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Ripple is a real-time gross settlement system, currency exchange and remittance network created by Ripple Labs Inc., a US-based technology company. The ledger employs the decentralized native cryptocurrency known as XRP, which as of September 2018 was the second largest coin by market capitalization, but at the time of writing of this article is the third largest coin.
A Bit of History
Ryan Fugger founded a company he called RipplePay in 2004. The core idea behind the protocol was a peer-to-peer trust network of financial relations that would replace banks.
In 2012, McCaleb hired Chris Larsen, who remains on the board today as the executive chairman and whom the current website describes as a co-founder of Ripple. This marked the start of the OpenCoin era, the first of three name changes between 2012 and 2015.
Ripple released its XRP coin in January 2013. Like Bitcoin, XRP is based on a public chain of cryptographic signatures, and therefore did not require the initial web of trust or gateway design. XRP could be sent directly from user to user, without the gateways or counterparty risk, which was the method used for all currencies on Ripple, including USD. Ripple perhaps intended XRP to be used in conjunction with the web of trust structure for USD payments — for example, to pay transaction fees. The company set the supply of XRP at a high level of 100 billion, with some claiming this would help Ripple prevent sharp price appreciation. Critics argued that the XRP token may not have been a necessary component of the network.
What is XRP?
XRP is a digital asset, native to the Ripple Consensus Ledger. Banks and payment providers can use the digital asset XRP to further reduce their costs and access new markets. XRP may be used as a store of value or medium of exchange. One of the specific functions of XRP is as a bridge currency when transacting between two different currency pairs.
XRP was created by the same people that created Ripple. 100 billion XRP tokens exist, and they were created all at once (known as “pre-mined”). That makes XRP completely different to bitcoin and ethereum, where the tokens are slowly mined into existence by its users. The key feature of XRP is speed. It allows for significantly faster payments than bitcoin and ethereum.
How Is XRP different to Bitcoin?
XRP and Bitcoin are both a way of performing money transfers, but they are vastly different.
XRP is faster – An XRP transaction takes 3.5 seconds. Bitcoin may take hours or even days at high volume.
Every XRP token already exists – The tokens were simply coded into existence all at once, unlike bitcoin which is mined.
There are 100 billion XRP tokens – Bitcoin, on the other hand, has a hard cap of 21 million. In other words, there are nearly 5,000-times more XRP tokens than bitcoins.
Ripple holds half of all XRP tokens – Ripple currently owns roughly 60% of all XRP tokens. 55 million of those tokens are locked in escrow, with one billion released to Ripple each month.
Transactions processed by trusted servers – Unlike Bitcoin, which requires miners to validate network transactions, Ripple uses a trusted list of servers to process transactions.
XRP is aimed at banks – Of course, the biggest difference is the target audience. Bitcoin was created to provide an alternative to the banking system. It’s a money system or store of value that cuts out banks. XRP is created as a form of liquidity for banks to transfer money.
XRP Explainer Video