By Nesir Muradov
On Nov 23, 2020
Bitcoin and Ethereum are the hot topics amongst cryptocurrencies. In our previous blogs, we talked about both of them in detail. Some reasons can explain why they are so popular. Bitcoin is the first cryptocurrency with Satoshi‘s philosophy. Ethereum is the cryptocurrency and platform for many DeFi projects. However, some other cryptocurrencies and platforms can stand out from the rest. Those cryptocurrencies have essential components as Bitcoin and Ethereum, and simultaneously they possess some unique features. Let’s get information about Ripple, which is as significant as others.
Before talking about Ripple, it would be better to talk about the current banking system. Have you ever tried to send some amount of money to an account in another country? Probably, bank operators have told that this transaction can take 2 or 3 days before arriving. Banks still use the old payment service protocols, such as Western Union, SWIFT. These providers are slow, relatively expensive, and somehow limited. If there is not any direct connection between the bank, it will take too much time to process the transaction and will cost a lot. Ripple is here to solve the problems.
The history of Ripple coins back to 2004. Ryan Fugger established the company and named it RipplePay. In 2012, the company continued as OpenCoin, which is created by John McCaleb and Chris Larsen. In September 2013, OpenCoin changed its name to Ripple Labs. On October 6th, 2015, Ripple Labs rebranded the company and modified their names to Ripple. Ripple obtained its virtual currency license and became the fourth company with BitLicense. It has been funded seven times during this period, and the last funding activity had worth 200 million dollars by Tetragon, SBI Holdings, Route 66 Ventures. Ripple made some charity activities, received some awards, and partnered with some companies. Ripple continues as a successful company now.
RippleNet is the next giant to talk about in the cryptocurrency world. It is different than other cryptocurrencies. People usually confuse XRP with RippleNet. XRP is the cryptocurrency that is on the Ripple network. It is an abbreviation similar to USD and EUR. They used this abbreviation to avoid confusion. Initially, we will talk about RippleNet.
RippleNet is what the Internet is for people. The purpose of the Internet is to move information over the web. For the RippleNet is to provide the movement of value over the network. The Internet has internet protocol HTTP, and RippleNet has RTXP. As we know, the Internet gives us free and fast access to information. RippleNet is here to serve individuals and firms, especially the banking system. It provides us with a speedy and cheap method to transfer money abroad.
RippleNet works similarly to other cryptocurrencies. It has a network of nodes that are obeying the Ripple Transaction Protocol (RTXP). Each node keeps the transaction records. Same as Bitcoin, you can run a node and join the network. Also, some points are not the same as Bitcoin. Here there are getaways for the companies and banks to get access to the web of nodes. So, banking companies can use this network to transfer money abroad quickly.
Ripple has some products to serve users. They are xCurrent, xRapid, and xVia. xCurrent is the send and receive cross-border transactions across RippleNet. The Interledger Protocol (ILP) is the foundation for the solution that makes it possible for instant payments across borders. xRapid is a product developed for payment providers. It uses XRP to decrease liquidity costs in emerging markets. xVia is for them who want to make international payment through the bank on RippleNet. It offers to send global payments and with the help of API and with information such as invoices. Those products are the solutions for sending money across the globe fast and cheaply.
Usually, cryptocurrency protocols support only their native currency. Here RippleNet supports two mediums, IOU and XRP. XRP is a native currency for the RippleNet. However, IOU is not native to RippleNet.
Finance people are familiar with IOUs. It means “I Owe You.” Ripple uses these IOUs to simplify the transaction across borders. Let’s discuss it in an example. You are a seller at a convenience store, and you have a regular buyer called John. You make transactions every day, and you trust him, and he trusts you. It is called Trust Line at Ripple since trust is necessary here. Once, he did not pay 5$ for the products he bought from you and give you IOU, which can be paper stating that he owes you and promising to reimburse it. Also, he has some IOUs amounting to 3$ that you promise to pay. Here, you can reconcile your IOUs. In the end, he will pay 2$ to you. As you can see, you did not use money, but both are better off.
Commonly, each of you has limits for the IOUs. For example, you cannot sell him a product above 500$ dollars in IOUs. On the other, you cannot use the IOU of him to reconcile with your other friends. Because trust is essential, and your friend will not accept the IOU of John. USD.John is the representative expression for IOU. It means Josh owes you USD dollars. So, IOU is one of the “currencies” that Ripple uses.
XRP is faster than Bitcoin in TPS (transaction per second). XRP can process a transaction in 4 seconds, and TPS is 1700. The smallest unit of XRP is called a drop (0.000001). The number of XRPs is finite too. There are 100 billion XRP, and Ripple owns 60% of it. Banks can use XRP to send money directly to other banks. It will remove the intermediary banks along the way. For example, they convert their USD to XRP and will send it to another bank. This bank will convert XRP to its currency, such as the EURO. Unlike IOU, XRP is an asset and final transaction. Meaning, when you send XRP to another party, then the transaction ends. XRP is relatively volatile, and banks can use the IOUs relatively more. So, regardless of which “currency” banks use, they will be better off.
There is a difference in mining activities between Bitcoin and Ripple. Since all the XRP is available to use, then you do not need to mine or validate transactions. If Bitcoin miners have to mine all the 21 million bitcoins, but 100 billion is ready to use for Ripple users. The verification of transactions works differently. There is a Unique Node List that validates the transaction. If more than 80% of nodes agree that the transaction is valid, then it will be included in the ledger. Those validators do not earn money from mining.
During the article, we talked about the power of Ripple in maintaining the network. They can issue any amount of XRP as they want. Ripple Labs is a company that serves the banks and financial systems. Although Ripple’s code is open-source, the products which they offer to banks are not open-source. All of these highlights the importance of Ripple Labs over the Ripple network. Ripple is more energy-efficient than Bitcoin because the mining process is different. Here nodes do not compete to solve difficult math problems. We can conclude that Ripple is more centralized than Bitcoin.
XRP is not so valuable in price. The price of XRP for November 23rd, 2020, is 0.49 USD. The highest price that XRP reached was 2.75 USD on January 7th, 2020. Despite the value of Ripple, it is one of the most used cryptocurrencies. According to CoinMarketCap, XRP is in 3rd place for its market capitalization, following Bitcoin Core, and Ethereum. The market capitalization of XRP is $21,994,157,371, it is impressive.
Ripple has some specific place in the world of cryptocurrencies. With its endemic characteristics, it differs from the rest of the cryptocurrencies. We recommend you to follow the news about Ripple because it can change the way of traditional cross border transactions.