What is XRP and how does it work?

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 decentralised 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 capitalisation of $26 billion (June 2023) 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 Labs?

Ripple Lab’s intention was to create a fast, low transaction cost, and decentralised 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 driving force and visionary behind the operation, with Jed McCaleb↗︎ as one of its influential founders. Ripple has introduced two significant products: XRP, a digital asset, and RippleNet, a robust network for seamless global transactions.

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 which reduces liquidity costs for financial institutions when using the XRP bridge for currency exchange, and xVia which 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 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 operates in a more decentralised 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 decentralised, 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.

Market Capitalisation

Despite a market capitalisation of $26 billion in June 2023, XRP has been grappling with the repercussions of its glory days. Back in June 2018, the cryptocurrency reached its all-time high market cap of $119 billion, accompanied by a peak value of $3.093. However, since then, XRP’s progress has been hindered by an ongoing SEC case, which has kept its potential subdued. Nevertheless, with its substantial market capitalisation, XRP continues to demonstrate resilience in the face of regulatory challenges, leaving investors curious about its future trajectory once the legal clouds dissipate.

Takeaway

XRP and Ripple are interconnected but separate entities. XRP is a decentralised cryptocurrency created by Ripple Labs, while Ripple is the company behind the development of the XRP ledger and RippleNet, a global payment network. Although Ripple is centralised, XRP operates on a distributed ledger. The ongoing legal battle with the SEC has brought attention to the distinction between Ripple and XRP. Despite the uncertainty, XRP has maintained its market position and continues to be traded and used for remittance purposes.