Ripple is an internet protocol that allows for financial transactions in any currency whether that’s fiat to fiat, crypto to crypto or a mix of the two – with currency exchange conversions happening on the fly. Instead of exchanging Ripple directly for goods and services, as with a traditional currency, the Ripple currency is used as a medium for converting one currency instantly into another, without relying on a central exchange.
Ripple’s distributed financial technology allows banks to send real time cross-border payments across various networks. Using Ripple, banks can meet growing demands for faster, low-cost, on-demand global payment services for any payment size. Thus, banks can acquire new customers and grow revenue through differentiated products and services. In addition to that, Ripple lowers back-office costs for banks through an efficient mechanism to process and settle international payments.
Ripple allows parties to transmit any form of value across its payment network for free. However, to convert it into something other than XRP requires the use of gateways that charge fees. Gateways are independent businesses that hold deposits in different currencies like U.S. dollars or Euros, in exchange for cryptographically-signed issuances which users can trade with each other in seconds.
Who’s behind Ripple?
The company building the Ripple protocol, OpenCoin, was co-founded by CEO Chris Larsen and CTO Jed McCaleb.
McCaleb is well-grounded in digital currency, coming from Mt. Gox, which currently handles the majority of the world’s bitcoin trades. He sold the now-defunct bitcoin exchange to Mark Karpeles 2011. McCaleb then founded OpenCoin, which was the precursor to Ripple Labs. McCaleb, for a time, held the role of Chief Technical Officer at the company.
Larsen previously co-founded and led the online financial company E-LOAN. Other developers on Ripple’s team also have a bitcoin background.
Ripple’s growing, global network includes 12 of the top 50 global banks, ten banks in commercial deal phases, and over 30 bank pilots completed, among many others also using Ripple’s solutions.
For those who want to try Ripple now, there are already two gateways working with Ripple: BitStamp and WeExchange, both of which offer the ability to deposit a number of different currencies into your Ripple account. There is already one merchant accepting Ripple, the VPN provider Private Internet Access.
More on the differences between Ripple and Bitcoin.
While bitcoin is described as a decentralized peer to peer network developed to operate as an alternative financial network to that of the existing global financial system, Ripple can be explained as a protocol structured to serve and enhance the existing global financial system. It has partnered with leading banks and major financial institutions to settle cross-border and cross-bank transactions transparently, with strong security measures in real time.
Bitcoin requires centralized exchanges (Mt. Gox). The Ripple network acts as a decentralized currency exchange. So if someone wants to sell their XRP for USD they can do that within the network without needing a third party. (This will help Bitcoiners too: they can trade Bitcoin on Ripple without fear of an exchange going down and disrupting the market.)
All XRP transactions go through validators and nodes, similar to Bitcoin. However, on Ripple, those transactions don't rely on the mining protocol. Since Ripple’s structure doesn't require mining, it reduces the usage of computing power, and minimizes network latency.
Ripple also has a greater degree of governance, as the Ripple Consensus ledger relies on institutional validators run by global banks and a few other institutions.
There is a transaction fee to use the exchange (~.00001XRP) and it must be paid in XRP, the native token of the network. By design, 100 billion XRP were created at Ripple’s inception, and per the protocol rules, no more XRP can ever be created. XRP is currently only issued out at less than 40% of the total. The remainder is held by Ripple to distribute however and whenever they so wish. Ripple plans to distribute XRP mainly through business development deals, incentives to liquidity providers who offer tighter spreads for payments, and selling XRP to institutional buyers interested in investing in XRP.
Ripple was released in 2012, and in just 5 years it has established itself as a key player in the fast-growing distributed ledger technology world. The Ripple Protocol has been adopted by an increasing number of financial institutions. The years 2015 and 2016 especially, marked the expansion of Ripple, with the opening of an office in Sydney (April 2015) and the opening of European offices in London (March 2016 ) and in Luxembourg (June 2016).
Ripple’s Global Payments Steering Group (GPSG).
Ripple’s GPSG is an interbank group for global payments system that was launched in September 2016. At the time of launch, the Ripple GPSG was described as the group that will oversee the creation and maintenance of Ripple payment transaction rules, formalized standards for activity using Ripple and other actions to promote the implementation of Ripple payment capabilities as the network continues to grow.
New features added.
On 03/04/2017 Ripple added two new features Escrow and Payment Channels, which help to increase the performance and scalability of The Ripple Consensus Ledger (RCL). The new features allow companies to adopt The Ripple Consensus Ledger (RCL) and Interledger Protocol (ILP), and those using the technology will receive the benefits of XRP, providing them with a faster, cheaper experience for cross-border payments.
More banks signed.
In 2016, Santander became the first U.K. bank to use Ripple for cross-border payments, offering a simple payments app running on Ripple’s underlying technology. Ripple announced on April 2017 that it has signed 10 new banks, including BBVA in Spain; MUFG in Japan; Akbank in Turkey; SEB in Sweden; and Axis Bank and Yes Bank, both in India. Add those to the 47-bank consortium in Japan that joined in March. And add those 57 to existing big-name clients like Bank of America, RBC, Standard Chartered and UBS, and Ripple looks like it’s gaining traction very quickly.
Kraken Ripple-fiat support.
In May 2017, Kraken one of the top cryptocurrency exchange platforms, announced that it would include four different XRP trading pairs including XRP/EUR, XRP/JPY, XRP/USD and XRP/CAD. The new pairs mean that clients who wish to exchange XRP for their preferred currency can now be able to do so directly.
Ripple Pledges to Lock Up $14 Billion in XRP Cryptocurrency.
Ripple has promised to lock up 88% of its native XRP crypto currency in dozens of smart contracts that can hold value in escrow for a certain duration of time. By doing so, Ripple hopes this will give current and aspiring XRP owners a sense of certainty that the market won't suddenly be flooded with the crypto currency, thereby lowering the price.
It is important to note these are the early days of distributed ledger technology. Cryptocurrency diehards want nothing to do with banks, which is understandable. However, these are the same people who use a bank account to convert Bitcoin and Ethereum to fiat and vice versa. These transfers may one day be sped up and offered at lower costs thanks to Ripple.
That being said, Ripple is still under $1, which gives investors who missed Bitcoin and Ethereum in their foundational stages a second chance. No one expects it to stay at $1 for long. We are in the thick of a digital currency gold rush, and promising currencies like Ripple are going to receive more investors in the coming months.