Updated: Dec 15, 2019
Ripple is aimed at revolutionizing the way money is exchanged around the world. This may be a bold statement, but is also the reason behind Ripple currency (XRP) to be the second-largest cryptocurrency, by market capitalization. However, this cryptocurrency divided the decentralized transactions community by partnering with banks.
So, what is Ripple at its core? Who designed it? How does it work and is it really useful as a cryptocurrency?
What is Ripple Designed For?
Ripple was designed to make the existing banking technology safer. It aims to make global transactions quicker and more decentralized. Many people are of the misconception that Ripple is simply a cryptocurrency, like Bitcoin. However, they could not be more wrong.
Ripple was created at a time when people were losing faith in centralized institutions, because of the excessive risk-taking by banks and looming economic failures. The birth of cryptocurrency was to address the strong demand for a banking alternative, not controlled by any single entity.
Ripple is one of the first cryptocurrencies to use crypto-technology to work with banks, instead of building a new system from the ground up. The team designed a payment protocol, which could be used by both banks and non-banking institutions for financial transactions.
Who Is the Team Behind Ripple?
The idea for Ripple was formulated by Jed McCaleb.
A real-time gross settlement system was then created by David Schwartz and Arthur Britto. McCaleb is the current CTO and co-founder of another decentralized digital currency protocol, called Stellar. He is also known for creating the world-famous Tokyo based Bitcoin exchange called “Magic: The Gathering Online Exchange.”
The team then approached Ryan Fugger to develop a system called OpenCoin, which later transformed into Ripple. Fugger debuted in 2005 with RipplePay, even before Bitcoin was conceptualized, as a financial service provider helps make payment options more secure for the online community through an intrinsic global network.
How Does Ripple Work?
The Ripple network does not work like a proof-of-stake system like Nxt or a proof-of-work system like Bitcoin. Instead, it relies on a consensus protocol to validate transactions and account balances on the system. This means that there is no concept of ‘wallets’ or ‘mining’ like other cryptocurrencies.
It is designed to streamline foreign transactions by using XRP, as the mode of conversion. For instance, if you are looking to send money to your family in Mexico from Great Britain, then the traditional system of using SWIFT would take days and incur an exorbitant fee.
Worse, under the current payment system, you may not be able to make a direct exchange as well. Your bank may be required to convert the sterling into USD (reserve currency), before converting it into Mexican pesos. This adds a layer of delay and fees.
On the other hand, by using Ripple as your currency bridge, the sterling is immediately converted into XRP and then into pesos – all in real-time. The change may seem small, but by exchanging through digital currency, it’s almost free and instant.
A lot of people confuse Ripple with RippleNet, which is the network of payment providers used by Ripple. RippleNet connects the various payment networks of digital asset exchanges, banks, payment providers, and corporate entities that accept both crypto- and fiat currencies.
What are Current and Future Applications of Ripple?
Ripple was designed to use XRP as a type of ‘bridge currency’ for global exchanges. Ripple works closely with banks and payment providers, including American Express, Santander, SBI and Western Union, among others.
RippleNet connects payment providers and banks to provide a frictionless experience, sending or receiving money globally. It helps modernize global payments – one transaction at a time.
Currently, Ripple is active across 27 countries with end-to-end tracking and certainty for processing real-time cross-border payments. Banks are willing to work with Ripple, as they have the added advantage of expanding their payment offerings, into a completely new market that is otherwise too expensive or difficult to access, without investing in the infrastructure first.
Payment providers get the benefit of lightning-fast payments that are completely transparent and predictable. One of the hottest debates surrounding XRP is that it is not a currency, but security. Even though payments flowing through XRP provide stable exchanges, the fact that the majority of XRP (almost 60%) is held by the company, states that it should not be classified as a currency but security.
Ripple is a major player in the cryptocurrency world, with strong financial backing and numerous partnerships.
However, the future does hold challenges for this currency/security since its major competition SWIFT and credit card giant Visa, are working on their trials of blockchain-based cross-border payment options. However, the company plans to stay on top with advanced variants of Ripple xCurrent and Ripple xRapid.