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XRP, one of the sector's largest cryptocurrencies by fully diluted market cap, is an asset with spreading popularity (and criticism) due to its several functions.
For instance, apart from functioning as a store of value, XRP supports global, real-time, cross-border transactions. These transactions involve transferring commodities, cryptocurrencies, fiat, and other assets with measurable value.
XRP is a crypto asset developed by Ripple Labs. It is a digital asset designed to substitute centralized platforms controlled by financial institutions for a decentralized and significantly cheaper method of performing transactions. XRP transactions are instantaneous, trustless, and inexpensive, giving them an advantage over other payment solutions for cross-border transactions.
Unlike the Bitcoin blockchain, which allows anyone with computing power to validate transactions and secure the network, XRP uses the XRP Ledger, which only grants access to a limited number of network participants for transaction validation and network security. There are presently over 150 of these transaction validators, collectively known as the Unique Node List (UNL).
The XRP Ledger uses a consensus infrastructure based on the Federated Byzantine Agreement model instead of the Proof of Work (PoW) consensus model Bitcoin applies. Since the ledger does not require mining, a total of 100 billion XRP were pre-mined at its launch in 2013. Today, over 50 billion of its total supply is in circulation.
Unlike other more decentralized crypto assets, a private company oversees a network of validating servers responsible for maintaining network security. The XRP token runs on the XRP Ledger Consensus Protocol, through which Ripple Labs Inc. controls the distribution of new coins. This protocol requires no miners and therefore allocates no mining rewards. Ripple Labs retains the right to release new coins as needed to control the supply and demand.
Ripple is primarily a payment processor that relies on XRP to facilitate its mission. Ripple and XRP have tried to disrupt current payment solutions and strongly compete with traditional payment validation and remittance solutions like Swift. Although XRP's centralized infrastructure makes the network less secure than Bitcoin, it can process transactions much faster. This is because it uses a limited number of centralized validators that can come to a consensus and share data faster than some of its more decentralized counterparts.
The idea behind Ripple and XRP predates the crypto and blockchain industry. In 2004, John Fugger developed a peer-to-peer (P2P) payment solution called RipplePay. The aim was to capitalize on the financial relations between network users to take out the reliance on banks and other financial solutions. For example, if user A trusts user B, then B can act as a referee or third-party witness whenever user A wants to transact with another participant trusted by user B.
This concept would later serve as the cornerstone of the crypto model that OpenCoin's co-founders Jed McCaleb proposed as an alternative to Bitcoin in 2011. Subsequently, McCaleb approached Fugger with a plan to evolve RipplePay into a crypto network. Jed McCaleb, Arthur Britto, and Chris Larsen are often credited as creators of XRP.
To achieve its goal of near-instant cross-border transactions, Ripple has had major partnerships in the finance sector since its launch. For instance, MoneyGram partnered with Ripple to improve cross-border payments and foreign exchange settlements. In June 2020, one of the largest banks in the world, Banco Santander, worked with Ripple to jointly develop and run its One Pay FX service, a cross-border payments system. Ripple has also worked with many other financial institutions, including Bank of America, Santander, Standard Chartered, and many others, who use Ripple's network - RippleNet - for cross-border payments.
Ripple Labs Inc. is a for-profit software firm focused on developing various payment-related solutions. The firm developed and released the Ripple payment protocol, a distributed open-source protocol that includes the XRP Consensus Ledger and its native crypto, XRP.
XRP and RippleNet have very different functions. Ripple Labs describes XRP as a fast and cost-effective digital asset for cross-border transactions. On the other hand, RippleNet is a global network of payment providers, including banks, that use Ripple's technology for financial transactions.
Some of the features that set XRP apart from other crypto assets include the following:
- Payments are settled instantaneously. Other means, including Bitcoin and traditional methods, can take significantly longer.
- The transaction fee incurred via XRP is comparatively lesser than the other crypto assets.
- Ripple's XRP is highly scalable, as it can currently handle up to 1500 transactions per second.
- By improving liquidity, XRP completes cheap cross-border transactions in real-time.
Although Ripple and XRP have some unique qualities, be wary of XRP as a long-term contender in the blockchain space, as there are thousands of crypto assets that can function in the exact same way as the XRP token.
Interested individuals can trade XRP via various platforms, including centralized crypto exchanges, peer-to-peer (P2P) purchasing, and some decentralized exchanges (DEXs). In most cases purchasing XRP through a centralized exchange involves making fiat payments to the exchange and subsequently using the deposited funds to buy XRP.
One of the key differences between Bitcoin and XRP is the consensus protocol they use. While Bitcoin uses the Proof of Work (PoW) consensus model, XRP uses the XRP Ledger Consensus Protocol, which uses predetermined validators instead of miners. The primary responsibility of these validators is to maintain the transaction ledger and keep an updated record of all transactions.
Another key difference is in their network node type. Bitcoin runs on a permissionless node network, while XRP runs on a permissioned network. Furthermore, while the Bitcoin network is entirely decentralized, Ripple Labs oversees the issuance and distribution of the XRP coin.
Ripple's XRP became one of the sector's most popular projects due to its perceived real-world applications. As a result, the protocol and the technology have been adopted by several prominent financial institutions worldwide. However, its unique value proposition has drastically fallen off as other assets have taken its place as a digital store and transfer of value.
As Ripple evolves and changes how people make cross-border payments, more startups will follow the pace Ripple has set. This will effectively cause a shift from traditional payment methods and bring about faster, cheaper, and more scalable payment solutions for all to utilize.
AtomicDEX is a non-custodial multi-coin wallet and atomic swap DEX. Store BE-20 XRP as well as Bitcoin, Ethereum, Dash, Qtum, and many other coins in your own wallet. When you're ready to trade, AtomicDEX supports cross-chain swaps. Your keys, your coins.