Which blockchain does Ripple use

What is Ripple (XRP)?

Ripple (XRP) is an open source protocol that is intended to be used as a distributed peer-to-peer payment system, particularly in banking and finance. The interesting thing about Ripple technology is that Currency independence. Basically, a transaction in the Ripple network can be carried out using any currency imaginable. With this, Ripple wants to solve a fundamental problem in the international monetary system. Because, especially with transactions across national borders, complicated currency exchanges lead to high fees and banks must always remain liquid and have so-called nostro accounts in the receiving countries.

We have written instructions for you on how to buy Ripple in an additional article.

The technology behind Ripple

Ripple has a special role in the world of blockchain technologies. While other projects take a path that rejects the classic banking system, Ripple tries to work and cooperate with them.

To this end, RippleLabs, the organization behind Ripple, has xRapid, xCurrent and xVia launched several products that banks can use to process their global transactions. The XRP token, which is used to process transactions, serves as the bridge currency in the Ripple network.

In plain language, this means that an input currency is exchanged for XRP and transmitted over the network before a transaction. When it arrives at the recipient, it is exchanged back into the original currency. This means that transactions in two different currencies are also easily possible. Currently, XRP is the only coin that is used in RippleNet. Nevertheless, it would theoretically be possible for banks to create their own coins and use them in the network.

So-called gateways act in the network and act as intermediaries. These have the function of an intermediate station that accepts an incoming payment and forwards it accordingly. A transaction can also run through several gateways.

This is even the rule, especially in the case of a currency exchange. As soon as a transaction in the Ripple network runs through several gateways, promissory notes are created (IOUs - "I owe you"), each of which must be settled by the subsequent party. This allows transactions to be channeled quickly through the network without having to wait for the IOUs to be settled.

Function of the XRP token

As already mentioned, the XRP tokens are used for currency settlement and to pay transaction fees. Each transaction incurs fees of 0.00001 XRP, which are then destroyed and no longer available. This is to avoid spam attempts in the highly frequented RippleNet.

In this context, the transaction fee is often referred to as 10 drops. A drop is the smallest unit in relation to the XRP token. It is important to know that XRP is not minted, but has already been given out in full. A total of 100 billion XRP has been issued, of which 63 billion are owned by RippleLabs. The XRP held are used to finance the project and network.

The XRP token is independent of the organization behind Ripple and will therefore continue to exist even if RippleLabs are closed. As with a classic SWIFT transfer, a transaction with XRP also carries a certain rate risk and is affected by rate fluctuations (current Ripple XRP rate).

However, since an average transaction in RippleNet is completed after about 5 seconds, the risk of a strong fluctuation is significantly lower than with a SWIFT transfer that takes several days. Investors and users can save their XRP in the official online wallet, but also in unofficial desktop wallets.

How the protocol works

Most modern payment systems are based on trust in the state or in financial institutions such as banks. This applies in particular to digital accounts for state currencies, since the money is generally not owned here and an institute monitors and controls the amount.

Ripple is an attempt to transfer this mechanism of trust to a digital currency by storing all transactions and liabilities between users and institutions in a public register.

Behind this system are so-called IOUs. The abbreviation stands for the English phrase "I owe (yo) u“And is a kind of promissory note. The user's promissory notes are stored in the Ripple register, i.e. which person owes how much of which currency to another individual and vice versa. In addition to the debt system, the protocol enables one in a similar way extensive foreign exchange marketthat is always evolving.

Advantages and disadvantages of Ripple

Advantages of the Ripple Protocol:

  • almost forgery-proof
  • fast transactions within a few seconds
  • open standard
  • can act as a universal translator of any currency in its final stage
  • enables quick lending and borrowing of funds
  • Loans through IOU (a type of promissory note)
  • easy connection of payment networks
  • many new possibilities through maximum compatibility

Disadvantages of the Ripple Protocol:

Ripple not only had positive developments, in particular the company behind the protocol was often criticized for various business practices. Among other things, it is stated that although the company has promised to pass a large portion of the XRP on to the users of the network, so far only small amounts have been transferred. In addition, Ripple Labs has kept almost half of all existing XRP itself in order to benefit from an increase in value.

Spread of Ripple

RippleLabs' largest customers include the major Spanish bank Santander, American Express, UniCredit and Western Union. In addition, some financial service providers also use the technology for their internal transactions.

All institutions use Ripple to process their global transactions in order to save up to 70% of the usual transaction and administration fees. Most companies and banks use the xCurrent and xRapid products developed by RippleLabs, which are aimed directly at the complex requirements of financial institutions.