Everything You Need to Know About Ripple and XRP

09 Jan 2019

Ripple is an electronic payment system network which initially started life in 2004 as RipplePay. RipplePay was an innovative system whose goal was to provide secure and instantaneous financial transactions across the globe, with trivial expense. In real-time, it enabled a network of businesses to conduct payments between each other via secure accounts.

In 2012, a technology company called RippleLabs took over Ripplepay and proceeded to restructure the protocol completely. The new system included features of a digital cash system, presented through the release of their new token, XRP.

In terms of partnerships, Ripple has already appealed to financial institutions of importance, and some are currently using Ripple’s network. They include Santander, Western Union, American Express, BBVA, Bank of England and MoneyGram.

The Ripple technology comprises four parts:

  1. xCurrent – Used for transactions involving liquid pairs;
  2. Xrapid – Used for transactions involving illiquid pairs;
  3. xVia – An interface which makes the use of Xrapid and Xvia easier,
  4. and the token, XRP.

Its main goal is to provide more efficient services to the banking and financial industry, through the use of their token, XRP and blockchain technology. Ripple aims to reduce costs and transaction times by removing the middlemen in financial transactions.

What is Ripple

Ripple is built upon an open source distributed internet protocol. The network supports a diverse set of assets, from stocks and commodities to cryptocurrencies and flyer miles. Its main goal is not to support transactions between individuals, rather it focuses on the much larger financial and banking sector.

Similar to its ancestor, it uses the network to connect banks and financial institutions, operating with resolutions developed by Ripple, with the objective of efficiently conducting transactions across the globe. The main benefits are its security, high speed and low cost of transactions.

Ripple is one of the fastest blockchains, with transaction speeds ranging from two to four seconds. To compare this with other leading cryptocurrencies, a transaction on the Ethereum blockchain takes upwards of two minutes (at the time of writing), while one on Bitcoin can sometimes take up to an hour or more.

Besides the speed of transactions, the costs – which are paid in XRP – for sending and using Ripple are extremely low. For each transaction, a small percentage of the XRP tokens is destroyed, essentially making XRP a deflationary currency.

According to blokt, a transaction on Ripple requires a minimum cost of 0.00001 XRP. On average, the transaction costs are less than $0.01. Compared to other competing cryptocurrencies, Ripple's main advantage comes from its real-world use, since its network is used by close to 100 companies throughout the world.

In short, Ripple is a network system that is intended for financial institutions, with the aim of providing fast and efficient currency exchange, payment settling and a remittance system.

What is XRP

XRP is the built-in token of the Ripple network, which is used by the ledger. As of the time of writing, XRP is the second largest cryptocurrency by market capitalization, at the time of writing, behind only Bitcoin.

The smallest unit of XRP is called a “drop” and is equivalent to 1/1,000,000 of one token. XRP has a supply cap of 1,000,000,000 tokens, and since on every transaction a small percentage of tokens is destroyed, its supply is deflationary. Every account has a minimum requirement of 20 XRP at all times.

The main function of XRP is to act as an intermediary currency, creating a market between two trading pairs which is not immediately available direct exchanges. Within its network, XRP is easily traded against other currencies. Unlike most cryptocurrencies, Ripple does not emphasize establishing itself as a substitute currency, rather aims to help alleviate issues which arise when trading between two currencies.

Since a transaction on Ripple costs an average of $0.01, financial institutions and banks which plan to use XRP will increase their transaction speeds while enjoying significantly lower costs.

Ripple cannot be mined. Instead, it uses a “consensus” protocol, in which transactions are publicized on the network, and illegitimate ones are eliminated through double-checking. Ripple, therefore, has no miners nor process of mining whatsoever.

With most cryptocurrencies, there is motivation for miners to help secure the network in exchange for a fee. While this notion has aided them in decentralization, it also slows them down. Since Ripple places a lot of importance on pursuing financial institutions, it cannot afford to have a separate collection of individuals with their own incentives for governing the network.

With respect to the supply of tokens, out of the initial 100 billion, 80% were given to Ripple labs with the goal of expanding the available liquidity and solidifying the overall market, while 20% were given to the creators.

It is this feature that has led many industry influencers to claim that Ripple is not decentralized. Detractors also claim that XRP should not be labeled a cryptocurrency, since the majority of the tokens are retained by the company.

Furthermore, validators that are authorized by Ripple are in charge of processing the transactions. The company has been adamant in stating that the absolute decentralization of the ledger is not a crucial issue for achieving its goals, and for security reasons only trusted parties should have control. As of the time of writing, the top 10 accounts hold 81% of the tokens.

How Does Ripple Function

Let’s demonstrate how Ripple works with an example which exhibits it in practice:

  • Let’s suppose that there are four people on a road trip, Person A,B,C and D.
  • Persons B and C know each other already, but A has never met C or D, and D similarly has not met A or B.
  • Let’s say that A and D are left to pay for gas and B-C have given their share of the money to A. But, D does not have any money to pay for gas, so he asks A to do it.
  • A pays for gas ($40). Since A and D do not know each other, the payment agreement goes like this: D owes $10 to C, who owes $10 to B, who finally owes it to A.
  • Now, if there are previous unpaid debts, such as B owing $5 to C, that portion of the debt would be cancelled, and C would owe only $5 to B.

What Ripple provides is a network in which people who have an established relationship of trust to move money without exchanging hands, canceling all previous debts between them when possible.

In more technical detail, the protocol works with a consensus algorithm that is applied by all verified nodes every few seconds, with the aim of preserving the arrangement and veracity of the network. Unlike most cryptocurrencies, clients only use a list of verified nodes.

Once consensus is achieved, the present ledger is considered “closed,” and becomes the last-closed ledger. If the algorithm was successful, the last-closed ledger would be the same in all of the nodes. Then, the legitimate transactions that have been made before the start of the consensus round are made public in the shape of a list which is called the “Candidate set.”

In the end, the server votes on the veracity of said transactions, passing to the next round only those that obtain more than the mandatory percentage of votes saying “yes,” while those that do not are rejected. Unlike most other cryptocurrencies that only need a majority percentage of votes, the final round requires a share of at least 80% of a server’s nodes to approve the transaction.

Therefore, transactions are only added to the ledger once more than 80% of these trusted and regulated entities approve a given ledger state.

While technically everyone can apply to be a validator, or otherwise run their own nodes, most people simply chose Ripple’s own trusted, “unique node list.”

To summarize the consensus protocol:

  • The network receives transactions from several nodes.
  • The legitimate transactions are transcribed to the ledger.
  • The transactions are placed together and sent forward to all nodes.
  • If the transactions gain the approval of 50% of the nodes, they are pushed onward for greater approval ratings.
  • The transactions are transcribed on the ledger as soon as it gains 80% approval from the nodes.

Ripple holds information about its users in its ledger, including but not limited to: name, date of birth, and amount of transfer.


Most of the negative comments questioning Ripple come from the issues related to the distribution of the initial coins, which effectively made the network centralized. As explained above, out of the starting supply of 100 billion, the creators still own close to 60% of the originally issued tokens.

In order to address the concerns, however, Ripple put 55 billion XRP into a secured escrow, with a maximum withdrawal limit of 1 billion each month. Unused tokens from the monthly withdrawals are returned to the escrow.

The founder of Ripple, Jed McCaleb, left the board after they had irreconcilable creative differences, and went on to found another cryptocurrency, Stellar. As seen from the strong, vocal opinions both for and against XRP - there exists a serious debate in the crypto community - with comprehensive, convincing arguments on both sides.


Ripple is one of the largest altcoins by both market capitalization and by the number of people employed. Its technology permits virtually instantaneous currency transfers with negligible costs.

Furthermore, it has proven adept at acquiring business partnerships, adding fuel to the idea that eventually global adoption of the coin could become a reality. In the scenario in which adoption is realized, the financial sector would likely benefit immensely from the increased speed and decreased cost of transfers.

A substantial number of markets exists for trading the numerous currencies in circulation today, with many suffering liquidity problems. If everyone agreed to accept XRP as a mediator currency, the number of markets would be cut in half and the liquidity problems greatly reduced.


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