automated system with unclear triggering conditions, which transfers a certain number of Ripples into the company's wallets every month according to supply and demand. Any unsent Ripple is placed in a new escrow which is programmed to be triggered one month after the last scheduled escrow. On average, 204 million Ripples are put into circulation each month. Of the 44 billion that are in circulation, about 6 billion are currently held by the company.

The network is designed to be centralized. Anyone can create blocks, but it is very difficult to have them accepted by the network without having the trust of the other participants. How to get this trust? Well, the best method is to be part of a special whitelist whose members are automatically deemed to produce trustworthy blocks. Of course, it is the company Ripple that defines the content of this whitelist. For the time being, validators are, to our knowledge, only large companies, banks, or research institutes.

Operation

Ripple theoretically supports 1,500 transactions per second for transactions of up to 5 seconds in length. Relatively fast, but it is important to repeat what is difficult within the blockchain technology universe is not to make a fast system but to make a system that is both fast, decentralized, and secure. To go so fast, the Ripple protocol is obviously not proof-of-work based like Bitcoin or proof-of-stake like Ethereum. Instead, the consensus system called Proof-of-Correctness is based on a voting system. When a transaction is to be added to the blockchain, validators produce blocks with the list of transactions, and then the set of validators vote for the best block produced for that session. This is a simple and fast solution, but it only works in an environment where we are sure that the majority of validators will not lie.

Finally, it should be noted that Ripple is also theoretically deflationary. With each transaction made in XRP, a small portion of the coins disappear and since Ripple still holds many that are not in circulation, it is difficult to consider Ripple deflationary in practice. If the current pace is maintained, inflation will continue for 20 years.

The Ripple Company

The Ripple currency is not the only product offered by the company of the same name. Ripple's goal is to offer an ecosystem rather than a suite of independent software. Ripple wants to improve international payment processes and supports SWIFT and ISO20022 formats which are the two main messaging formats used by most banks in the world. Thus, one objective is to improve the exchange of information between banks and to coordinate movements between financial institutions.

Secondly, Ripple is also aimed at payment services such as VISA or Mastercard which wanted to reduce their costs as much as possible. Payments often require pre-funded accounts, which implies high set-up costs. Ripple, therefore, proposes to significantly reduce the requirement for funds in terms of liquidity by using the Ripple currency to provide liquidity on demand, thus reducing costs while allowing real-time payments on all markets.

The Ripple company is therefore working with several banking institutions such as American Express or Crédit Agricole to set up a more modern solution than SWIFT. No Ripple product has its own identity today. The services offered by Ripple are always attractive and can be offered with or without the Ripple currency.

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Disclaimer: All products and projects listed in this article are not endorsements and are provided for informational purposes only.