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What is XRP?
XRP is cryptocurrency that runs on the XRP Ledger, a blockchain engineered by Jed McCaleb, Arthur Britto and David Schwartz. McCaleb and Britto would go on to found Ripple and use XRP to facilitate transactions on the network. You can buy XRP as an investment, as a coin to exchange for other cryptocurrencies or as a way to finance transactions on the Ripple network.
Notably, XRP’s blockchain operates a little differently than most other cryptos’. Other cryptocurrencies open their transaction ledgers and verification processes to anyone who can solve complex equations quickly, but transactions are secure as the majority of ledger holders must agree with the verification for them to be added.
Instead, the XRP’s Ripple network somewhat centralizes things: While anyone can download its validation software, it maintains what it calls unique node lists that users can select to verify their transactions based on which participants they think are least likely to defraud them. Its default list currently contains 35 trusted validators. Ripple decides which validators to approve for this list and also makes up six of these validation nodes. However, users can opt out of this default list and hypothetically remove Ripple-backed validators from their transactions entirely, instead constructing their own lists of trusted validators. This would allow the network to continue to approve transactions even without Ripple the company remaining involved or even continuing to exist.
As new transactions come in, the validators update their ledgers every three to five seconds and make sure they match the other ledgers. If there’s a mismatch, they stop to figure out what went wrong. This allows Ripple to securely and efficiently validate transactions, which gives it an edge over other cryptocurrencies, like Bitcoin.
“Bitcoin transaction confirmations may take many minutes or hours and are typically associated with high transaction costs,” says Lee. “XRP transactions are confirmed around four to five seconds at much lower cost.”
The RippleNet payment platform is a real-time gross settlement (RTGS) system that aims to enable instant monetary transactions globally. While XRP is the cryptocurrency native to the XRP Ledger, you can actually use any currency to transact on the platform.
XRP can be sent directly without needing a central intermediary, making it a convenient instrument in bridging two different currencies quickly and efficiently.
How Does XRP Work?
The Ripple network does not run with a proof-of-work (PoW) system like bitcoin or a proof-of-stake (PoS) system like Nxt. Instead, transactions rely on a consensus protocol in order to validate account balances and transactions on the system. The consensus works to improve the integrity of the system by preventing double-spending.
A Ripple user that initiates a transaction with multiple gateways, but attempts to send the same $100 to the gateway systems, will have all but the first transaction deleted. Individual distributed nodes decide by consensus which transaction was made first. The confirmations are instant and take roughly five seconds. Since there’s no central authority that decides who can set up a node and confirm transactions, the Ripple platform is described as decentralized.
Ripple keeps track of all IOUs in a given currency for any user or gateway. IOU credits and transaction flows that occur between Ripple wallets are publicly available on the Ripple consensus ledger. But even though financial transaction history is publicly recorded and made available on a blockchain, the data is not linked to the ID or account of any individual or business. However, the public record of all dealings (i.e., the blockchain) makes the information susceptible to de-anonymization measures.
What is the XRP Ledger?
XRP Ledger (XRPL) is the open-source distributed ledger that is created by Ripple. The native cryptocurrency of the XRP Ledger is XRP.
Compared to Bitcoin (BTC) which uses a distributed blockchain whose transactions are processed and secured by proof-of-work mining, XRP transactions are processed by a network of trusted validators on the XRP Ledger.
Ripple transactions are publicly recorded on its open-source distributed consensus ledger which has a similar data structure to a blockchain where the successive data block includes the hash of the previous block. However, its consensus mechanism is different from Bitcoin or Ethereum. It does not rely on Proof of Work (PoW) and therefore there is no mining involved with XRP.
XRP instead relies on a consensus algorithm known as the Ripple Protocol Consensus Algorithm. The XRPL’s integrity is maintained by a group of trusted nodes. All transactions must be agreed by a supermajority of these trusted nodes for it to achieve consensus and be included in the XRP Ledger.
How To Buy XRP
1. Check CoinMarketCap to see where you can buy XRP and with which currencies
For each cryptocurrency, CoinMarketCap provides a list of purchasing options (also known as market pairs). Go to CoinMarketCap and search for XRP. Tap on the button labeled “Market” near the price chart. In this view, you will see a complete list of places you can purchase XRP as well as the currencies you can use to obtain it. Under “Pairs” you’ll see the shorthand for XRP, XRP, plus a second currency. The second currency is what you can use to purchase XRP. If you’d like to purchase XRP with the U.S. Dollar, look for XRP/USD.
2. Pick a platform to make your purchase
Different platforms have different levels of security, reliability, and liquidity. Before creating an account, do your research.
3. Make the purchase on your chosen platform
Every platform has a different way of doing things. Some platforms are very easy to use, others not so much.
Generally speaking, purchasing crypto with a fiat currency like the U.S. Dollar will be easier than purchasing it with another crypto.
If you do have to purchase XRP with another crypto, you’ll need to first create a crypto wallet that supports XRP, then you’ll buy the first currency and use it to buy XRP on the platform you chose.
If you get stuck, most platforms provide guides. But if they don’t, there is a vibrant community of crypto enthusiasts that have likely posted guides on Youtube, Twitter, and elsewhere.
Pros of Ripple
Ripple has several advantages over other cryptocurrencies:
• Cost-Efficiency: Ripple is a cost-effective way to transfer money. Transfer fees are much lower than at banks or other large financial institutions, especially if you’ll have a higher volume of transactions.
• Fast and Secure: Because of the blockchain mechanism, Ripple is a much faster way to transfer money. While standard bank transfers may take 3 to 5 days, Ripple transfers may be completed in just seconds. Plus, Ripple has a more secure protocol for validating transactions. It’s a safer, more efficient protocol than traditional coin mining.
• No Mining Pools: One of the problems with crypto mining is the presence of “mining pools.” A mining pool is a dedicated collection of computers that are built to validate transactions. With their combined computing power, mining pools usually solve equations faster than lone miners and earn the coin reward. Mining pools consume lots of energy, and they’re not fair to solo miners using a single computer. XRP is a pre-mined cryptocurrency, so there are no mining pools to speak of.
• Enterprise-Optimized: Ripple was originally designed for the financial services industry and is built to handle transactions by large financial institutions.
Cons of Ripple
Ripple has major drawbacks, including:
• More Centralization: Ripple uses “trusted validators” to verify transactions and maintain the integrity of the blockchain. There’s no incentive for mining, which means fewer people running security checks on the blockchain. That could lead to greater security risks.
• Pre-Mining: Ripple uses a pre-mining protocol in which it periodically releases a small amount of XRP at set intervals. Some investors fear that Ripple will release too much XRP at any one time and dilute the value of the cryptocurrency. Ripple has disputed the likelihood of that happening and has said that its release schedule will not impact the value.
• Volatility: Like all other cryptocurrencies, XRP is highly volatile. The price may skyrocket or plummet with very little warning, so it’s considered a high-risk investment. Before investing in XRP, consider building a diverse investment portfolio with low-risk and medium-risk investments. The smallest percentage of your investment funds should go to high-risk investments, like cryptocurrency.
• Legal Battles: Ripple has been caught up in a legal battle with the SEC (more on that in the next section). Like all other cryptocurrencies, XRP faces ongoing regulation, debate, and litigation from government authorities.
How to Mine XRP
“Mining” is the distributed verification system used by most blockchain-based cryptocurrencies. It both facilitates transactions and provides the mechanism by which new currency is introduced into a cryptocurrency system—typically as a reward to verifiers for their work supporting the network. For example, Bitcoin has a total supply limit of 21 million tokens that are steadily released as more and more transactions are verified,
XRP, in contrast, was “pre-mined,” meaning the XRP Ledger created 100 billion tokens that are then periodically released publicly. Ripple owns about 6% of that as an incentive for it to help the cryptocurrency grow and be successful over time. Another approximately 48% are held in a reserve for regular release into the market through sales.
Understandably, this has led to concerns that a lot of XRP could be released at once, diluting the value of other XRP already in circulation because part of what gives any currency its value is its comparative scarcity.
“The company has tried to reduce the uncertainty by implementing several mechanisms (trust, predictable release, etc.),” says Tim Enneking, principal of Digital Capital Management. That mining vs. pre-mining distinction may also be a reason for its conflict with the SEC as the SEC may think of XRP as less a currency and more a security, like a stock, that is governed by different, stricter regulation.
Ripple continues to develop its ecosystem as it has announced a new development. This new development is likely to thrust XRP Ledger (XRPL) as a challenger to ETH and BSC in the smart contract arena – XRPL is planning to enable smart contracts on the XRPL.
David Schwartz, the Chief Technology Officer (CTO) of Ripple revealed this feature to the public while sharing his vision on the 7th of June. This new feature is called Federated Sidechains. This new addition is very beneficial for the cryptocurrency community as they would be able to operate a sidechain to XRPL easily.
The main focus of Federated Sidechains is to let developers implement more amazing features such as smart contracts. Moreover, the developers of XRP will also have an opportunity to conduct trials on a sidechain while utilizing the complete power of the XRPL.
Furthermore, David also stated that the software name Federator is going to serve as a bridge between Sidechain and the XRPL. The concept would allow each sidechain to have its own ledger and transactions, as well as a federation system that allows XRP and sidechain issued tokens (BTC, fiat, CBDC) to move from one sidechain to another.
XRP will be used as the native token to power the main XRPL as usual. In addition, XRP can also be used as the native token for running the sidechains, or any application built on the sidechains may also opt to issue their own tokens which are compatible with XRPL – these new tokens shall be named Federated Assets. Federated assets imported onto XRPL itself would trade on the XRPL’s integrated decentralized exchange (DEX). XRP imported onto sidechains would be used for liquidity on the XRPL integrated DEX as well.
This is a bit similar in nature to other smart contract blockchains like DOT which calls their sidechains parachains. Perhaps the overwhelming demand for the impending launch of DOT parachains has given Ripple the motivation to do their own sidechains.
Even Cardano (ADA) is upgrading its blockchain to enable smart contracts. In order to survive and thrive, Ripple sees the need to innovate and improve on XRPL.
Allowing sidechains on the XRPL opens up a wave of new opportunities that XRPL in its previous form could not tap on, and is in fact a lot more powerful to XRPL than it is to any other blockchains. For instance, countries will now be able to issue Central Bank Digital Currencies (CBDC) on XRPL. With XRPL the most adopted ledger amongst financial institutions, having the sidechain upgrade will allow banks, financial institutions, central banks, even governments, to issue their own bank-issued tokens, CBDCs, or other forms of digital money and financial products on the XRPL. Hence, this upgrade is a lot more significant than it may seem at first glance. It could propel XRPL to become the most powerful blockchain due to the good relationship with banks which Ripple has painstakingly taken years to build.
Should You Buy XRP?
While some might find the vision and benefits for XRP compelling, White is worried the SEC lawsuit could create trouble for those looking to buy into it. “They are positioning themselves as a settlement layer for regulated companies, but they’re also deep in a dispute with the SEC. None of the customers they would love to be onboarding can really start to use XRP until Ripple has gotten their legal woes figured out,” he says.
With all this uncertainty, Enneking warns that XRP can be a gamble not for the faint hearted. Though it has since more than recovered, “the SEC announcement caused the price of XRP to plunge,” he notes, making this crypto a particularly volatile investment until things are sorted out with the SEC.
That said, if you believe that Ripple will emerge victorious against the SEC and continue taking over as a payment system, then it could be worth buying XRP. Just make sure it’s with money you can afford to lose.