Ripple is a blockchain technology platform designed to facilitate the settlement of global payments as well as peer-to-peer exchange of cryptocurrencies. Ripple runs its own open-source blockchain platform (the XRP Ledger) that uses the XRP coin as its native digital asset. The XRP coin was launched in 2012, just a few years after the introduction of Bitcoin, and was initially touted as a cheaper and faster alternative to the first-ever cryptocurrency. Ripple had lofty ambitions from the very beginning, as it intended to leverage the power of blockchain to usher in a modern and more inclusive financial system where money could be transferred as easily and as fast as information. By integrating blockchain and digital asset technologies into their operations, Ripple is able to assist financial institutions to enable reliable, fast and cheap transactions all around the world.
Ripple is a very early and very popular blockchain that actually boasts real and practical use cases. Its technology has been adopted or integrated by multiple big financial institutions such as MoneyGram, American Express and Santander. But the company (as of Sep 2021) has not reached the heights it envisioned such as replacing the leading money transfer network, SWIFT. For investors, this has meant that despite its popularity, the XRP coin has not delivered the outsized returns posted by various other alternative cryptocurrencies in the market. In 2021, the XRP coin has suffered and somewhat stagnated due to ongoing legal battles with the US SEC (Securities and Exchange Commission). As a coin, Ripple will always be on the radar of active crypto investors who will be keen to see how or whether it will rise above its current challenges so as to unlock its true value.
How does Ripple Work
Ripple’s blockchain is different from the other types of PoW (Proof of Work) and PoS (Proof of Stake) mechanisms popular with other cryptocurrencies. The XRP Ledger relies on a Consensus Protocol to validate transactions posted on the blockchain. Instead of miners who compete for rewards, the XRP ledger has validators who are not promised any rewards beforehand. Anyone can sign up to be a validator, but Ripple will have to vet and trust them. In other blockchain models, blocks containing certain information are generated; but in the XRP Ledger, it is ledgers containing transaction information that are generated and their confirmation must be authenticated by a certain number of validators. It takes less than 5 seconds to validate a transaction on the XRP Ledger, which is significantly faster than the 10-minute period it takes for Bitcoin to confirm a block. There are currently over 150 validators on the Ripple system, with the underlying company controlling 6 of them. Active validators include financial institutions, universities or even exchanges duly vetted by Ripple.
The Ripple system also boasts an ODL (on-demand liquidity) feature that facilitates efficient cross-border payments. This way, XRP is utilized as a go-between for different currency types. For instance, if you reside in the US and wish to send money to Britain, you can easily exchange US dollars for XRP tokens and your recipient will instantly and conveniently receive the money in British Pounds. The ODL feature ensures that XRP is utilized as a source of liquidity so as to ensure lower fees and efficient use of working capital.
How is Ripple Mined and Stored?
Unlike other cryptocurrencies where mining confirms new transactions and helps generate new coins, all of XRP coins were pre-mined at conception. The company pre-mined 100 billion XRP coins, and there are currently 45 billion of them in circulation. The company releases new coins into circulation periodically as it deems it fit. This is one of the reasons Ripple has had legal issues with the US SEC, with the pre-mined coins considered as securities available to investors for speculative or investing activity, and not a currency to be used as a means of exchange.
Like other digital assets, Ripple is stored in digital wallets. Ripple can be stored in different types of crypto wallets which can be online or offline, with owners making their selection depending on their functionality and security. Online wallets are the more common crypto wallets available for storing XRP. They can be exchange-based, software-based, web-based or cloud-based, and they run on PCs as well as mobile devices. While popular, online wallets that run on the internet are considered less secure because they are susceptible to hacking attacks.
Ripple can also be stored in offline wallets, which are usually USB drive devices. Because they are not connected to the internet, offline wallets are considered to be the most secure way to store Ripple. However, they do not offer the flexibility and convenience of making faster transactions that online wallets offer Ripple users.
How to Buy Ripple
Ripple is available for purchase through numerous crypto exchanges. On most exchanges, Ripple buyers are given an online wallet, but they can also send XRP to external wallets. Crypto exchanges typically accept a variety of payment options such as debit/credit cards, bank transfer, as well as popular payment methods such as PayPal.
Ripple can also be bought on peer-to-peer crypto trading sites. These sites are very popular because they allow Ripple buyers and sellers to interact directly and exchange XRP using convenient local payment methods.
How to Trade and Invest in Ripple
Despite the challenges it has faced, Ripple remains one of the biggest and most-watched cryptocurrencies. For many investors though, it boils down to whether they should invest in it, or just simply trade it. Investing in Ripple essentially means buying the coin and storing it for value gains. Ripple investors believe in its utility and hope that the company will achieve its vision of revolutionizing the global payments space. The success of Ripple will unlock the true value of XRP, thus bringing in gains for investors. To invest in Ripple, you can buy the XRP coin that is available on many crypto exchanges. Investors generally hold a long term view on a coin, will HODL them until such a time they deem it fit to liquidate.
On the hand, trading XRP means speculating on its fluctuating prices. Traders have a short term view and seek to profit from the upswings and downswings of the price of XRP. Ripple trading can be done through exchanges or peer-to-peer crypto trading sites. Additionally, it can also be conducted through CFD brokerage firms where traders can trade the changing prices of XRP without owning the coins. By speculating on changing prices, Ripple traders can earn profits from both rising and falling markets.
Pros and Cons of Ripple
- Fast – XRP payments are settled within 3-5 seconds on the Ripple blockchain network.
- Scalable – The Ripple network can handle over 1500 transactions per second, round the clock. This mean that it can handle throughput levels similar to that of Visa and MasterCard.
- Enterprise Oriented – XRP has been optimized to handle transactions of large financial institutions.
- Distributed – The Ripple network is supported by a decentralized network of over 150 validators around the world.
- Stability – Ripple has been sustained by stable technology and governance since its inception.
- Energy Efficient – XRP transactions are settled instantly on the XRP ledger, and they do not require as much energy as other cryptocurrencies that require mining.
- Capped Supply – There will only ever be 100 billion XRP coins that have all already been pre-mined.
- Volatility – XRP has been a very volatile asset during its short existence, with prices capable of swinging both directions abruptly.
- Legal Setbacks – Ripple has faced legal battles with the US SEC, and this has significantly affected the price of XRP.
- Pre-Mined Coins – XRP coins are all already pre-mined and the Ripple company releases them periodically. The release of the coins into circulation can impact its price negatively because of increased supply.
- Ownership Concerns – The bulk of XRP coins are held by Ripple Lab Inc., the company behind the Ripple technology and XRP coin. This means that XRP price can easily be influenced.
- More Centralization – Crypto purists consider the use of ‘trusted validators’ as an attempt to centralize a decentralized technology. This goes against the true belief and vision of blockchain technology.
Future Outlook of Ripple
As a company, Ripple has displayed immense resilience as it battles regulatory headwinds and the US SEC legal pressures. The longer the case goes on, the more fortified its investors and speculators will become. The sooner it is concluded, the faster XRP will gain momentum going forward. With positive headlines regarding the US SEC legal battles streaming in, XRP will become a coin on every investor’s watch list. Having already dealt with the legal bureaucracy in the US, Ripple should be well prepared to handle any regulatory and legal pressures that may evolve within the cryptocurrency space.
Ripple has always come under criticism due to its more centralized blockchain technology. But this can be seen as a positive on the flipside. Having a centralized network makes Ripple more regulatory-friendly and makes XRP not desirable to users involved in illegal activities. Over the long term, this should be a strong positive.
In terms of technology, Ripple already has an advanced and stable network that has been adopted by numerous institutions. Its system allows for cheaper and efficient cross-border transactions, and its continued adoption should make the network indispensable for many institutions. The Ripple network has always been upgraded and updated to meet the needs of the rapidly evolving crypto space. Ripple has already communicated plans of ensuring that its system will support the growing NFTs (non-fungible tokens) space.
Developments within the cryptocurrency world should also influence the future of Ripple. In particular, the introduction of CBDC (central banks digital currencies) should be welcomed by XRP fans. If central banks become integrated into cryptocurrency, the demand for faster, cheaper and efficient cross-border payments will in theory grow. This should increase the demand for XRP much further.
But it is not all positive for Ripple. The company operates in a fiercely competitive financial industry where competitors have already emerged with even more dynamic technologies. Granted, Ripple retains a first-mover advantage, but it still operates in an industry where it has to run to merely remain static. If it however wins the race to revolutionize the global payments system, XRP should prove very valuable to investors over the long term