Ripple is a cryptocurrency as well as a platform for enabling cheap and fast financial transactions all over the globe. Its platform’s payment settlement technology has been adopted by banks and other payment networks.
It claims to be an open source platform and offers a more transactional, functional and decentralized peer-to-peer network compared to Bitcoin and Ethereum, although there have been many detractors, particularly to its claim of decentralization.
Ripple allows the exchange for any kind of value (with XRP as its underlying token) between two or more parties almost instantaneously. However, due to its validating servers and mechanism which requires an agreement between those validating servers, Ripple is often misunderstood as a blockchain-based system.
The participants of the Ripple network (RippleNet) are categorized into two different groups, namely, Network Users (corporates, small- and medium-scale enterprises, banks and payment providers) who direct payments and Network Members (banks, payment providers) who process payments. This is incorporated through xCurrent, xRapid and xVia.
How does Ripple work?
The consensus mechanism and the validating servers make people think that Ripple is a blockchain-based system, when in reality, it is not. Ripple uses a HashTree to encapsulate the data into a single value which is paralleled by the validating servers to provide consensus. Ripple does not rely on the computing of rigorous proof-of-work protocol like Bitcoin. It is not possible to mine XRP and the only persons who can generate XRP are the ones who actually created it — one of the centralized features of Ripple.
XRP is the underlying token of Ripple. Its mining is not possible due to the following reasons:
- It is a regular currency controlled by the US Ripple company which has produced an official static figure of 100 billion units of which 39 billion units are in the market.
- Investors in XRP are betting on the inclination of banks towards buying huge amounts of this currency in order to improvise their services, rather than selling them and providing them to their customers, as it doesn’t come to replace currencies.
Currently, customers face real hardships in making real-time, low-cost and fully traceable payments. This is mainly because the current payment system is a blend of centralized networks. Ripple seeks to break through these pain points, offering an efficient network of banks and payment providers to achieve the above said. Moreover, it allows making payments in any currency and has a very small internal transaction fee of $0.00001. It appears to suit enterprise usage which is its main focus. The network’s ability to transfer assets around the world and shift money between the various foreign currencies makes it stand out.
- The biggest problem that hinders any cryptocurrency’s growth in general is its real-world utilization. The real victory for Ripple would be when banks will approve payments in XRP. This could be quite challenging for now as it requires a better infrastructure, technology, liquefaction against any mode of transaction and of course, more acceptance.
- Previously, there were many lawsuits filed against Ripple Lab, the inventors, alleging them of manipulating the market. Although they won many of these lawsuits, claims persist that Ripple is not decentralized, thereby hindering its progress and acceptance.
The future of Ripple
Ripple has come a long way to make its position in the market. In a discussion with Modern Wall Street, legal practitioner Douglas Borthwick said:
“There are some cryptos that are working with regulators. Ripple would be an example. I can imagine in the next five years instead of doing sterling against the dollar or sterling against the yen, I can see these transfer transactions with sterling versus Ripple… I think Ripple has a great future because right now it is supported by all the banks and all the regulators.”
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