What is ripple and How does ripple work?

While cryptocurrency investment is synonymously viewed as bitcoin alone, there are several digital currencies in the market with many diverse functions, features, and market caps. Ripple Labs’ XRP, which is currently ranked 6th in the total market cap- is one of the rising digital currencies that investors are looking at. In this article, know all about Ripple- what is Ripple, what is XRP, how does it work, and what makes XRP unique. Scroll down to read more.  

What is Ripple (XRP) ?

Ripple is a currency exchange network that processes payment settlements by acting as a transaction facilitator between two parties and makes sure that the transactions are correctly done in a systematic manner.

Ripple, the parent company, uses XRP- the cryptocurrency as the medium of exchange to facilitate the transactions of assets exchange, payments, and remittance systems (an informal arrangement to transfer funds domestically and internationally without using recognized or formal financial institutions of respective countries).

Whenever a said user makes a transaction using the Ripple network, as a part of fee, the network deducts a predetermined amount of XRP based on the transaction amount. While making cross-border transactions, the standard fee is set to 0.0001 XRP, which is way cheaper than what financial institutions such as banks deduct generally.

How does Ripple (XRP) work

As mentioned above, while Ripple is the company that facilitates the exchange network system, XRP is their standard cryptocurrency through which the transactions are measured and conducted.

While cryptocurrencies, in general, give access to the transaction ledger to anyone who solve the equations quickly and leads the verification process, the Ripple network has a model of “node lists” which lets the users build their list of trusted validators apart from the Ripple’s 35 default validators.

These 35 default trusted validators make up about six validation nodes (picked by Ripple)- in case users wish to pick the validators that are backed by Ripple.  Although anyone can download the validation software, users have the liberty to choose their validators whom they consider to be the participants who are less likely to defraud.

Through this centralized set up, the transactions are conducted seamlessly without having to involve the company for approving each individual transaction. 

Validators update the ledgers as and when the transactions occur every now and then to make sure that the records are updated and match the ledgers. Whenever they find a mismatch or any discrepancies, they immediately sit on the issue and find out what went wrong.

This way, the transactions which happen via Ripple are securely validated minimizing the risk of fraud. Unlike other cryptocurrencies like bitcoin where the transactions are validated after hours (with high charges), transactions via XRP are validated and confirmed within seconds- that too with low charges when compared to other cryptocurrencies. 

How to use Ripple (XRP) ?

Ripple can be used both as a transaction medium and as an investment avenue too. XRP, the digital currency of Ripple, is now widely used as a medium of currency exchange outside formal financial institutions.

Let’s say you want to swap Euros for Dollars. You can swap the Euros equivalent for XRP via Ripple medium and then process the transaction without having to pay hefty exchange rates at banks and financial institutions. This way, you can transfer money or remittances overseas in a much faster, easier, and reliable way, without having to spend much on exchange and transaction charges. 

What makes Ripple (XRP) Unique ?

While cryptocurrencies in general use blockchain mining technology, Ripple has its own exchange network that securely, efficiently and cost-effectively validates and confirms transactions where the nodes verify transactions via polls in a somewhat centralized manner. Here are some of the major points why Ripple is unique from other exchange networks.

Broader exchange network

Although Ripple has its own cryptocurrency to facilitate transactions, this network is also used to process transactions of other cryptocurrencies, commodities, etc apart from XRP. A faster and reliable exchange and validation is the major reason why Ripple has become a trusted exchange network in recent times. 

Low transaction charges

Unlike bitcoin, Ripple charges a nominal amount of XRP (0.0001 XRP) per transaction- which is very affordable when compared to other cryptocurrencies which charge high transaction charges at current rates. 

Quicker validation and settlements

XRP transaction validation occurs within seconds or minutes. Generally, the widely used transaction channels like wire transfers or bank remittances take hours or sometimes even days to process a transaction. Even if the transaction speedens up, the time taken for the value to reflect in the participant’s account is more- as the process requires complying to exchange rates, remittance taxes, etc.

With Ripple and XRP, the transactions are confirmed as and when it happens. In case of any issue, it usually takes minutes, which is however least when compared to bitcoin or other cryptocurrencies. 

Transaction platform

Several large financial institutions (banks, in particular) use Ripple as a transaction platform as the network is more centralized and efficient.

How many Ripple (XRP) Coins?

Speaking of the XRPs in circulation, the Ripple network has over 45,000 billion tokens inflow. Although almost 50 billion XRPs are stored in escrow for ensuring adequate liquidity and supply of timely XRPs, every month Ripple labs releases around 1 billion tokens or XRPs, most of which are catered to the demands of cryptocurrency exchanges, and to save in the escrow account for future supply.

However, since its inception, Ripple created XRPs of around 100 billion, of which only a part is in circulation. Unlike other cryptocurrencies, XRPs cannot be mined as the unused XRPs are timely escalated to an escrow account, which makes sure that there wouldn’t be any oversupply of XRPs and the market is not overflowing with the surplus in the long run.

This way, the value of Ripple net or XRPs is strongly tied to the market fluctuations, rather than the surplus or deficit. 

Conclusion

Although Bitcoin is widely known across the world, the focus of investors is slowly shifting to other promising cryptocurrencies like XRP. Ripple scores over bitcoin in the areas of transaction charges and transaction time as XRPs operate in a different way when compared to BTC. While Bitcoin is entirely a public system not backed by any organization, Government, or even under the purview of financial institutions for that matter, XRPs are run by a private company- Ripple net, which is now transforming as an exchange network even for major financial institutions. Want to know how other cryptocurrencies like Bitcoin work? Head to Zeen blog. 

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