XRP - What should you know about Ripple?

What is Ripple?

Ripple is a payment settlement system as well as a currency exchange network that is able to process transactions across the globe. The concept is that Ripple is a trusted intermediary between two parties involved in transactions since it will quickly verify that the transaction was completed in a proper manner. Ripple allows exchanges of various fiat currencies, crypto currencies such as Bitcoin or even for commodities such as gold.

"Ripple was created from the beginning to serve as a replacement for SWIFT (a major payment network] and alternatively replace the layer of settlement between major financial institutions" claims Pat White, CEO of Bitwave.

When users conduct transactions on the network it deducts an amount of XRP, which is a cryptocurrency in exchange for payment.

"The cost for conducting transactions using Ripple is 0.00001 of XRP. This is low compared to massive fees charged by banks for trans-border payments" claims El Lee, board member of Onchain Custodian. In late April 2021 the price of XRP is .38 to the token which means that the transaction cost works out to be $0.0000138. 

What is XRP?

XRP is a cryptocurrency that is based in the XRP Ledger which is a blockchain developed by Jed McCaleb, Arthur Britto and David Schwartz. McCaleb and Britto went on to create Ripple and utilize XRP for facilitating transactions within the Ripple network. You can purchase XRP for investment purposes, an exchange currency for other currencies, or to fund transactions through Ripple. Ripple network.

The XRP blockchain works in a different way than other cryptocurrencies. Some cryptocurrencies allow their ledgers of transactions and verification procedures for anyone who can work out complicated equations in a short time, however transactions are secured because the majority of the ledger holders must accept the process of verification before they can be included.

Instead it is the XRP's Ripple network is somewhat centralized It allows anyone to download the validated software for their transactions, the network keeps its own unique node lists which users can decide to use to verify transactions, based on which of the people they believe are the most likely to not defraud them. Its list of nodes currently comprises 35 validated validators who are trustworthy. Ripple determines which validators to be able to accept on this list and is also the underlying source for six of the validation nodes. Users are able to choose to opt out of this list of defaults and eliminate Ripple-backed validations from their transactions completely, and instead build individual lists of validators they trust. This would permit Ripple to accept transactions, despite Ripple the company being in any way or being able to continue operating.

As new transactions enter the system Validators update their ledgers every three or five seconds. They then check to see if they are in line with the other ledgers. If they find a gap the validators stop and try to find out the reason for the error. This lets Ripple to efficiently and securely verify transactions, giving Ripple an advantage over other cryptocurrencies, including Bitcoin.

"Bitcoin confirmations of transactions can be lengthy, taking hours or even minutes and typically come with high transaction costs" Lee says. Lee. "XRP Transactions can be confirmed in 4 to 5 seconds and at significantly lower costs." 

Understanding Ripple

Ripple is an open-source and peer-to-peer decentralized platform that allows for seamless transfer of cash in any format such as dollars, euros, yen or even cryptocurrencies like bitcoin or litecoin. Ripple is a worldwide payments network that counts banks and financial services as its clients. XRP is utilized in its services to allow fast conversion between various currencies.

Ripple as an Digital Hawala Network

To better understand how the system functions take a look at a money transfer model where the two parties at the opposite end of the transaction employ their preferred middlemen to collect the cash. In essence, Ripple functions as a digital hawala service. Hawala is a method to transfer money, generally across borders, with no physical cash actually moving.

Imagine that Lawrence must send 00 to River who lives in a different town. Lawrence offers the money that are to be sent directly to River to Lawrence's local agent Kate. Lawrence also gives an encrypted password to which River must enter correctly to be able to receive the funds within their town. Kate informs River's agent Asuka of the details of the transaction, including the recipient, the amount to be reimbursed, as well as the password. If River provides Asuka the correct password Asuka will give them 00.

However, the cash is credited to Asuka's account so Kate is owed Asuka 00 (which is due to be paid at an earlier date). Asuka could either keep the entire Kate's debts, which Kate will pay at a later date or perform counter-transactions to pay off the debt. For instance in the event that Asuka was Martin's agent, and Martin wanted for him to pay 00 Etios who's agent is Kate and this balances out the 00 due to Asuka because Etios is paid from Kate's bank account.

While it is true that the Ripple network is more complex than this one however, it provides the basic understanding to understand how Ripple system functions. In the above example it is clear that trust is needed for a transaction to be initiated. Trust is required between Lawrence with Kate, Kate and Asuka as well as River as well Asuka.

Ripple makes use of a medium called a gateway, as the intermediary in the chain of trust between two parties seeking to complete an exchange. The gateway is a financial intermediary that accepts and transmits currency to public addresses on the Ripple network. Anyone , or any company, can sign up and create the gateway, which allows the registrant to serve as the intermediary to exchange currencies, ensuring liquidity and for transferring money through the network. 

What You Can Benefit From Ripple and XRP

It is possible to utilize XRP just like different cryptocurrencies in transactions or as an investment. It is also possible to use Ripple as a Ripple network to handle different kinds of transactions for instance, trading currencies.

For instance, if you're looking to swap USD to euros, you can first swap your USD into XRP via Ripple. Ripple network, then utilize those funds to buy euros instead of managing the exchange directly via the bank or money change exchange. This is a more efficient and cost-effective option than paying the costly fees banks and money transfer companies could charge. 

Should You Purchase XRP?

Although some may think the potential benefits and vision of XRP attractive, White is worried the SEC lawsuit could be a source of trouble for those seeking to invest into the idea. "They have positioned their company as a settlement platform for companies that are regulated However, they're also in a battle over the SEC. The customers they'd like to have onboard can actually utilize the XRP platform until Ripple has their legal issues resolved," he says.

All this uncertainties, Enneking warns that XRP is not a bet for the faint-hearted. While it has been able to recover, "the SEC announcement caused the price of XRP fall," he notes, making it a risky investment until the situation is settled by the SEC.

However, if you think that Ripple will prevail against the SEC and will continue to take over as a payment platform and payment system, it might be worthwhile to invest in XRP. Make sure you buy it with funds you are able to lose.