Coin Study

What Is Ripple (XRP)? A Crypto Coin Study

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Ripple is the coin with the second highest market capitalization behind Bitcoin, a position it’s held for much of 2018. Let’s see why it’s becoming so popular.

What Is Ripple?

Ripple is a real-time gross settlement system (RTGS), a currency exchange, and remittance network.

Its unique selling point lies in the way it transfers assets. For example, how would you convert a car into airline miles? There’s no exchange rate between the two. Instead, you’d have to convert the car into USD, then the USD into miles. It would be a slow and expensive process.

The associated cryptocurrency (XRP) replaces USD as the mediator between the different assets. It’s fungible with everything and is cheaper and faster than using dollars.

Although it can be used to exchange any assets, XRP is mainly focused on high-volume, inefficient corridors. One example is euros to Indian rupees. In inefficient corridors, market makers have tiny profit margins. Therefore, it becomes cheaper to transfer from EUR >XRP > INR, rather than use a regular exchange to go straight from EUR to INR.

Ripple then adds more countries to the corridors. For businesses that need to transfer money all over the world in lots of different currencies, it becomes more efficient to hold XRP rather than lots of disparate currencies, thus driving up demand and price.

The network can handle 1,500 transactions per second and can be scaled to 50,000 transactions per second. In contrast, Bitcoin can only handle six transactions per second, and Ethereum can handle 15.

Who’s Behind Ripple?

Ripple has its origins in Ripplepay, a decentralized monetary system that allowed people to make secure payments to other users around the world. The idea was initially conceived by Ryan Fugger back in 2004 and went live in 2005.

For its first six years of existence, Ripplepay remained relatively unknown. However, the situation changed in 2011 when Jed McCaleb became involved. McCaleb had previously worked on the P2P file-sharing network eDonkey, crypto exchange Mt Gox (pre-hack), and the Stellar cryptocurrency and blockchain.

McCaleb redesigned the way Ripple verified transactions, switching from a proof-of-work model to a consensus model. As a result, electricity costs dropped dramatically, and transaction speeds improved.

In 2012, McCaleb was joined by Chris Larsen. Larsen founded online mortgage lender E-Loan in 1996 before going on to launch several other fintech startups.

Fugger handed control of Ripplepay to the two men. They founded Opencoin (soon to become Ripple Labs) and quickly went about raising capital.

As of today, several leading blue-chip companies have invested in Ripple Labs, including Google, IDG Capital Partners, Santander, Standard Chartered, and Accenture.

How Does Ripple Work?

Cryptocurrencies usually have some standard features. There’s a blockchain, tokens are mined, and new tokens are slowly created over time.

Ripple has none of those attributes.

The lack of a blockchain is perhaps the most surprising aspect for newcomers. Instead of a blockchain, Ripple is built on the patented Ripple Protocol Consensus Algorithm (RPCA).

Instead of proof-of-work, it uses proof-of-correctness. Every node will apple RPCA every few seconds. If they agree, the ledger is closed, thus giving each node an identical last-closed ledger.

Ripple’s nodes are part of a unique node list (UNL) and handled by financial institutions. It’s led to criticism from some users who argue that the Ripple Protocol Consensus Algorithm is too centralized and goes against traditional blockchain ideals.

Furthermore, the nature of the Ripple Protocol Consensus Algorithm means XRP does not rely on mining. When Ripple was launched, 100 billion XRP were created. No more can ever be made.

Of the 100 billion, more than 80 percent remained in the hands of Ripple Labs. Today, Ripple Labs holds around 60 billion. Once again, it’s led to criticisms of over-centralization.

In many ways, it’s easier to think of XRP as a digital fiat currency rather than a cryptocurrency.

The Ripple White Paper

Ripple’s only whitepaper covers the Ripple Protocol Consensus Algorithm. You can read it for free on Ripple’s website.

In order to achieve correctness, given a maximal amount of Byzantine failures, it must be shown that it is impossible for a fraudulent transaction to be confirmed during consensus, unless the number of faulty nodes exceeds that tolerance.

The proof of the correctness of the RPCA then follows directly: since a transaction is only approved if 80% of the UNL of a server agrees with it, as long as 80% of the UNL is honest, no fraudulent transactions will be approved. Thus, for a UNL of n nodes in the network, the consensus protocol will maintain correctness so long as: f ≤ (n−1)/5 (1) (where f is the number failures).

How Much Does Ripple Cost?

Ripple achieved an all-time high of $3.40 in January 2018. Like all cryptocurrencies, its value has declined significantly since. Today, one token of XRP is worth $0.45.

ripple price 2018

However, despite the decline in value, Ripple has not endured the same volatility seen by other cryptos. Since June 2018, the price has been no higher than $0.61 and no lower than $0.25. It’s been two months since the price breached the $0.40-0.49 range.

XRP’s market cap is $18 billion based on a circulating supply of 40.3 billion coins and a total supply of 99.99 billion coins. The market cap peaked at $141 billion in on January 4, 2018.

Where to Buy Ripple

Despite persistent rumors, Ripple is still not available on Coinbase.

If you want to buy XRP using dollars, the largest market is on Bitfinex. It has a 24-hour volume of $30 million. The biggest single XRP market is with the Japanese Yen on Bitbank. It has a 24-hour volume of $124 million.

ripple markets 2018

In total, CoinMarketCap lists 260 exchanges which allow you to invest in Ripple.

What’s Ripple’s Future Potential?

The big worry about Ripple is the possibility for frozen assets. Founder Jed McCaleb discovered this for himself when he sold one million USD of Ripple in 2015, only to see the transaction reversed.

It has been suggested that McCaleb breached a contract, thus the freeze was initiated. However, the fact a freeze is possible will be an anathema to many. It proved Ripple has a much greater level of oversight and centralized control than most other cryptocurrencies in existence.

However, banks and other giant financial institutions clearly like the technology. Companies using the Ripple network include Santander, MoneyGram, BBVA, CIBC, MUFG, SEB, and American Express.

The great unknown is the future of the XRP token. Indeed, Ripple nearly killed the token before the world of crypto exploded a couple of years ago, and XRP is not necessary for the RPCA to work. When the Financial Times surveyed 18 companies using Ripple in some capacity, none of them had used the XRP token.

Join the Ripple Community

To learn more about Ripple and speak to the token advocates, you can join some online communities:

Make sure you share your favorite Ripple communities in the comments below.

Dan Price
In his previous life, Dan spent five years providing investment advice to clients. You might assume, therefore, he was savvy enough to spot the opportunities presented by cryptocurrency in its early days. Sadly, he wasn’t. But that doesn’t mean he doesn’t have a passion for all things blockchain today. He strongly believes in long-term future of the technology and wants to help everyone else understand its benefits. Just don’t listen to his market tips.

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