The Society for Worldwide Interbank Financial Telecommunication is a banking platform that helps banks to conduct worldwide transactions. Despite its effectiveness, this approach is more costly and has a higher operational overhead than current technologies. Ripple focuses on providing a low-cost, secure, and transparent system for transferring money directly between users in real-time that is more efficient than current financial sector procedures, and it does so using a range of solutions.
Ripple believes that money and information should be transferable at the same time.
INTRODUCTION
Ripple is owned by a private firm developing an Ethereum-based transaction and exchange platform. Previously, it was known as OpenCoin (XRP Ledger). Ripple’s major purpose is to link banking institutions, financial intermediaries, and cryptocurrency exchanges in an attempt to make international payments more efficient and less expensive.
WHAT MAKES RIPPLE AND XRP DIFFERENT?
Ripple is one of the most contentious projects in the Bitcoin world. While some argue that Ripple is a tightly regulated project that should never be compared to an open, permissionless blockchain like Bitcoin or Ethereum, others argue that it is the only project that will ever get widespread support in the traditional financial sector.
WHAT IS RIPPLE’S HISTORY?
Ripple, originally known as RipplePay, has evolved into what it is today as a money transfer platform. Since its inception in 2004 by software programmer Ryan Fugger, Ripple has undergone various adjustments and advancements. In addition to McCaleb, Britto, and Schwartz, a slew of individuals played key roles in the journey. Following the introduction of Bitcoin in 2009, the developers explored other ways to build their solutions. This resulted in the creation of the XRP Ledger, which went live in 2012.
McCaleb departed Ripple in 2014 to co-found Stellar (XML), a coin that will eventually replace the destroyed Mt. Gox platform. Chris Larsen was the CEO of Ripple in the past. Garlinghouse took over as CEO of Ripple in 2017 after Larsen decided to leave the business in 2016.
XRP’s price skyrocketed to an all-time high of $3 per coin in early 2018, a significant gain from its early 2017 low of $0.05 per coin. Earlier this year, Ripple received a $200 million Series C investment. Ripple’s regulatory issues were raised for the first time in December 2020. Ripple reportedly sold unregistered XRP securities to US investors and the general public in a $1.3 billion transaction, according to a Securities and Exchange Commission complaint (SEC).
Given the Bitcoin industry is relatively young in comparison to traditional banking, regulatory problems have occurred. Bitcoin and Ethereum (ETH) are classified as commodities by the Commodity Futures Trading Commission (CFTC), but the classification of other digital currencies remains unclear. In its verdict against Ripple, the SEC claimed that XRP is a security and so falls within its authority. People who bought XRP joined the petition, giving reasons why the cryptocurrency shouldn’t be classified as a security. The petition’s logic, on the other hand, contained faults.
The SEC’s action came much too late after Ripple released its cryptocurrency, and other US government agencies have classified it as something other than security.
WHAT IS THE PROBLEM THAT RIPPLE IS TRYING TO SOLVE?
Ripple’s major goal right now is to make traditional payments, especially cross-border transfers, simpler and more efficient. According to the minds of Ripple, the bulk of financial transactions are still handled today through siloed databases owned by different financial organizations. Ripple has set out to eliminate this infinite friction by building a more open payment mechanism.
According to multiple reports, Ripple has partnered with a variety of banks and financial institutions from across the world. Among them are Santander, American Express, and MoneyGram, to name a few. The National Bank of Egypt (NBE), Egypt’s biggest bank, is said to have just joined Ripple’s network. Although the number of times these partners have utilized Ripple’s services is unclear, the company is certain that its solutions provide a compelling alternative for cross-currency and international payments. After all, it’s been claimed that the XRP Ledger may be a viable distributed alternative to the present SWIFT system (a financial messaging platform used by banks for money transfers). While some regard Ripple as a superior version of SWIFT, some who have worked for the business say that it is more of a supplement than a competition to SWIFT.
The XRP Blockchain is a decentralized cryptocurrency based on the XRP network and powered by blockchain technology (XRPL).
Ripple launched the Ripple Consensus Ledger (RCL) in 2012, together with its native cryptocurrency, XRP, modelled on Fugger’s invention and driven by the rise of Bitcoin. RCL was rebranded XRP Ledger shortly on (XRPL). The XRPL is a distributed economic system that not only records the accounting information of all network members but also offers currency exchange services across numerous currency pairings. The XRPL is an open-source distributed ledger that facilitates real-time monetary transactions, according to Ripple. The network members protect and validate these transactions using a consensus process.
The XRP Ledger, unlike Bitcoin, is not built on a Proof of Work consensus mechanism and so does not depend on a mining process to validate transactions. However, the network employs its proprietary smart contract, dubbed the Ripple Protocol Consensus Algorithm before
The XRPL, which essentially analyzes trade statistics, is managed by a group of specialized authenticating nodes. A Ripple validator node may be set up and managed by anybody, and they can also choose which validators to trust. Ripple, on the other hand, advises customers to confirm their operations with a list of well-known, trustworthy individuals. The Unique Node List is what this list is called (UNL).
Once everyone decides on the current state of the blockchain, the UNL nodes exchange transaction details. To look at it another way, transactions approved by a quorum of UNL nodes are legitimate, and agreement is reached while all of these nodes utilize the same transaction records on the blockchain.
According to its official website, Ripple is a privately held company that created the XRPL as an open-source distributed ledger, which implies that anyone may add to the script, and the XRPL will continue to exist even if the firm goes bankrupt.
RIPPLENET
Contrasting XRPL, RippleNet is a Ripple-owned platform placed on top of XRPL to serve as a transaction and exchange platform.
RippleNet now has items aimed at financial institutions as a payment solution system. xRapid, xCurrent, and xVia are the three major products that RippleNet presently provides.
XRAPID
In a nutshell, xRapid is a global fiat-to-crypto currency link that leverages XRP as its backbone. Both XRP and xRapid employ the XRP Ledger, which allows for quicker confirmation times and cheaper costs than other methods.
xCURRENT
xCurrent is a method for settling and monitoring cross-border payments amongst RippleNet participants in real-time. The xCurrent solution, unlike xRapid, doesn’t use an XRP token by configuration and is, therefore, not built on the XRP Database. The xCurrent is based on Ripple’s Interledger Protocol (ILP), which was created as a way to link multiple ledgers or payment networks.
xCurrent is made up of four core components:
Messenger
The xCurrent messenger allows linked RippleNet financial institutions to communicate with one another. It’s utilized to provide information about risk and compliance, fees, FX rates, payment information, and projected cash delivery time.
Validator
The validator is used to cryptographically confirm if a transaction is successful or not, as well as to coordinate the movement of money throughout the Interledger. Financial institutions may use their validator or use one provided by a third party.
ILP Ledger
The ILP Ledger is created by integrating the Interledger Protocol with current financial ledgers. The ILP Ledger is a sub-ledger that tracks credits, debits, and liquidity between participants in a transaction. Funds are settled atomically, which means they are settled either immediately or never.
FX Ticker
An FX ticker is a tool for defining exchange rates amongst parties involved in a transaction. It keeps track of the current status of each ILP Ledger that has been set up.
Although xCurrent is mainly intended for fiat money transactions, it also accepts cryptocurrencies.
XVIA
xVia is a standardized API-based interface that enables banks and other financial service providers to operate inside a single framework rather than relying on different payment network integrations. xVia enables banks to make payments via other RippleNet-connected financial partners, as well as attach invoices or other information to their transactions.
RIPPLE’S RELATIONSHIP WITH ITS TOKEN XRP
Because of Ripple’s complex architecture, which is made up of numerous pillars, certain disagreements over whether the XRP coin is required in the Ripple ecosystem have occurred. An argument against it might be stated that Ripple, as a corporation, can be highly successful in cooperating with banks without relying much on XRP. Even if xRapid is employed, XRP will only be utilized as a transactional medium and not as a means of wealth storage.
THE TOKENOMICS OF RIPPLE’S BLOCKCHAIN
Ripple’s distributed ledger is permissionless and open, contrary to the widespread notion. It’s also open-source, so outsiders are welcome to suggest new features. The UNL offered by Ripple by default is one of the reasons why many people assume that Ripple is a permitted blockchain. Ripple has compiled a list of validators that they suggest. Many say that the list should be made public since Ripple validators need to know who else they may contact.
Ripple’s blockchain is distinct from those of other public blockchain networks such as Bitcoin or Ethereum from a technological standpoint. Because there is no proof of work algorithm, there is no mining with XRP Ledger. The whole 100 billion XRP coins were pre-mined when the XRP Ledger was first introduced in 2012. After all of the tokens were generated, the founders kept a portion (about 20 billion), while the remaining 80 billion was handed to Ripple, the corporation, which was in charge of distributing them along the way. A little more than 45 billion tokens are now in circulation. The balance is mostly kept in escrow, with Ripple the corporation acting as its agent. Month every month, more escrowed tokens are produced, and Ripple utilizes them to execute XRP market-making. The remaining XRP in escrow will be dispersed to the general public over time in this manner.
XRP, interestingly, includes a built-in token-burning mechanism. A small amount of XRP is put up by the sender for each transaction, and this amount is destroyed in the process, reducing the overall supply. While a token burn serves as a method for increasing scarcity, burning all of the XRP would require at least 70,000 years.
IS XRP A FORM OF SECURITY?
The US Securities and Exchange Commission accused Ripple of making an unregistered securities offering for $1.3 billion in 2020. Because XRP was pre-mined by Ripple rather than being released in a proof-of-work mining method, there is a danger that it may be deemed an unregistered security, which would be illegal under US law. It is now unclear how the lawsuit involving Ripple and XRP will be resolved. Ripple representatives wanted access to SEC internal data on cryptocurrencies in general after being accused by the SEC. Ripple has finally been granted access to the papers after a court decided in its favour. These files are deemed essential inside Ripple because they may give additional insight into why the SEC has ruled against XRP and categorized it as a security but not BTC or ETH.
XRP VS. BITCOIN
XRP coins, unlike bitcoin, are not mined. Ripple created the whole supply when the network began, and it periodically releases sections of it from escrow and sells them on the open market. Over 45 billion XRP are now in circulation out of a total quantity of 100,000,000,000.
The architecture of XRP prioritizes speed above decentralization. Ripple’s network is considered less secure than Bitcoin’s due to the removal of Bitcoin’s proof-of-work consensus method, but it can process transactions faster since the UNL of validators is so concentrated that they can swiftly agree on consensus and exchange data.
XRP may facilitate faster transactions since there is no mining required in the entire process. Validators, instead of miners contending for block rewards and sorting entries into the ledger, confirm transactions without any of the prospects of money. Ripple has examined and vetted these validators, and the XRP design requires this reliance to prevent double-spending.
Because of its centralization, XRP is far less censorship-resilient and pseudonymous than other fully accessible blockchains. Only Ripple-approved UNL nodes can join in the XRP consensus. Anyone can host a Bitcoin node and partake in the network consensus. Similarly, XRP validators might theoretically easily conspire to censor a transaction, but Bitcoin’s proof-of-work architecture makes collusion by miners impossible.
The distinction between XRP and Bitcoin is best stated as that between a corporation and an economy. The company’s leadership sets the rate at which XRP is supplied, and transactions are handled by a group of pre-approved stakeholders. While, the supply of Bitcoin is produced at a mathematically set pace via the mining process, and transactions are processed by the worldwide, decentralized mining sector.
Ripple vs. SWIFT: Which is the Better Option for a Business?
Although Swift is a traditionally accepted and long-standing money transfer tool, the advantages of Ripple make it a better fit for business expectations:
Speed and Efficiency: Ripple’s technology, particularly its payment protocol XRP Ledger, is known for enabling faster and more efficient cross-border transactions compared to traditional banking systems. Transactions on the XRP Ledger settle quickly, often within seconds, which eliminates the need for businesses to tie up capital for extended periods during the traditional settlement process, resulting in potential cost savings.
Cost-Effectiveness: Ripple aims to reduce costs associated with cross-border payments. The use of its native cryptocurrency, XRP, can potentially result in lower transaction fees and operational costs compared to traditional banking methods. Ripple’s use of XRP as a bridge makes it highly cost-effective, especially for businesses making high-frequency and high-value international payments.
Cryptocurrency Integration: Ripple’s system utilizes XRP as a bridge currency for cross-border transactions. Cryptocurrency integration can be advantageous for businesses looking to leverage the benefits of digital assets.
Transparency: Ripple’s blockchain technology offers transparency and traceability in transactions, providing businesses with better visibility into the payment process.