What is Ripple (XRP) Crypto Beginner’s Guide

As the world becomes more globalized, the need to make cross-border transactions will become more common. Currently there are a few systems in place that are able to handle such transactions, however, they aren’t the most reliable and often come with a set of rules or hefty fees. These hidden fees, rules, and other regulations can often impede in money transfers.

Bitcoin was one of the first pioneers to encourage an alternative to the current banking system and to the way in which people transfer funds amongst themselves. Along the way, many other cryptocurrencies have taken on the challenge of providing better, faster, and securer options to both banks and Bitcoin.

Not all cryptocurrencies strive to be the next Bitcoin, some choose to take on a different role in the realm of cross-border transactions. So why do cryptocurrencies strive to do what Bitcoin does without being like Bitcoin? How do developer teams hope to achieve the same level of acceptance and usage in an industry that is overflowing with similar altcoins?

How does a cryptocurrency breakaway from the Bitcoin image? There are many well-known altcoins on the market that offer similar platforms as Bitcoin without being Bitcoin. You may have already heard plenty about Ethereum, Litecoin, and even Dash. But these aren’t the only ones giving Bitcoin a run for their money, there is also Monero and Ripple.

So what is this Ripple cryptocurrency? How does it work? What makes it a better alternative to Bitcoin, Ethereum, Dash, and any other cross-border altcoin?

Ripple: Improving Cross-border Money Transfers One Transaction at a Time

Ripple is simply a combination of currency exchange, real-time gross settlement system, and a remittance network. This combination of networks, systems, exchange, and protocols is what allows Ripple to provide almost instance direct transfers of money between two parties. It was originally built to assist enterprises and other payment providers a simplified and secure transaction system.

The perks of Ripple is to allow for more than just monetary transactions but also gold, other currencies and even airline miles to be transferred between two people. What sets Ripple apart from its competition is the cryptocurrency doesn’t rely on the proof of work scheme that is commonly seen with many altcoins. After all, Ripple isn’t just another blockchain-backed cryptocurrency.

Another point that Ripple hopes to achieve is not having fees like the other mass transaction-based cryptocurrencies. On top of these major points, Ripple hopes to provide other benefits to both its customers and investors such as adding more payment providers and offering real value.

So how does Ripple hope to achieve its goals, beat out the competition, and do it all without the backbone of blockchain? Is there really a way to make fast transactions that are secure without blockchain technology? Is Ripple really able to meet the demands of its users and get the necessary back of banking providers?

How Does Ripple Work?

Ripple doesn’t use blockchain technology like Bitcoin and other altcoins. Instead, it operates through a network of servers that operate on a consensus protocol to ensure all ledgers are accurate. How Ripple does this is through the use of HashTree (a persistent data structure). Ripple uses HashTree to summarize all of the data into single values.

These single values are then compared across all of the validating servers in the network to provide consensus for all digital ledgers. To initiate a transaction, banks and payment providers will need to use XRP tokens. These tokens are distributed to clients by the company.

Ripple doesn’t use a proof of stake or proof of work mining scheme. Instead, it relies predominantly on its network of nodes to conduct all transactions.

Getting to Know the Inner Workings of Ripple

Now you may be wondering what makes Ripple work when it doesn’t use blockchain and there is no proof of work methods for earning XRP. Ripple is comprised of a few technological components beyond the XRP tokens. These parts are xCurrent, xRapid, and xVia. Each is used to handle a different type of transaction.

  • xCurrent – This is one of Ripple’s main platforms. It is primarily used by banks and other financial institutions to handle their cross-border transactions. This part of Ripple uses a type of messaging protocol. The messaging protocol is used to extract all necessary information for a particular transaction and relay that information between the involved parties.

The information gathered is then communicated to all banks involved with the transaction; the initiating bank, the corresponding bank of the country, and the person’s main bank where they will receive the funds. Once all of the data for the transaction is confirmed, the banks will then put a lock on the funds and a cryptographic signature is then generated.

Once the cryptographic signature is generated, the system will then simultaneously release the funds in a matter of seconds. How xCurrent does this through the use of their interledger.

  • xRapidThis is the second major platform for Ripple. It is used to help make transfers in assets that aren’t as liquid as fiat currencies. This is where you would see the XRP token used to facilitate the liquidity of the assets. It takes on sides funds and exchanges it into XRP tokens, these tokens are then exchanged into the other parties desired hard asset choice.

    This was created to prevent funds from being held in a correspondent bank of a beneficiary’s country. It also prevents the need for middlemen such as liquidity institutions to provide the beneficiary’s bank with the correct amount.

    Basically, the platform was structured to ease the burdens of trading raw materials and resources between enterprises and/or countries. Currently, there are a few payment providers that are using Ripple such as Moneygram and Western Union.

    An example of how this platform would work is akin to how dollars were traded into Soviet rubles. For someone to get the equal exchange rate of rubles for dollars and vice versa, one would have to first convert their dollars into gold and then exchange the gold into Soviet rubles.
  • xViaThis part of Ripple is the user interface with the help of an API integration platform. xVia’s main purpose is to make xRapid and xCurrent easier for the user to use while providing other services. Other services provided by the xVia interface is payment tracking, invoice generation, and a connection to all institutions that use Ripple’s platforms and products.
  • Ripple’s cryptocurrency token XRPThis is the main token that is used with the various platforms. This token is not mineable through proof of work, nor can you get it through proof of stake. Instead, the tokens are handed out by the company to clients as a market incentive. The transactions themselves are validated on trusted nodes using the blockchain XRP ledger.

    The network of financial institutions that use XRP is known as the RippleNet. The token can be seen as a sort of utility altcoin rather than a tradeable altcoin for profit. Since the token is used as an intermediary between complex transactions for a short period of time it doesn’t build in value compared to Bitcoin and Ethereum which are often stored, traded, and mined.

Is Ripple a Decentralized Cryptocurrency or Not?

Ripple is currently a centralized payment system since it relies heavily on servers instead. However, despite its centralized base, Ripple is still an open-source platform that is built on the principles of blockchain technology. This allows Ripple to offer a solid middle between hard financial institutions and the unpredictable nature of cryptocurrency.

What are the Benefits of Using Ripple?

  • Ripple is one of the fastest transaction platforms. It only takes four seconds to settle payments. To put it in perspective Ethereum takes approximately two or more minutes, Bitcoin takes an hour or so, and other systems take 3 – 5 business days to process payments.
  • Ripple offers better scalability compared to its competitors. Ripple can conduct up to 1,500 transactions every second, 24/7, whereas its competitors Ethereum and Bitcoin are nowhere near this level of output. Ethereum only has 15 transactions per second and Bitcoin having 3 – 6 transactions per second.
  • Since it is not dependent on blockchain technology, this makes Ripple less susceptible to ASICs and other system attacks that currently plagues cryptocurrency.
  • It offers a stable track record of reliable technology, reliable engineers for governance and maintenance of the platforms, negligible energy consumption; a major issue with major proof of work altcoins, and more.

The Drawbacks of Using Ripple as a Cross-border Money Transfer Option

  • The xCurrent platform can only be used for cross-border transactions involving liquid assets such as fiat currency. Basically, you can use this platform to exchange dollars into euros and other fiat currencies but not dollars into gold or other hard assets. 
  • The xRapid platform is limited to the liquidity of the XRP token. For this to be alleviated Ripple would have to place its tokens on cryptocurrency exchanges and have a reasonable rate of trade for its tokens. This platform is also heavily dependent on the number of market makers who currently hold the tokens. 
  • While xVia does simplify the user interface it comes with the limitation of testing since only a few providers are currently using it. Without significant amounts of testing done, any bugs within the interface could cause problems in the future and limit the use of Ripple and Ripple’s products. 

Final Thoughts on Ripple (XRP)

Ripple is one of the top five cross-border transactions cryptocurrencies for a reason, however, it is still not as trusted as its major competitors Ethereum and Bitcoin. Without an option to mine or, at the very least, trade in cryptocurrency exchanges it could hurt the potential growth of Ripple as a cross-border transaction cryptocurrency.

Despite the drawbacks, this platform is one of the better choices for those looking for a fast, efficient, and secure cross-border transaction network.

What is Ripple (XRP)
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