Ripple is a global money transfer network based on blockchain technology that enables banks, payment providers, digital asset exchanges, and other institutions to settle cross-border payments in an inexpensive and efficient manner.
Legacy payment transfer solutions, such as SWIFT, take several business days to settle international fund transfers and charge exorbitant fees because SWIFT involves multiple banking partners. Ripple uses XRP Ledger, an open-source blockchain network, to streamline global payment infrastructure, allowing businesses to send and receive cross-border payments in three to five seconds. Ripple transactions are not only much faster than SWIFT or decentralized payment networks like Bitcoin, but they are also much cheaper. To be more specific, Ripple transactions cost only $0.0002.
Companies and financial institutions can use Ripple to send real-time cross-border payments, source crypto liquidity from global crypto markets, and create their own Central Bank Digital Currency (CBDC).
While payment was the foundation of Ripple's operations in its early years, the protocol has gradually rebranded into a more robust ecosystem in recent years, owing to the explosion of decentralized applications. Today, the XRP provides an environment in which DeFi and NFT applications can thrive, in addition to enabling lightning-fast and cheap payments.
XRP, the native cryptocurrency of Ripple, is used to facilitate transactions on the Ripple network.
There are three core components of the Ripple network:
RippleNet: RippleNet is a network of financial institutions, including global banks, that help users send and receive payments on Ripple. Just like HTTPS provides a common protocol to send information across the web, RippleNet allows value transfer using a uniform set of rules called Ripple Transaction Protocol (RTXP).
Ripple: Ripple is the core platform powered by XRP Ledger (XRPL) and provides three features, namely the real-time gross settlement system (RTGS), currency exchange, and remittance transfers.
Gateways: Gateways are banks that act as trusted intermediaries between two transacting parties. These gateways are responsible for transferring funds in fiat and cryptocurrencies using the Ripple network.
Blockchains like Bitcoin or Ethereum are decentralized and rely on trustless consensus mechanisms where users do not need to trust each other to send value. On the contrary, Ripple relies on a trust-based consensus mechanism using the XRP Ledger consensus protocol, where transactions are verified by trusted validators.
The XRP Ledger comprises servers that collect transactions from client applications, such as financial institutions, and processes them. Participants using the Ripple network choose a set of servers that participate in a consensus mechanism from a Unique Node List (UNL) maintained by Ripple. These servers are trusted to behave honestly to validate transactions. As long as 80% of servers on the UNL agree on a set of transactions, the transactions are verified. If a majority consensus is not achieved, the validators modify their proposals over several rounds until the UNL servers consider the transitions valid.
The XRP Ledger servers are operated by companies and financial institutions. Ripple, XRP Ledger Foundation, and Coil (a Ripple-funded platform) release lists of recommended validators based on metrics like past performance, verified identity, and IT policies.
Ripple minted a hard-capped supply of 100 billion XRP at launch. Out of these 100 billion XRP tokens, 20% were given to Ripple founders Chris Larsen and Jed McCaleb, 77.8% XRP tokens were allocated to Ripple, and 0.2% were airdropped to users.
In 2017, Ripple sent 55 billion XRP tokens from its allocated supply to an escrow account. It was decided that the company would release a maximum of 1 billion XRP tokens per month to support Ripple's operation. The unused funds are sent back to the escrow account by the end of each month. Messari suggests that nearly 300 million XRP from the escrow account enter circulation each month. As per Ripple, 45 billion XRP tokens are held in the escrow account as of May 2022.
All XRP tokens were pre-mined by Ripple at launch. Thus, you cannot mine new XRP tokens. To ease inflation, Ripple has implemented a deflationary mechanism for XRP wherein all the fees collected on the network are burned.
XRP tokens enter circulation when the tokens are sold in the open market. Ripple cannot sell more than 0.25% of the average daily volume of crypto exchanges from their reserves during programmatic sales. XRP sales also come from direct selling by institutions partnering with Ripple.
Ryan Fugger founded a peer-to-peer payments network called RipplePay in 2004, that would later become Ripple. In 2011, Jed McCaleb, with a team of developers, started working on a new consensus mechanism for digital currencies, which was later called XRP Ledger. McCaleb was joined by Chris Larsen, David Schwartz, and Arthur Britto.
A year after, Jed McCaleb and Chris Larsen reached out to Ryan Fugger to acquire RipplePay, and Ryan decided to hand over the project to them. After integrating RipplePay, Larsen and McCaleb launched Opencoin (now Ripple Labs) in September 2012.
Ripple Labs released the XRP cryptocurrency in 2012 and raised over $7.5 million in 2013 to fund the development of the Ripple project. Since then, be it implementing stricter anti-money laundering policies or obtaining a BitLicense from the State of New York, Ripple has focused on gaining the trust of financial institutions to join their network and process payments.
Ripple is popular among businesses due to the numerous business opportunities it offers. After adding XRP support in 2018, Wirex, a crypto Visa Card company, received 12 million XRP deposits.
In 2019, Ripple expanded into new markets by investing $100 million in Forte, a blockchain-based gaming startup.
Furthermore, the network gained traction after the Swiss SIX exchange launched the XRP ETF. XRP has also been added to Nasdaq's cryptocurrency indexes. Following that, the second-largest stock exchange in Germany launched XRP exchange-traded notes.
Ripple announced at the end of 2019 that it had raised $200 million from Tetragon, SBI Holdings, and Route 66 Ventures.
Ripple, like most blockchains, employs a consensus algorithm to keep the network decentralized. Ripple, in particular, employs the Federated Consensus algorithm, which is more environmentally friendly, faster, and less expensive than Bitcoin's Proof of Work mechanism.
Because there are no predefined selection processes involving mining and staking, anyone can become a validator, which is one of the peculiarities of Ripple's consensus mechanism. Despite the fact that the Ripple validator community is open to all, Ripple maintains a list of trusted validators known as the Unique Node List (UNL). Ripple is in charge of some of the validator nodes on the UNL.
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