What is XRP?

What is XRP? Ripple XRP is one of the best-known cryptocurrencies. It is a coin dividing crypto investors into two groups: XRP has both its fanatic supporters and opponents. This article is the XRP Beginner’s Guide. We’ll go through the history of XRP, Ripple, and key technical features.

What is XRP?

XRP is a cryptocurrency launched in 2013 by the technology company Ripple. XRP is the native currency of the XRP Ledger, which is a decentralized, public blockchain. The XRP Ledger is a technology developed by Ripple, and XRP serves as the native digital asset of this ledger.

The XRP Ledger was designed to facilitate fast and secure transactions. It uses a consensus algorithm called RPCA (Ripple Protocol Consensus Algorithm) to validate and settle transactions in near real-time.

Ripple, the company behind XRP, has developed various payment and remittance solutions for financial institutions. One of their main products is called Cross-Border Payments, a global network of banks, payment providers, and other financial institutions that leverage Ripple’s technology to facilitate fast and low-cost cross-border transactions.

Here is basic information about XRP:

Follow the price of XRP from this page: XRP price.

The XRP token was originally called Ripple in the crypto exchanges. This caused a lot of confusion between Ripple, the company, and XRP, the token. This changed a couple of years ago when Ripple named the token officially XRP. Some exchanges might still call it Ripple XRP, though.

XRP has been one of the top 10 cryptocurrencies since the crypto bull market in 2017. It has even been in the top 5 rankings for a long time. XRP has probably the largest fan base after Bitcoin and Ethereum in the crypto industry. There are also few competitors for its technology. These two factors are the biggest strengths of XRP.

The History of XRP and Ripple

The history of XRP began in 2011. This was when Jed McCaleb started to develop a better, faster, and more efficient alternative for Bitcoin. He wanted a consensus model with scalability and without physical mining devices.

Not many know that Roger Ver was also a key person in XRP’s history. The founder of Bitcoin Cash offered to pay the first year’s salary of David Schwartz, who was hired as the lead developer. Ver also invested in many other crypto startups in the early 2010s.

See the tweet below: David Schwartz is currently the CTO of Ripple.

Live now at #XRPMEETUPJAPAN: CTO @JoelKatz discusses the core technical innovations that make up #XRP and the #XRPledger. pic.twitter.com/YeTGaSUuH1

— Ripple (@Ripple) November 10, 2019

Chris Larsen and Arthur Britto joined the project in 2012. Larsen is often named the founder of Ripple with McCaleb and is Ripple’s chairman. Larsen is known in the crypto industry, while Britto has always wanted to stay out of the spotlight.

After a while, Larsen and McCaleb contacted Ryan Fugger. He has been developing a payment concept called RipplePay since 2004. Fugger decided to join Larsen and McCaleb in 2012. That is when a company called Opencoin was formed and re-branded in 2013 to Ripple Labs.

One could say that the history of XRP and Ripple goes all the way to 2004!

Ripple launched the XRP Ledger in 2013. Originally, it was named Ripple Consensus Ledger. This is when the XRP token was created. Exactly 100 billion of them. The token was distributed as follows: 80 billion to Ripple Labs and 20 billion to founders Larsen, McCaleb, and Britto.

Ripple Labs was re-branded again to Ripple in 2015. The company was also granted the 2nd BitLicense in United States history by NYSDFS (New York State Department of Financial Services). Only a handful of companies have been granted a BitLicense.

CEO Brad Garlinghouse is now the face of Ripple. He is well-known in the crypto world and is often featured on CNBC. See the video below, where Garlinghouse shares Ripple’s vision of XRP.

One of the founders, Jed McCaleb, is also known for other projects. He was, in fact, the man behind the infamous Mt. Gox exchange. McCaleb sold Mt. Gox before it was hacked in 2014. About 850,000 bitcoins were lost, and the disaster greatly impacted Bitcoin’s price.

McCaleb is no longer with Ripple. He left and founded Stellar Foundation in 2014. This foundation oversees the development of Stellar Lumens, the main rival of Ripple. McCaleb’s exit from Ripple was a messy one. Lawyers were used on both sides.

Ripple and XRP have done fine in the past years. Ripple already has 200+ banks in the RippleNet network, which is expanding steadily. They’ve also got more funding and locked in 200 million dollars in late 2019.

The Ripple vs. SEC case

The biggest news regarding Ripple was published in December 2020. This is when The U.S. Securities and Exchange Commission, SEC, announced that it had charged Brad Garlinghouse and Chris Larsen for conducting a $1.3 billion unregistered securities offering.

The lawsuit was based on the definition that XRP is considered a security. This debate has been happening in the United States for over five years. Are cryptocurrencies securities or not? Each crypto project should register its status with the SEC if they are. This would also mean that every crypto exchange in the USA is offering trading for unregistered securities.

The Ripple vs. SEC lawsuit was the first major battle over the status of securities. The topic became extremely hot again after the collapse of the FTX in November 2022. SEC attacked the crypto sector viciously in 2023 and charged all major companies and crypto projects for the same reason.

The lawsuit annoyed Ripple leaders since the company had a dialogue with SEC about the subject for years. Brad Garlinghouse gave a clear statement that there is no way Ripple is going to settle:

Chris and I had the option to settle separately. We could do that, and it would all be behind us. NOT happening. That’s how confident Chris and I are that we are right. We will aggressively fight – and prove our case – through this case we will get clear rules of the road for the industry here in the U.S. We are not only on the right side of the law, but we will be on the right side of history (source: Ripple.com)

There weren’t any viable alternatives. Had Ripple decided to settle, it would have almost certainly led to XRP being classified as a security. This would have killed the XRP token trading in the U.S. crypto exchanges.

The price of XRP crashed over 50 percent in December 2020 due to this lawsuit. It has also resulted in all major U.S. exchanges delisting the token. These exchanges don’t want to take the risk they’d also be charged by the SEC should Ripple lose the case. Some global exchanges, like eToro and Crypto.com, followed suit.

The process lasted over two and a half years before any major rulings. This changed, finally, on the 13th of July in 2023. The judge ruled that XRP is not a security! This means the sales of the XRP token on crypto exchanges are not considered illegal sales of securities. Here is how the Chief Legal Officer of Ripple commented on the matter on Twitter.

The result was a massive win for Ripple, resulting in a major price move for XRP. The price of XRP skyrocketed by about 85 % in a matter of minutes after the verdict. U.S. Exchanges, such as Coinbase and Kraken, also quickly added the XRP token back to their trading platforms.

This verdict is probably not the end of this process, but there is not much SEC can do here to overturn the result. The outcome was celebrated widely in the crypto community. The win for Ripple is a major victory for the entire crypto industry that has been harassed by SEC for years.

The XRP Ledger (XRPL) explained

Let’s begin with XRP Ledger (XRPL), which differs greatly from Bitcoin, Ethereum, and other well-known cryptocurrencies.

XRP Ledger is an open-source and permissionless payment network. Even if it’s over five years old, it should be compared to 3rd generation platforms due to similar scalability. There are no miners in the XRPL like in EOS, TRON, Cardano, and such platforms.

The throughput of the XRP Ledger is impressive. The block time is just three seconds, and the blockchain can handle 1500 transactions per second. If you have ever made an XRP transaction, you have witnessed how fast it is.

All this is achieved with the Ripple Protocol Consensus Algorithm (RPCA). This is Ripple’s answer to Proof of Work or Proof of Stake consensus algorithms.

Nowadays, all high-capacity blockchains use PoS variants, replacing miners with network validators. This means a small number of nodes responsible for validating transactions.

XRPL also has validator nodes. Anyone can run their validator and join this open network. The network also uses a Unique Node List (UNL), a list of reliable nodes pre-selected by Ripple.

Since anybody can run a validator, the burden is on the network participants to choose a reliable set. Currently, Ripple provides a default and recommended list which we expand based on watching the history of validators operated by Ripple and third parties. Eventually, Ripple intends to remove itself from this process entirely by having network participants select their own lists based on publicly available data about validator quality. (Source: XRPL.org)

The transaction fees are so small in the XRP Ledger that nodes don’t get any rewards for supporting the network. This is nothing unique – Bitcoin nodes don’t get any rewards either. The incentive is to support the network. If it can be done cheaply with a small computer, it’s not a big issue.

The official website XRPL.org has everything you need to know about the ledger and its technology. Here is a video presentation done by CTO David Schwartz, which is about XRPL and ILP.

Even if XRP Ledger has all these fancy features, it is still just one ledger. The Bitcoin blockchain is also just one ledger among thousands of others. Then we also have the legacy systems run by banks.

The InterLedger Protocol (ILP)

Ripple’s founders quickly saw that XRP Ledger wouldn’t be enough to fulfill their “Internet of Value” vision. A protocol was needed to connect XRP Ledger to other blockchains and legacy systems.

This is where the InterLedger Protocol (ILP) was introduced. As the name suggests, ILP was built to connect different ledgers. The value of ILP is not currently to connect XRPL to other ledgers, but it’s used in Ripple’s RippleNet product. This is a closed network s, where ILP is used as a connector between the banks.

David Schwartz writes the quote below in Quora:

RippleNet is a payment network that doesn’t actually move money. Like when you use a credit card to pay for a meal, the restaurant considers you to have paid them and you consider yourself to have paid them, but no money has moved. Really all that’s happened is that you now owe some bank money and some bank owes the restaurant money. The bank still has to transfer money to the restaurant’s bank account and you still have to pay your credit card bill. The actual movement of money is called “settlement”.

XRP is an asset that can be used for settlement. It’s a digital asset that trades on a public ledger. It can change ownership in seconds and doesn’t have any physical location. Since it has value, a transfer of XRP can be used to settle a payment with nothing left to do afterwards.

To put it all together: XRP Ledger is a public ledger anyone can use. If you go to buy XRP tokens and send them to your XRP wallet, you’ll be using the XRP Ledger. Ripple is also naturally developing XRPL, and it supports several other entities which are building on top of that.

RippleNet explained

XRP is a unique cryptocurrency considering people know more about Ripple’s banking solutions than the actual XRP Ledger. It’s also very confusing because Ripple is at the center of everything. At least the XRP token is now called just XRP to clarify things.

The RippleNet has been used as a shilling device for years. If a new bank has joined the network, you’ve seen XRP shills activate in social media. However, The truth is that the XRP token has been barely involved in this sector.

So, what is RippleNet? It is simply a closed payment network Ripple has built for banks. These financial institutions don’t want to operate in the same open & public network as average XRP investors.

Ripple’s vision is to build a solution to the new internet-of-value environment the world is entering. In practice, they want to solve the issues of legacy banking systems. What are these issues, then?

Ripple CEO Brad Garlinghouse has often used the following example. “If you want to move 10.000 dollars from New York to London, the fastest way is to put it into your luggage and fly it there.”

Banks use a SWIFT system (Society for Worldwide Interbank Financial Telecommunication). It is a network of banks that was founded 46 years ago. It is no longer a viable solution to the internet-of-value, where lightning-fast micropayments are required.

The image below is from Ripple’s website.

If two banks in different countries want to transact, it’s a slow and expensive process. The transaction goes through several checkpoints, which make currency exchanges possible. Expensive labor is required to handle all this.

With RippleNet, banks can make the transaction in a couple of seconds. This is where the InterLedger Protocol is used. We explained the basics of ILP in the previous chapters. You’ll find more information about ILP at interledger.org.

Ripple wants ILP to become a global protocol in value transfers, just like TCP/IP is used on the internet and SMTP is used when sending e-mails.

Ripple’s promise to banks is simple: you’ll get more money. RippleNet could save 30%, 40%, or even 50% in transaction fees. The best-known RippleNet client is Santander Bank. Other clients made public by Ripple include American Express and MoneyGram.

On-Demand Liquidity and XRP

Many newcomers might rush to buy XRP when they see RippleNet-related headlines, like a new bank joining the network. This is where mistakes are made. Nothing we have talked about RippleNet has anything to do with XRP so far.

Where is XRP needed, then? This is where the technology xRapid comes in. CEO Brad Garlinghouse explains xRapid in the following video, which should start at 03:20.

xCurrent enables real-time messaging and real-time settlements between banks. xRapid is solving a liquidity problem.” What is this liquidity problem Garlinghouse mentions?

Currency transfers become much more complicated when banks operate with foreign banks and need multiple currencies. If an American bank transacts with an Argentinian bank, it must buy pesos with dollars and keep them in the local bank as a liquidity pool.

This causes currency risk for the American bank if the peso loses value against the dollar. Ripple explains the problem on their website in the following way:

“Financial institutions must pre-fund nostro accounts on each side of a transaction in that country’s native currency. These account balances in a local currency improve liquidity by lowering the risk for the parties transacting.

However, these accounts come at a high cost. According to a 2016 McKinsey Global Payments report, there is approximately $5 trillion dollars sitting dormant in these accounts around the world – tying up capital that could be used in more productive ways. They also must be actively managed to ensure balances are commensurate with transaction volume.

The cost and complexity of holding these accounts around the world is one reason why only a handful of banks can process global transactions. The burden of maintaining nostro accounts worldwide is simply unsustainable for most organizations.” (Ripple)

As you can read from the quote, the situation is quite problematic. A lot of money is tied inside the system, forcing transactions to go through a few big operators.

This is what Ripple offers:

Here we must make an important note: xRapid was re-branded in 2019 as ODL – On-Demand Liquidity.

Ripple can create a digital currency pool (ODL) by using the XRP token. Banks then use this pool. For example, the American bank mentioned earlier can buy XRP in dollars, and transfer them to the Argentinian bank in a few seconds, which can then convert XRP to pesos.

The operation takes less than a minute, and no pre-fund Nostro accounts are needed.

If the ODL solution becomes popular, it could impact XRP’s price. This is the part where XRP is needed and used.

An Overview of XRP & Ripple

The future of Ripple appears brighter than it has been in many years. Ripple’s future improved significantly on July 13, 2023, when the company received a favorable decision from the court in its dispute against the SEC. Consequently, the future of XRP also improved. Let’s now examine the future of Ripple and XRP in more detail.

Let’s start with Ripple, the technology company behind XRP. The outcome of the lawsuit undoubtedly eased Ripple’s plans for the future. If XRP had been deemed illegal security, it would have also hindered the token’s usage in Ripple’s Cross-Border Payments solutions. After all, Ripple is a US-based company.

Ripple also strongly targets the CBDC (Central Bank Digital Currency) market, aiming to offer its technology to central banks’ digital currencies. This could be a lucrative sector for Ripple, but it is unlikely to impact XRP’s price directly. Does Ripple’s involvement as a CBDC provider also negatively affect the company’s reputation among cryptocurrency investors?

The future of XRP is much brighter as well. XRP has been re-listed on US exchanges after a hiatus of over two years. Moreover, many global cryptocurrency exchanges can now list XRP without concerns. If you are interested in investing in XRP, read this article: How to buy XRP.

After considering all of this, it is also important to remember the limitations. The fundamentals of XRP are much weaker than smart contract platform tokens because XRP is not a platform for decentralized applications. As a result, there is a lack of underlying demand and staking.

XRP is also one of the top 5 cryptocurrencies in market capitalization. This makes it a poor speculative target, unlike during the cryptocurrency hype of 2017. The “gambling money” of the masses goes into meme coins and the NFT sector. XRP supporters have already been all-in on this token for years, so XRP’s greater success would require a significant influx of new external investors.

We don’t consider XRP an attractive investment compared to alternatives. Its growth potential is limited, and better fundamentals are available in other cryptocurrencies. XRP’s strengths lie in its massive support base, brand, and longevity, but how far can these carry it?