What is Ripple(XRP)?The Ripple XRP guide for dummies

Ripple(XRP) is a cryptocurrency i.e. a digital currency based on blockchain technology. It primarily operates in the financial services space where it enables fast and low-cost cross-border transactions with its blockchain called XRP Ledger(XRPL).

In this sense, it is similar to the Society for Worldwide Interbank Financial Telecommunications(SWIFT) system which is used by banks for international transactions except that XRPL is decentralized and settles payments instantly.

This open-source and permissionless blockchain network prides itself on being a sustainable and carbon-neural network. Ripple claims that the XRPL is 61,000 times more efficient than proof-of-work based blockchains like Bitcoin.

With a transaction speed of 1,500 transactions per second that are easily settled in 3-5 seconds, XRPL has carved a niche for itself in the currency exchange and remittance sector.

Who Founded Ripple?

Bitcoin’s debut in 2009 spurred the imaginations of developers who set out to create similar but better alternate payment systems. Likewise, in 2011, David Schwartz, Jed McCaleb and Arthur Britto began working on the XRP Ledger(XRPL)-a better alternative to Bitcoin.

A primitive version of the platform was already available in the form of Ryan Fugger’s RipplePay.com since 2004. RipplePay was rebranded as NewCoin and later OpenCoin after its sale and officially launched in 2012 along with its native currency known as XRP. Chris Larsen joined as CEO soon after. 

The company was renamed Ripple Labs in 2013 which was further shortened to just Ripple in 2015. Once the project went live, 80 billion XRP was given to the company and the remaining tokens were divided among the founders.

How Ripple Works

How Ripple works

Ripple works in the financial services sector with the purpose of providing access to fast, cheap and open remittance and cross-border payment settlements. It seeks to be a more efficient and decentralized version of SWIFT. Prominent elements of Ripple are:


XRP Ledger or XRPL is a public blockchain underlying the XRP cryptocurrency. A fast and reliable platform with low transaction costs, its open-access nature allows developers to easily build their projects in a sustainable and environment-friendly manner. This Ledger is maintained by a diverse set of users which includes engineers, server operators and businesses.

Consensus Protocol

Ripple is different from other networks in this case as it uses neither proof-of-work nor proof-of-stake consensus mechanisms. Instead, it uses a unique consensus protocol where designated servers called validators create consensus about XRP transactions every 3-5 seconds.

There are more than 150 active validators. Each participating node in the network has its own list of validators known as a Unique Node List(UNL).

To add a block to the XRP Ledger, 80% of the validators have to agree on the transactions and their order. In case 80% of the validators are unable to come to an agreement, each of them modifies their proposals to match other trusted validators. This process has to continue till a consensus is reached.

XRP- Ripple’s Digital Currency

XRP- Ripple’s Digital Currency

XRP is the name of the native cryptocurrency of XRP Ledger(XRPL) which is a decentralized, permissionless and open-source blockchain platform. It functions in the emerging Blockchain-as-a-Service(BaaS) industry. The main objective of XRP is to facilitate fast and easy cross-border payments.

Conventionally, it takes one to four business days for a cross-border payment to be settled in the regular financial system. Additionally, it is also quite an expensive process.

XRP seeks to change this by acting as a bridge currency between hard-to-match fiat currencies and cryptocurrencies. Cross-border transactions can be settled in a mere 3-5 seconds at a nominal cost of $0.0002 per transaction on average. 

Unlike other cryptocurrencies, XRP does not come into circulation as and when it is mined. Since XRP is pre-mined, its release schedule is executed by a smart contract. A maximum of 1 billion XRP tokens are released every month from an escrow account. Unused tokens are returned to the escrow account at the end of every month to be re-distributed later.

As of October 2022, 44.3 billion XRP is placed in the escrow account. The circulating supply is estimated to be around 50 billion XRP.

XRP’s price remained under $0.01 for years since its launch in 2012 barring some significant jumps in late 2013 and 2014. It started gaining momentum in 2017 and XRP’s value saw a 51,000% rise in its value to reach nearly $3.5.

However, its price started tumbling in 2018 eventually falling to $0.10. It recovered a bit in 2021 and saw a high 0f $1.98 before falling back again to less than $1. It is trading at an average of $0.3 as of December 2022.

Use Cases of Ripple

Use Cases of Ripple

Ripple’s XRP token is marketed as a cryptocurrency for banks and payment systems. Thus while XRP is mainly used for settling international payments, this does not imply that its use is limited to one field. Over the years, Ripple has steadily expanded the use cases of the platform and its token XRP.

1. Cross-Border Payments

Ripple makes moving money across borders faster and cheaper. RippleNet’s On-Demand Liquidity service eliminates the need to pre-fund accounts. Bank of America, Santander and American Express are some examples of prominent RippleNet users.

2. Micropayments

XRP can be used for microtransactions in various domains such as gaming and content without using third-party payment methods like credit cards. For example, XRP can be used to make fast and efficient payments for in-game transactions like avatars and skins.

3. Cryptocurrency Exchanges

On XRP Ledger, users can build exchanges for trading and investing in cryptocurrency. Not only that but exchanges can also be built to trade assets like stocks, ETFs and commodities.

4. Decentralized Finance(DeFi)

Traditional financial systems are known for being opaque and access to them is often unevenly distributed. DeFi aims to change that. It provides access to financial products and services in a fast, efficient, open, transparent and equitable. 

XRPL uses smart contract protocols to provide financial services in a decentralized manner.

5. Stablecoins

Stablecoins are a type of cryptocurrency whose prices are pegged to assets like the US Dollar or gold. This reduces the volatility typically associated with cryptocurrencies and makes them stable.

XRPL enables financial institutions to use issued currencies to issue stablecoins via its integrated decentralized exchange(DEX).

6. Central Bank Digital Currencies(CBDCs)

CBDCs are digital currencies issued by the Central Bank of a nation. The underlying technology is the same as other cryptocurrencies, the difference being that CBDCs are legal tender. They are just fiat money in a digital form.

XRPL’s CBDC Private Ledger helps Central Banks issue and manage CBDCs in a secure and controlled manner.

Can I Mine XRP?

Can I Mine XRP?

The short answer is, no. The detailed answer is that you cannot mine XRP like other proof-of-work cryptocurrencies because XRP is pre-mined. This means that 100 billion XRP was created at the time of XRPL’s launch in 2012 which is also the maximum supply of XRP.

Since Ripple does not use the proof-of-work consensus, there are no miners and XRP cannot be mined like other cryptocurrencies like Bitcoin. Instead, it uses a unique consensus protocol where designated validators called Unique Node List form consensus about XRP transactions every 3-5 seconds.

Additionally, XRP has a fixed schedule for its release. A smart contract ensures that every month a maximum of 1 billion XRP are released. At the end of the month, unsold XRP is returned to the escrow account it came from.

So, while you cannot directly mine XRP, you can certainly buy it from a cryptocurrency exchange. If you decide to go the mining route, you have to first mine another cryptocurrency like BTC and then exchange it for XRP.

Note: XRP Trading is suspended in the United States since 2021 due to the ongoing lawsuit filed by the U.S. Securities and Exchange Commission(SEC) against Ripple. 

Ripple(XRP) vs. Bitcoin(BTC)

Ripple(XRP) vs. Bitcoin(BTC)

The first thing that comes to mind when one thinks of cryptocurrency. After all, it is the oldest, largest and most popular cryptocurrency.

Over time, many altcoins i.e. crypto coins that are not Bitcoin have sprung up. Ripple’s XRP is also one of them. However, it is not like other cryptocurrencies out there.

There are a lot of differences between Bitcoin(BTC) and Ripple(XRP) that you might not be aware of.

Bitcoin is a digital currency created to be a decentralized medium of exchange. It can be used to buy goods and services like fiat currency except that Bitcoin is not guaranteed by any Central Bank.

Ripple, on the other hand, is not a cryptocurrency. XRP is. Many people use Ripple and XRP interchangeably but they are in fact, different.

Ripple is the company behind XRP. Ripple is a payment settlement system meant to be used by banks and other financial institutions. It is supposed to be an alternative to the SWIFT payment system.

XRP functions as a sort of bridge currency between different fiat/cryptocurrencies. Though it was inspired by Bitcoin, the founders of Ripple wanted to create a better and less energy-consuming version of Bitcoin. Unlike Bitcoin, XRP does not aim to be simply a new mode of paying for goods and services but to improve the traditional financial system.

Since there is no third-party involved, Bitcoin is dependent on a peer-to-peer network of miners to validate transactions. This is a part of a consensus protocol called Proof-of-Work(PoW) deployed by it. 

In PoW, Miners compete with each other to solve complicated mathematical puzzles. The one who solves the puzzle first gets to validate or verify the transaction. A new block is added to the existing chain after the transaction has been confirmed. The miner is rewarded with BTC for their efforts.

One major disadvantage of PoW is that it is extremely energy-intensive. According to the Cambridge Bitcoin Electricity Consumption Index, Bitcoin’s annual electricity consumption is more than that of countries like Argentina.

Keeping this in mind, the Ripple team was aware from the beginning that they had to make a more sustainable version of Bitcoin. XRP, keeping in mind long-term sustainability, does not use PoW. 

It has a rather unique consensus protocol based on trust. There is a Unique Node List(UNL) or a set of validators chosen by the network participants. These validators verify transactions by polling to reach a consensus. Along with being fast, this process ensures XRP consumes negligible amounts of energy.

Though Bitcoin and XRP both have a fixed supply of 21 million and 100 billion tokens respectively, their circulation mechanism differs. BTC comes into circulation as and when miners get it. There is no schedule for the release of BTC.

On the other hand, XRP is pre-mined. A maximum of 1 billion XRP tokens are released every month from an escrow account. This is executed by a smart contract. If any portion of the one billion XRP released in a month is left unutilized, it is shifted back to the escrow account. As of October 2022, the escrow account contains 44.3 billion XRP.

Though XRP has some better features, BTC is the largest cryptocurrency by market cap by a considerable margin. However, XRP has also managed to find space for itself in the cross-border payments and remittance business.

The fact is that though both BTC and XRP are cryptocurrencies, their functions are different and as such, comparing them beyond their features would not be apt since they are not exactly in direct competition.

Advantages of Ripple

Advantages of Ripple

Ripple has multiple benefits which makes it the perfect choice for making international payments.

1. Fast Settlement

XRP Ledger takes on an average only 3-5 seconds to settle transactions as against a few days required for a bank transfer. It is also faster than first-generation cryptocurrencies like Bitcoin which can take a few minutes to hours to settle transactions.

2. Better Scalability

Ripple is much more scalable than other cryptocurrency networks like Bitcoin and Ethereum. With a transaction speed of 1,500 transactions per second, it can easily handle increased network traffic, something which Bitcoin still struggles with and Ethereum did till it upgraded in 2022.

3. Low Cost

A transaction on the Ripple Network costs a negligible amount of $0.0002 per transaction on average. This makes it a more cost-effective option than Ethereum where the gas fees can sometimes exceed even $20.

4. Bridge Currency

XRP Ledger does not discriminate between any fiat and cryptocurrencies. Therefore, it can be used to easily exchange one currency with another. Multiple gateways can be used on the Ripple Network to complete transactions so that a chain of trust forms between the users.

5. Optimized for Enterprises

Ripple was originally designed to be used by financial institutions. As such, it is already optimized to be used by banking institutions and remittance giants. Bank of America, Santander and Banco Rendimento are some institutions using Ripple’s On-Demand Liquidity Service RippleNet.

Limitations of Ripple

Limitations of Ripple

Like any other blockchain platform, there are certain issues that make potential users wary of using Ripple and XRP.

1. More Centralized than Other Networks

Ripple has a default list of 150+ active validators. These are mostly financial institutions which tends to concentrate the transaction validating power in the hands of a few big players.

This goes against the central blockchain principle of decentralization.

2. Possibility of Price Manipulation

Unlike other cryptocurrencies, XRP is pre-mined. 100 billion XRP tokens were already created at the time of Ripple’s launch in 2012. 55 billion of those tokens were transferred to an escrow account in 2017.

Since the tokens are held and released by a single entity, there are fears that it would be easy to manipulate XRP’s price by releasing a large number of coins at once.

3. SEC Action Against Ripple

Ripple’s image took a hit in 2020 when the U.S. Securities and Exchange Commission(SEC) filed a lawsuit against it for raising funds by selling unregistered securities. 

The lawsuit is explained in detail in the next section.

4. Difficult to buy in the USA

Due to the ongoing SEC lawsuit, XRP is very difficult to buy in the USA as it is unavailable on most exchanges.

Ripple and the SEC Lawsuit

Ripple and the SEC Lawsuit

Ripple came into the limelight in 2020 when the U.S. Securities and Exchange Commission(SEC) sued Ripple and executives Chris Larsen and Brad Garlinghouse alleging that they had raised over $1.3 billion by selling unregistered securities.

This marks one of the most significant events in the tussle between cryptocurrencies and state regulators. As per the SEC, Ripple had violated Sections 5(a) and 5(c) of the Securities Act, 1933 by the illegal sale of unregistered securities. 

In a tweet on December 22, 2020, Ripple CEO Brad Garlinghouse announced that Ripple was not backing out and was ready to fight and win the battle.

SEC’s Take on the Matter

The SEC argues that XRP is a security like shares of a listed company and not a currency. The main conflict is whether XRP can be considered an investment contract over which SEC has regulatory authority. The term “investment contract” is not defined in federal securities law but the Howey test put forth in the 1946 SEC v. W.J.Howey Co. has since been used to define investment contracts.

According to the SEC, XRP satisfies the conditions to be a security because $1.3 billion worth of XRP was sold by Ripple to fund the development of its platform. In addition, Ripple also availed of labor and marketing-relating services by paying for the same with XRP. 

The SEC further argued that XRP should be considered an investment contract because XRP purchasers clearly expected to profit from their purchase due to Ripple’s activities.

Ripple’s Counter Argument

Since Ripple did not want to settle with the SEC, the case went to trial. The first conflict was over the fact that Ripple was never notified or warned about XRP being considered a security which the regulator also accepted.

Further, Ripple argued that XRP does not have all the ingredients to be considered an investment contract. There was no contract signed which imposed post-sale obligations on the promoters or guaranteed investors the right to receive profit. Therefore, XRP cannot be considered an investment contract or security under the 1933 Act.

Also, the company states that since XRP is a virtual currency, it is outside the regulatory purview of the SEC. Another big argument by Ripple is why should Ethereum(ETH) which is similar to XRP in terms of “unregistered securities” get a pass. 

Two years later, at the time of writing this article, the case is still ongoing in the court of judge Analisa Torres of the U.S. District Court for the New York South District. XRP has remained delisted from US crypto exchanges since 2021.

The case has become bigger than Ripple since the judgement would have a significant impact on the whole crypto ecosystem. The judgement would set the tone for further regulations for cryptocurrencies which currently operate in a legal grey area. It will determine whether cryptocurrencies like XRP can be reasonably considered securities or not.

On the other hand, if the decision is in favour of Ripple, it would be a major defeat for SEC. It would have some crucial implications for future SEC litigations due to the re-examination of the investment contract concept in a digital age.

The Bottom Line

Ripple was one of the most ambitious projects in the blockchain and cryptocurrency space. It set out to bring a change in the inefficient cross-border payment system. It has steadily grown over the years and counts Bank of America, Santander, Kotak Mahindra Bank and TransferGo among prominent RippleNet partners.

However, XRP is still prone to extreme volatility in its price by virtue of being a cryptocurrency. Therefore, if you want to invest in XRP, make sure it is money you can afford to lose.

The SEC allegations and the prolonged lawsuit may have dampened some enthusiasm about Ripple(XRP) but it still remains one of the most popular cryptocurrencies.

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