Cryptocurrency enthusiasts know about Ripple. It is another cryptocurrency like Bitcoins and a digital payment network used for financial transactions. With the popularity of Bitcoin, several other cryptocurrencies entered the market. Ripple is one of them and belongs to the league of Altcoins. It came into circulation in 2012, co-founded by Chris Larsen and Jed McCaleb. Primarily, Ripple is used for payment settlement, asset exchange, and remittance systems. It functions more like SWIFT, a method used for remitting money and securities by banks and financial institutions. Ripple cryptocurrency uses the ticker XRP.
Ripple is simultaneously a cryptocurrency and a payment network that can be used for transferring any currency like Dollars, Yen, Euro, and even cryptocurrencies like Bitcoin and Litecoin. It is an open-source, peer-to-peer, decentralised payment network for seamless transfers and quick conversions between currencies. As a result, Ripple has prominent banks and global financial services in its list of clients.
Ripple works like the Hawala system. Hawala is an informal way of transferring money through preferred intermediaries. Let’s understand with an example.
Suppose you want to send Rs 1000 to your cousin who lives in another state. You can transfer the money to your agent, Agent A, who will intimate your cousin’s agent, Agent B. Agent B will alert your cousin about the transaction. If your cousin can share the correct password with his agent, he will receive Rs 1000. Now Agent A owes Agent B Rs 1000, which they will settle later, agreed between the two. Agent B can maintain a ledger of all the receivables from Agent A or balance it with another transaction between them.
Ripple has a similar function but is a lot more complex. It uses a medium called Gateway. What the Gateway does is work as the credit intermediary between the two parties. It creates a link in the trust chain in the Ripple network that facilitates sending and receiving currencies in public addresses over a secured network. Anyone can register in the Ripple network and authorise an intermediary for currency exchange and payment transfer while maintaining liquidity.
XRP: Ripple Crypto
Besides being a secured payment network provider, Ripple is also a cryptocurrency known as XRP. Mainly, XRP functions as the bridge currency between other currencies and facilitates exchange. It doesn’t discriminate between fiat money and cryptos, making it convenient for use as an exchange medium. Each coin has a separate gateway in the Ripple ecosystem. If receiver A accepts cryptocurrencies for payment, sender B doesn’t have to possess crypto to complete the transaction. He can use the dollar gateway to make payments in physical currencies, and XRP will convert the amount in crypto to make payment to the receiver in his Gateway.
Ripple doesn’t use Proof-of-Work (POW) or Proof-of-Stake (POS). Instead, it uses consensus protocol to validate account balances and transactions in the network. Consensus is used for improving the integrity of the system and preventing double-spending. The sender initiates the transaction through multiple nodes for the same amount but deletes the first transaction. The individual distributed nodes present in the ecosystem decide by consensus which transaction was the first. The whole process doesn’t take more than five seconds to validate. Ripple maintains a list of all IOUs for any currency for any use or Gateways. IOUs used for credits and transaction flows between Ripple wallets are available publicly in the Ripple consensus ledger.
Users use Ripple since it takes less time to conduct a transfer than wire transfers. Additionally, the fees for transactions are less than that of traditional banks. Even though transaction histories are available publicly on the blockchain, information is not linked to any ID guaranteeing anonymity.
Bitcoin vs Ripple
Ripple has improved many drawbacks of the traditional banking system and is also significantly different from Bitcoin. XRP or Ripple cryptocurrency can complete a transaction within seconds, whereas the Bitcoin system can take several minutes. Several banks use the XRP payment system, a technology system for digital payment networks and protocols.
Bitcoin depends on a public blockchain ledger to support payments for goods and services. The miners validate each transaction continuously and in returns rewarded by BTC for each successful validation.
XRP is the cryptocurrency by Ripple used for payment settlement, asset exchange, and remittance. Both Bitcoin and XRP use different methods to validate transactions. Moreover, XRP is cheaper and faster than Bitcoin, where completing a transaction on the Bitcoin network can take several minutes. XRP has more coins in circulation in the market and uses a different circulation mechanism.
The bottom line
Ripple cryptocurrency has plugged several flaws of Bitcoins. If you look at alternative investment options in cryptocurrencies, the Ripple crypto is an option, which can clock significant gains. XRP and Ripple transaction platforms are making waves in the cryptocurrency market. Also, it has been in circulation since 2012, making it one of the oldest cryptocurrencies.
We hope this article has helped you understand Ripple cryptocurrency better. But if you want to invest, do it only after analysing and understanding the risk factors associated with cryptocurrency investment.
Disclaimer: Angel One Limited does not endorse investment and trade in cryptocurrencies. This article is only for education and information purposes. Discuss with your investment advisor before making such risky calls.