Ripple (XRP): What Is It & How Does It Work?

What Bitcoin did for regular people, Ripple (XRP) is doing for major financial institutions. Instead of direct peer-to-peer transactions, it’s streamlining how these institutions send money across borders. Ripple poses an existential threat to the current SWIFT system by using blockchain technology to make global payments faster and more efficient. If you’ve ever had to wire money abroad through your bank, you know how slow, expensive, and tedious the process can be. It also has a high failure rate. But Ripple isn’t your typical blockchain or cryptocurrency. Here’s what to know about XRP.

Ripple vs Bitcoin at a Glance:

What is Ripple (XRP)?

Ripple is a blockchain-based global payment platform and XRP is its native cryptocurrency. Unlike Bitcoin, which was created to be an alternative to traditional money, Ripple is focused on improving the existing financial infrastructure. Major banks, financial institutions, and businesses around the world use the network to execute faster and cheaper cross-border payments.

Who Created It & Why? 

A company named XRP Ledger (XRPL) was established in 2011 by Jed McCaleb, David Schwartz, and Arthur Britto. Their mission was to create a fast, affordable, and scalable global payment solution for institutional finance. More importantly, it sought to eliminate the two major problems plaguing Bitcoin: negative environmental impact and the risk of centralized control by miners. In 2012, the company launched XRP, its native cryptocurrency, and gave 80% of it to a company now known as Ripple Labs (Ripple for short). 

The goal of XRP is to facilitate faster and more efficient cross-border payments, acting as a bridge in transactions involving different fiat currencies.

This distinguishes XRP from many other cryptocurrencies that focus primarily on peer-to-peer transactions. The Ripple Network (RippleNet) is a patented payment network that uses XRP for transactions and connects banks, payment providers, and digital asset exchanges to achieve near-instant settlement and lower fees​.

Today, XRP Ledger settles transactions in 5 seconds or less, can process 1,500 transactions per second, and costs just $0.0002 per transaction. Thanks to its near-instant speed and efficiency, the company has partnered with hundreds of financial institutions around the world, most of which are outside the U.S.A. 

How Does It Work?

Ripple’s blockchain is open-source, which means anyone can view, use, modify, and distribute its code. This feature is common among cryptocurrency blockchains to establish trust and transparency among users. It encourages innovation, and collaboration among developers so they can build upon and improve the technology. The network is also permission-less, allowing anyone to send transactions or develop applications without approval from a central authority.

Verifying Transactions

Unlike Bitcoin’s energy-intensive mining process, XRP uses a Federated Consensus mechanism to verify transactions and secure the blockchain. Ripple relies on a small, trusted network of unique computers called nodes, each holding a copy of all transactions. They must agree on the legitimacy and accuracy of a transaction through a majority vote of at least 80%.

The process happens very quickly and doesn’t rely on a huge amount of computational power. This makes XRP one of the fastest and most eco-friendly cryptocurrencies, capable of processing transactions in just seconds.

Supply Mechanism: Can You Mine or Stake XRP?

Unlike Bitcoin and Ethereum, you cannot mine or stake XRP. Ripple originally minted 100 billion XRP tokens and holds the majority of them in a designated wallet. Each month, a portion is released into circulation to control the supply and price.

This unique supply mechanism is the fundamental difference between XRP and most other cryptocurrencies. It also eliminates the need for energy-intensive mining processes, making it a green cryptocurrency.

Is It Actually Decentralized?

Yes and no. XRP is decentralized in the sense that the ledger is distributed across a network of nodes and anyone can see the record of transactions. But unlike Bitcoin’s completely open model of participation, Ripple uses a much smaller network of trusted nodes to validate transactions. And most of them are closely associated with, or operated by, Ripple Labs. 

That means a small number of people have a significant influence over network consensus. Not to mention that Ripple Labs has significant control over the supply of XRP, which means the company has the power to influence the price. This has caused quite a bit of controversy over Ripple’s degree of decentralization compared to other blockchain networks. 

How Is XRP Valued?

Even though Ripple Labs could influence the price of XRP, its value is still primarily dictated by supply and demand. The demand for XRP is driven by institutional adoption, investor sentiment, and overall interest in the crypto market. Supply, on the other hand, is dictated by how much XRP is released from the escrow wallet.

If people feel XRP is the future of global payments and a growing number of institutions adopt the Ripple Network, this would likely put upward pressure on the price. If people are not confident in the future of XRP and institutional interest is lackluster, this will likely put downward pressure on the price. 

Unlike most other cryptocurrencies, the price of XRP has been less responsive to overall market upswings. For example, from 2023 to March 2024, the price of the top ten cryptocurrencies (not including stablecoins) has risen roughly 170% on average. In contrast, the price of XRP has only risen 45% over the same period. 

This is in large part due to the controversy regarding centralization and the SEC lawsuit accusing Ripple of selling XRP as an unregistered security. The company’s legal issues have had a significant impact on the coin’s price. In the early stages of the case, many major exchanges delisted XRP, and the price tumbled roughly 60%. After Ripple won a significant portion of its case, investor sentiment improved and the price surged roughly 64%.  
The value of XRP depends heavily on how the SEC court case plays out because it will have a significant impact on institutional adoption in the United States. In other parts of the world, Ripple is not subject to the same financial regulations. Many foreign financial institutions have already partnered with Ripple, and the list continues to grow.

Pivotal Moments In Ripple’s History

Are You Ready For XRP? 

XRP stands out for streamlining cross-border transactions for institutions by offering almost instant settlement at a fraction of the cost. Its unique consensus mechanism makes it a faster and more efficient alternative to Bitcoin. Despite the controversy and legal battles, XRP has demonstrated incredible resilience and growth potential. 

If you’re intrigued by this unique cryptocurrency, investing in it is a great way to engage and learn more. One of the easiest ways to buy XRP is through a Localcoin ATM. With a user-friendly interface and convenient locations, these physical terminals provide a hassle-free way to enter the crypto market. Find a Localcoin ATM near you today and add some XRP to your digital wallet.