What Is XRP (Ripple)? (2024)

Ripple is a money transfer network designed to serve the needs of the financial services industry. XRP is the native cryptocurrency on the Ripple network, and it consistently lists among the top 10 cryptocurrencies by market capitalization.

What Is Ripple?

Ripple is the company behind XRP, and it’s a payment settlement system and currency exchange network that can process transactions globally.

“Ripple was designed from the very beginning to essentially be a replacement for SWIFT (a leading money transfer network) or to otherwise replace the settlement layer between major financial institutions,” says Pat White, CEO of Bitwave.

It serves as a trusted agent between two parties in a transaction as the network can quickly confirm that the exchange went through properly. Ripple can facilitate exchanges for a variety of fiat currencies and cryptocurrencies, such as Bitcoin, to name one example.

Whenever users make a transaction using the network, the network deducts a small amount of XRP, a cryptocurrency, as a fee.

“The standard fee to conduct transactions on Ripple is set at 0.00001 XRP, which is minimal compared to the large fees charged by banks for conducting cross-border payments,” says El Lee, board member of Onchain Custodian.

What Is XRP?

XRP is a cryptocurrency that runs on the XRP Ledger, a blockchain engineered by Jed McCaleb, Arthur Britto and David Schwartz. McCaleb and Britto would go on to found Ripple and use XRP to facilitate transactions on the network.

You can buy XRP as an investment, as a crypto to exchange for other cryptocurrencies or as a way to finance transactions on the Ripple network.

Notably, XRP’s blockchain operates a little differently than most other cryptos. Other cryptocurrencies open their transaction ledgers and verification processes to anyone who can solve complex equations quickly. But transactions are secure as the majority of ledger holders must agree with the verification for them to be added.

XRP’s Ripple network somewhat centralizes things and uses a consensus protocol: While anyone can download its validation software, it maintains unique node lists that users can select to verify their transactions based on which participants they think are least likely to defraud them.

As new transactions come in, the validators update their ledgers every three to five seconds and make sure they match the other ledgers. If there’s a mismatch, they stop to figure out what went wrong. This allows the network to securely and efficiently validate transactions, which gives it an edge over other cryptocurrencies like Bitcoin.

“Bitcoin transaction confirmations may take many minutes or hours and are typically associated with high transaction costs,” says Lee. “XRP transactions are confirmed around four to five seconds at a much lower cost.”

How to Mine XRP

“Mining” is the distributed verification system used by most blockchain-based cryptocurrencies. It both facilitates transactions and provides the mechanism by which new currency is introduced into a cryptocurrency system—typically as a reward to verifiers for their work supporting the network. For example, Bitcoin has a maximum supply limit of 21 million tokens that are steadily released as more and more transactions are verified,

XRP, in contrast, was “pre-mined,” meaning the XRP Ledger created 100 billion units that are then periodically released publicly.

Ripple owns a portion of XRP in circulations, and that is an incentive for it to help the cryptocurrency grow and be successful over time. Another proportion of XRPs is held in reserve for regular release into the market through sales.

Understandably, this has led to concerns that a lot of XRP could be released at once, diluting the value of other XRP already in circulation because part of what gives any currency its value is its comparative scarcity.

“The company has tried to reduce the uncertainty by implementing several mechanisms (trust, predictable release, etc.),” says Tim Enneking, principal of Digital Capital Management. That mining vs. pre-mining distinction may also be a reason for its 2020 conflict with the U.S. Securities and Exchange Commission (SEC).

Ripple Advantages

• Fast settlement. Transaction confirmations are incredibly fast. They generally take four to five seconds, compared with the days it may take banks to complete a wire transfer or the minutes or potentially hours it takes for Bitcoin transactions to be verified.
• Very low fees. The cost to complete a transaction on the Ripple network is just 0.00001 XRP, a small fraction of a penny at current rates.
• Versatile exchange network. The Ripple network not only processes transactions using XRP. But it can also be used for other fiat currencies and cryptocurrencies.
• Used by large financial institutions. Large enterprises can also use Ripple as a transaction platform. Santander and Bank of America are a few using this network, demonstrating it already has larger institutional market adoption than most cryptocurrencies.

Ripple Disadvantages

• Somewhat centralized. One of the reasons that cryptocurrencies became popular is that they were decentralized, taking control away from large banks and governments. The Ripple system can be somewhat centralized because of its default list of validators, which goes against this philosophy.
• Large pre-mined XRP supply. Though most of the Ripple supply not held in circulation is stored in escrow, it’s possible large quantities may get introduced at inopportune times, which could impact XRP’s value.
• SEC action against XRP. In December 2020, the SEC filed a lawsuit against Ripple, saying that since it can decide when to release XRP, the company should have registered it as a security. The company has denied the allegation.

How You Can Use Ripple and XRP

You can use XRP like any other digital currency, either for transactions or as a potential investment. You could also use the Ripple network to process other types of transactions, like exchanging currencies.

For example, if you are looking to swap U.S. dollars for euros, you could first exchange your U.S. dollars for XRP on the Ripple network, and then use those to buy euros, rather than handling the currency exchange directly through a bank or money changing exchange. This can be a much faster and cheaper approach versus paying the high fees banks and money remittance organizations may charge.

Should You Buy XRP?

XRP can be a gamble not for the faint-hearted.

That said, if you believe that Ripple will emerge victorious as a payment system, then it could be worth buying XRP. Just make sure it’s with money you can afford to lose.