What is Ripple
Ripple is a blockchain-based payment network used for transactions. It has its digital asset or cryptocurrency, XRP. It can be used to buy services within the Ripple blockchain or as an investment. Ripple has been around since 2004, but as a blockchain system, it emerged in 2012.
The main idea for creating Ripple was to provide users with a financial payment system. It is similar to the SWIFT system for international transfers but is mainly used for cryptocurrencies even though it can be used for transferring fiat money as well.
XRP is a cryptocurrency used within the blockchain to use as payment for fees on exchanging or transferring other cryptocurrencies and fiat money. The minimum fee to process a transaction is 0.00001 XRP. The price of 1 XRP is $1.0337, so yes, fees are extremely low. Compared to using banks for money transfers, it’s close to nothing.
Even the most popular blockchain and cryptocurrency in the world, Bitcoin, offers much higher fees. No wonder why Ripple gets so much hype around it. Moreover, Ripple also offers a different way of confirming transactions that require less time, and less energy. These factors also explain low fees.
What is XRP and Why is it Used?
As it was mentioned, XRP is a digital token used within the Ripple blockchain. For example, Ethereum is a blockchain, but ETH is the token, Tether is the blockchain, but USDT is a cryptocurrency (or stable coin in this case).
XRP is used within the Ripple blockchain to make it easier to transfer money between different crypto or fiat currencies. The standard financial payment systems like banks use USD as a traditional currency in converting one fiat currency to another. This is the main reason why money transfers between various countries sometimes take up to 72 hours to confirm.
Instead of using USD as the traditional currency to convert one currency to another, Ripple uses XRP. In such a case, an exchange fee is not needed, so the process is less expensive, and completed a lot faster, usually within seconds.
How does the Ripple System Work?
Ripple blockchain works differently than all other blockchain systems. For example, Bitcoin opens access to verifying transactions to anyone who can solve complex algorithms. To eliminate fraud, the blockchain allows adding the block to the system only when the majority of ledger holders also approve the verification.
Ripple blockchain is different and may remind you of a more centralized system. Anyone can become a ledger holder by downloading the necessary software, but Ripple has a list of approved validators. That’s why Ripple is a system that approves transactions via a group of validator servers, unlike most other blockchains that use PoW or PoS algorithms.
Currently, the list of trusted validators contains 36 of them. A user who wants to make a transaction may choose any of these validators and pay a fee in XRP. Such an option is added to offer users to choose validators whom they trust.
It is only up to Ripple to decide who to add to the Ripple trusted validator list, but users can always opt for using other validators. It is even possible to create your list of trusted validators and use their services in the future while paying transaction fees in XRP.
Every time new transactions are asked to be verified within Ripple, validators update ledges within three to five seconds. The software automatically makes sure that ledgers match each other. If there is a mismatch, the transaction is stopped until the issue is figured out.
Ripple system allows to securely and quickly validate transactions. Fees are low, and operations are secure, meaning, Ripple has a huge advantage over Bitcoin.
A simple example, it takes at least 10 minutes for a transaction to be approved within the Blockchain system. The fee is usually rather high, an average is $25 unless a user is willing to wait for longer than an hour, and sometimes even longer.
A transaction within the system is made within seconds. All financial operations are secured thanks to the algorithm of trusted validator servers. Moreover, payments within Ripple are very low, an average of 0.0002 US dollars. The highest fee peaked at USD 0.42.
Advantages of Ripple
Most cryptocurrency blockchains have different purposes. For example, Bitcoin is more of a cryptocurrency that is used to get access to services and goods, to invest in. Ethereum is like a market for developers where they can build other platforms and get access to various useful tools.
Ripple also has a purpose and it is mainly used to enable easy and fast exchanges. It’s not a one-of-a-kind platform though, but it’s one of the strongest competitors in its field. The XRP coin and the Ripple system have advantages and disadvantages. Here are to name a few pros:
- Instantaneous financial operations. Instead of waiting for over 10 minutes, and in some cases, over a day, Ripple uses a different validation system enabling fast financial operations. And that’s in case you are using blockchain technology, if you use the services of banks, it takes days to get your transaction through. Ripple initially was designed to replace the SWIFT payment system.
- Low fees. The cost of completing financial operations on the Ripple platform is extremely low. You need to have XRP coins to be able to pay for transactions. The average cost of a transaction in XRP is 0.0001 XRP. It’s not even a penny!
- The Ripple platform may be used to exchange cryptocurrency and fiat currencies. If you don’t like the idea of using a bank and waiting for days to get your financial operation confirmed, you can use the Ripple exchange network. Ripple acts as a replacement for the SWIFT system.
- Backed by big financial enterprises. Ripple is probably one of the most used blockchain-based platforms. It is used by such banks as Yes Bank, Santandar, and other financial institutions. It proves Ripple to be a competitive and safe platform.
Overall, the biggest advantage of Ripple is its use case in real business. The Ripple system offers a solution to a real-life problem – low speed of transactions, lack of security and privacy, high cost of transferring money to another country by exchanging, etc.
The fact that Ripple offers real-life solutions makes XRP a very promising coin. Meaning, the market might face a demand from users, so XRP could rise in price. Today, XRP is a rather affordable coin to invest in, making XRP an interesting choice with big potential.
Disadvantages of Ripple
Just like any other cryptocurrency or platform, Ripple has disadvantages. Here are to name a few of them:
- Regulations against XRP. The Securities and Exchange Commission in the United States has filed a lawsuit against the company. The main reason for such an action is Ripple’s ability to release XRP whenever they want. But the Ripple platform isn’t registered properly according to this fact. As a result, quite a few exchange platforms stopped listing XRP as a coin to exchange.
- It’s a bit too centralized compared to other blockchain systems. On one hand, the algorithm used by the Ripple company enables users to choose trusted validators to approve their financial operations. On the other hand, it gives too much control to Ripple over the whole blockchain system. Theoretically, users might ignore trusted validators and opt for using other validators from their list. But it’s still a disadvantage.
- Too much power over XRP. The company has control over when and how many XRP coins to release.
The lawsuit against Ripple makes investors a bit indecisive when it comes to investing in XRP. Even though Ripple CEO seems quite confident that the judge will make the right decision and Ripple will be whitelisted by most exchanges again, it’s a gamble when it comes to investing in XRP.
Many investors believe that it’s quite tempting to invest in Ripple’s XRP since the coin is affordable and the system offers something unique to people in the world. The acceptance of the system by quite a few banks also is a good sign. But until the lawsuit isn’t resolved, investing in XRP is a tricky business.
Bitcoin vs Ripple
Even though both Bitcoin and Ripple are blockchain systems, each has a cryptocurrency to use the system, there are significant differences between these two ecosystems. Here are some key differences:
- Bitcoin offers a much slower speed of transactions, whereas transactions within Ripple blockchain are completed within seconds.
- Bitcoin is using mining as a way of confirming transactions, just as most other blockchains. But Ripple confirms transactions via a group of validator servers, which makes all transactions a lot faster.
- Bitcoin transactions take a lot more time to be confirmed because of the confirmation process, it takes a lot of energy to process them, and that causes an increase in fees. Ripple doesn’t require mining to approve financial operations, meaning, it takes less time, money, and energy to confirm transactions.
Ripple overall works a bit differently than all other blockchains. It is less centralized and has control over the flow of XRP. It has a different method of approving financial operations.
Unlike Bitcoin, you don’t have to wait for people to mine and add the block with your financial operation to the blockchain. Instead, Ripple uses a list of trusted validators. As a result, transactions are processed instantaneously.
Compared to Bitcoin, financial operations are a lot more affordable, take less time, and consume less power. If you compare Ripple to any centralized standard system like SWIFT, transactions are even faster. You don’t have to wait for days.
Ripple and its coin XRP have the potential in the future. But investors might need to be cautious until the situation with the lawsuit is settled. Bitcoin, in this case, is a safer option.