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What Is Ripple? What Is XRP? – Forbes Advisor

Meet Ripple & XRP, Cryptocurrency For Banks
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Ripple is a money transfer network designed to meet the needs of the financial services industry. XRP, a cryptocurrency designed to operate on the Ripple network, is consistently listed in the top five cryptocurrencies by market capitalization.

Despite its ambitions, Ripple is currently tied up in legal troubles with the Securities and Exchange Commission (SEC), although this has hardly prevented XRP from rising in value with other cryptocurrencies.

What is ripple?

Ripple is a payment settlement system and currency exchange network that can process transactions around the world. The idea is that Ripple acts as a trusted proxy between two parties to a transaction where the network can quickly confirm that the exchange took place correctly. Ripple can facilitate exchanges for a variety of fiat currencies, cryptocurrencies such as Bitcoin, and even commodities such as gold.

“Ripple was designed from the start as an alternative to SWIFT [a leading money transfer network] Or to replace the settlement layer between major financial institutions,” says Pat White, CEO of Bitwave.

When users make a transaction using the network, the network deducts a small amount of XRP, a cryptocurrency, as a fee.

“The standard fee for making transactions on Ripple is set at 0.00001 XRP, which is minimal compared to the large fees charged by banks for making cross-border payments,” says El Lee, Onchain Custodian Board Member. As of late April 2021, the price of XRP is $1.38 per token, which means that the transaction fee is only $0.000138.

What is XRP?

XRP is a cryptocurrency that runs on the XRP Ledger, a blockchain designed by Jed McCaleb, Arthur Britto, and David Schwartz. McCaleb and Brito went on to found Ripple and use XRP to facilitate transactions on the network. You can buy XRP as an investment, as a coin to exchange for other cryptocurrencies or as a way to fund transactions on the Ripple network.

Notably, the XRP blockchain works a little differently than most other cryptocurrencies. Other cryptocurrencies open their transaction ledgers and verifications to anyone who can quickly solve complex equations, but transactions are secure because the majority of ledger holders must agree to a verification in order to be added.

Instead, Ripple’s network of XRP centralizes things somewhat: while anyone can download its verification software, it maintains what it calls lists of unique nodes that users can select to verify their transactions based on which participants they think are least likely. to defraud them. Its default list currently contains 35 trusted validators. Ripple decides which auditors will approve this list and also make up six validation nodes. However, users can opt out of this default list and remove Ripple-powered validators by default from their entire transactions, instead of creating their own lists of trusted validators. This would allow the network to continue approving transactions even without Ripple remaining with the company or even its continued existence.

As new transactions emerge, auditors update their ledgers every three to five seconds and ensure they match with other ledgers. If there is a mismatch, they stop to see what went wrong. This allows Ripple to securely and efficiently validate transactions, giving it an edge over other cryptocurrencies, such as Bitcoin.

“Bitcoin transaction confirmations can take several minutes or hours, and are usually associated with high transaction costs,” Lee says. “XRP transactions are confirmed in about four to five seconds at a much lower cost.”

How to mine XRP

“Mining” is the distributed verification system used by most blockchain-based cryptocurrencies. It facilitates transactions and provides the mechanism by which a new currency is introduced into the cryptocurrency system – usually as a reward to investigators for their work in support of the network. For example, Bitcoin has a total supply limit of 21 million tokens being issued steadily as more and more transactions are verified,

By contrast, XRP was “pre-mined,” meaning that the XRP Ledger generated 100 billion tokens that were periodically issued publicly. Ripple has about 6% of that as their incentive to help the cryptocurrency grow and succeed over time. Another 48% is held in reserve for regular release on the market through sales.

Understandably, this has led to concerns that too much XRP could be released simultaneously, reducing the value of other XRP already in circulation because part of what gives any coin its value is its relative scarcity.

“The company has tried to reduce uncertainty by implementing several mechanisms (trust, expected issuance, etc.),” says Tim Enneking, Director of Digital Capital Management. This distinction between mining versus pre-mining may also be a reason for its conflict with the SEC as the SEC may believe that XRP is a lesser and more secure currency, like stocks, that are governed by different and more stringent regulations.

Ripple advantages

  • quick settlement. Incredibly fast transaction confirmations. It typically takes four to five seconds, compared to the days it can take banks to complete a wire transfer or the minutes or hours it can potentially take for bitcoin transactions to be verified.
  • Very low fees. The cost of completing a transaction on the Ripple network is only 0.0001 XRP, which is a fraction of a penny at current rates.
  • A multi-use network. The Ripple network not only processes transactions with XRP, but it can also be used for fiat currencies, cryptocurrencies, and commodities.
  • Used by large financial institutions. Large companies can also use Ripple as a transaction platform. Santandar, Axis Bank, and Yes Bank are using this network, which shows that it already has greater institutional market adoption than most cryptocurrencies.

ripple defects

  • Somewhat central. One of the reasons digital currencies have become so popular is that they have been decentralized, taking control of large banks and governments. The Ripple system can be somewhat centralized due to its default list of validators, which goes against this philosophy.
  • Large supply of XRP is pre-mined. Although most of Ripple’s non-circulating supplies are stored in escrow, it is possible that large amounts of money will be entered at inappropriate times, which could affect the value of XRP.
  • The latest SEC action against XRP. In 2020, the Securities and Exchange Commission (SEC) filed a lawsuit against Ripple, saying that since it could decide when to issue XRP, the company should have registered it as collateral. Until this is resolved, institutional use of this system could slow down. Several exchanges have also stopped listing XRP as a result.

How you can use Ripple and XRP

You can use XRP like any other digital currency, either for transactions or as a potential investment. You can also use the Ripple network to process other types of transactions, such as currency exchange.

For example, if you are looking to exchange US dollars for Euros, you can first exchange US dollars for XRP on the Ripple network, and then use them to buy Euros, rather than dealing with currency exchange directly through a bank or exchange. This can be a much faster and cheaper approach in exchange for the higher fees that banks and money transfer institutions may charge.

Should you buy XRP?

While some may find the vision and benefits of XRP compelling, White worries that the SEC lawsuit could create problems for those looking to buy. “They position themselves as a settlement layer for regulated companies, but they are also in a deep dispute with the SEC. None of the clients who want to join them can start using XRP until Ripple discovers their legal issues.”

With all this skepticism, Enneking warns that XRP can be a gamble not for the faint-hearted. Although it has since recovered, “the SEC announcement caused the price of XRP to drop,” he notes, making this crypto a particularly volatile investment until matters are settled with the SEC.

However, if you believe that Ripple will emerge victorious against the SEC and continue to take over as a payment system, then it may be worth buying XRP. Just make sure you have money you can afford to lose.

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