What is XRP and how does XRP work?

What is XRP and how does the cryptocurrency work?

· 3 min read
Ripple - XRP
Ripple - XRP

If you’ve scrolled through any crypto market tracker in recent times, you would have run into “XRP” in the top ten rankings. It is also quite possible that you saw XRP and read it as “Ripple”. That’s quite normal, even though in reality they’re somewhat different entities.

For what it is worth, “Ripple” is not XRP, but it is worth noting that they’re connected. So, referring to XRP as ‘Ripple” is wrong but still somewhat justifiable.

What is XRP?

XRP is the native cryptocurrency of a decentralized ledger. The distributed ledger, just like Bitcoin, is open source and permissionless. However, unlike Bitcoin, it offers one of the fastest transaction speeds of 3 seconds and is also virtually feeless.

XRP was created by an American tech company called Ripple labs in 2012. The name of the company has often been misconstrued to be the name of the cryptocurrency.

XRP is considered a currency that can be used for remittance and it is also a digital asset that is traded on exchanges. It currently has a market capitalization of $72B according to Coinmarketcap.com and is tradable on numerous exchanges.

XRP was primarily designed to be the coin that grants holders direct access to the main feature of the Ripple network; money transfer. So, in this model, when a bank or any institution makes a transfer through the network, a small amount of XRP is deducted from their wallet.

Other than its primary use case, XRP can also be traded on exchanges for profit.

Who is Ripple?

Ripple Lab’s intention was to create a fast, low transaction cost, and decentralized solution to remittance issues worldwide. This led the American-based tech company to create the XRP ledger that offers an improved mode of remittance.

Think of Ripple as the umbrella body or brains behind the operation. With the CEO, Jed McCaleb steering the ship, Ripple came up with two products namely, XRP and RippleNet.

As mentioned earlier, XRP is a cryptocurrency and the native coin of the “blockchain”. RippleNet on the other hand is an enterprise-oriented payment network.

RippleNet works based on the summation of a number of unique features that facilitate payment on the network. Features like xCurrent, a payment processing system for banks, xRapid that reduces liquidity cost for financial institutions when using XRP bridge for currency exchange, and xVia that enables businesses to use RippleNet are among the important aspects of this part of Ripple.

In fact, it is safe to say that RipppleNET is the feature that enables organizations and users of the Ripple network to make fast transactions. So it is probably the most important feature of the project since it does most of the work.

Is it really a blockchain?

Ripple has many similarities with blockchains like Ethereum and Bitcoin, but in reality, we can’t exactly call it a blockchain. It is more of a company akin to SWIFT or other payment solutions but operating in a more decentralized model.

Unlike traditional blockchains that have mined cryptocurrencies, XRP isn’t mined and the entire supply of 100 Billion coins was distributed at inception. It is also worth noting that Ripple uses HashTree and compares data across its validating servers rather than a blockchain consensus.

This means that Ripple neither runs on a proof of work blockchain like Bitcoin nor does it run on a proof of stake blockchain like Hive. Through the Hashtree consensus, Ripple tracks all network binding IOUs in a given currency for any user or gateway

Question Marks

The very design of Ripple is inherently decentralized, however, in reality, it is still a centralized operation run by Ripple Labs. This is obviously due to the fact that there’s no way to mine XRP and every coin in existence was distributed by Ripple.

Ripple has also been embroiled in a court case with the SEC over the said distribution of XRP. Despite the situation with the SEC still hanging in the balance, the price of XRP has shown a rather bullish trend by rallying more than 16% in the past week.

In fact, other than the initial shock of the SEC battle, XRP has held steady in the market. This battle could also be used as a means to decipher the difference between Ripple and XRP.

Simply put, Ripple and XRP are somewhat separate entities that are both functioning in the same system. Ripple is a company that created XRP but after distribution, it is not the sole holder of the cryptocurrency.