Truly, the Internet uses a protocol called HTTP, while RippleNet uses a protocol called RTXP for moving value around the world. The creators of RippleNet are the Ripple Labs who aim to create the Internet of value away from money to move as quickly as information does. The idea of Ripple was first conceived way back in 2004 by Ryan Fugger and was called RipplePay but in 2012 Jed McCaleb and Chris Larsen later founded open coin in RippleLabs.
Ripple Transaction Protocol RTXP
Unlike most cryptocurrencies that focus on individuals, RippleLabs aims to serve banks and payment providers allowing them to lower transaction costs. RippleNet is a network based on a set of rules known as RTXP (Ripple Transaction Protocol). This network consists of computers known as Validators that are spread around the world and maintain a shared ledger of who owns what. They make sure every transaction sent through the network follows the RTXP rules. Anyone can run a validator and help maintain the Ripple network just like anyone can run a Bitcoin node to maintain the Bitcoin network. Companies that would need to access the Ripple network can use Gateways. Gateways are usually run by banks as an entry point to Ripple for people outside the network. So basically Ripple offers businesses an alternative to the banking system in the form of an internet of value called RippleNet. Ripple products such as xRapid, xVia, xCurrent are offered to companies to optimize the current solutions for transferring money around the world. It’s worth mentioning that for you as a customer of a financial service using Ripple, this solution is transparent. If the banks switches to this technology your bank account balance could be residing on any XRP ledger tomorrow without you knowing it.
Cryptocurrencies Ripple Support
IOUs and XRPs
The types of currencies Ripple supports unlike other cryptocurrencies are IOUs and XRPs.
- IOUs are tokens on the Ripple network that can be stored on the Ripple wallet, just like we can store a variety of Ethereum tokens on an Ethereum wallet. Any participant on the Ripple network can issue an IOU, however, an IOU doesn’t represent what you own but what you owe. Literally, IOUs represent debt, If I issue an IOU to someone, it means I owe them something. When I hold an IOU issued by someone else, that someone owes me something. Each IOU encompasses information on who issued it and what it represents. For example USD.BitStamp is an IOU issued by BitStamp promising to pay back US dollars. You can also IOU for dollars, Euro, Gold, Oil and airline miles. For each asset, we borrow we will issue a new IOU.
Unlike other forms of debt, they can be traded. IOUs for the same asset type are not interchangeable if they were issued by two different people. For example, if I borrow money from you and issue you a 20 USD.Raj IOU, that IOU can’t be added to a USD.BitStamp IOU. Since each IOU has a different credit or trust line. You can only redeem the USD.Raj IOU from me. It is important to know that the IOU itself is not the asset, but only a promise by the issuer to give you back the asset in future. This promise has no value if the issuer can’t be trusted so trust plays an important role in IOUs. For you to accept an IOU from someone, you have to trust that they will be able to pay you back. In RippleNet, this is known as the “Trust line” that is similar to a “Line of Credit” with a bank. It’s an agreement to trust someone up to a limited amount of money.
- Aside from IOUs, there is another currency the Ripple protocol supports – XRP. It’s a currency issued by Ripple Labs to help transfer payments through the Ripple network. For example, if a bank wants to move a large amount of money, instead of using multiple intermediary banks to transfer them. It can just convert the money to XRP and send that XRP to the recipient bank. It’s important to know that the involved banks don’t have to use XRP to transfer assets between them. Instead, they can choose to keep an open tab using IOUs only, without ever closing it. Yet, XRP is a form of payment unlike an IOU, which is final and considered a tradable asset on the network.
Unlike IOUs, XRP is the actual assets for there is no counterparty risk, in other words, once you received payment in XRP, the transaction is made and there is no fear that the other party will not meet its obligations for paying it. So if no trust is needed and no TrustLine needs to be open when sending XRP to the other network participants, why do we even need IOUs? The simple answer is that XRP being a cryptocurrency by itself is relatively volatile and also not respected worldwide. IOUs on the other hand are treated and valued as an asset.
XRP has its own advantage as well, it’s fast and scalable. Sending an XRP transaction to the network takes 3 secs as opposed to Bitcoin which takes 10 mins. Besides, XRP can handle 1500 transactions per second while Bitcoin can handle only 7 transactions per second.
Is Mining XRP possible?
If XRP is a cryptocurrency, can it be mined like Bitcoin? No, it can’t be. Mining in Bitcoin is done to confirm and determine the order of transactions on the blockchain. Whereas in Ripple, transactions are handled through a different process. When an XRP transaction is broadcasted to the network, the validators that maintain the network decide if it’s valid or not through voting. When a validator receives the transaction, it consults with other trusted validators and they vote on whether a transaction is valid. If 80% or more voted validly, then the transaction is updated in the Ripple ledger. This list of trusted validators that a validator consults with is known as Unique Node List (UNL). Each validator has its own UNL, deciding who will be included in the list is completely up to the person who runs the validator. However, Ripple offers a default list of validators who don’t get compensated for the work like Bitcoin miners do with new coins.
When Ripple Labs started, they actually issued or pre-mined a total of 100Billion XRP and according to the Ripple protocol no more XRP can ever be created. If you are wondering who owns all of these pre-mined coins. Below is the data:-
- 20 Billion XRP was given to the co-founders,
- Ripple Labs holds 7 Billion XRP,
- 40 Billion XRPs have been sold to companies and individuals,
- The remaining supply is sealed in a smart contract that releases 1Billion XRP into Ripple Labs each month, until the cap of 1Billion XRP empties.
Facts about XRP
XRP can be divided into 6 decimal points with the smallest unit being called Drop, 0.000001 XRP= Drop. If you want to hold an XRP, you would need a wallet that supports the currency with a minimum deposit of 20 XRPs in your account. This is done to prevent people from spamming the Ripple network by opening large numbers of accounts. The XRP supply decreases over time making it in theory more valuable as time passes. This is done by destroying the transaction fee attached to each XRP transaction.
Can you invest in XRP?
When people invest in XRP, they are basically betting in the future, banks and institutions will use XRP to transfer value and will therefore buy XRP and drive up its price. Of course, banks could also use IOUs instead and that will keep XRPs price rather stagnant. So will the price rise in value is mainly a question of whether a majority of banks and payment providers choose to utilize XRPs instead of their current infrastructure.
Is Ripple Centralized?
Just like Bitcoin once the protocol has been established and published, Ripple Labs has no control over it because validators run the code themselves. This is similar to the Bitcoin core development team maintaining the Bitcoin protocol having no real control over the nodes that run it. But while Ripple labs don’t control the protocol, it does have a lot of influence in terms of maintaining it. So for some good reason, if it determines to create more coins, it might succeed. Ripple Labs is sort of a central bank to the RippleNet. The RTXP is open source which ideally means even if Ripple Labs cease to exist, the validators can still run the code themselves. Alternatively, products that the company offers to banks and institutions aren’t open source and are run solely by RippleLabs.
The number of Ripple Validators today is relatively small and is a fraction of the number of Bitcoin nodes that maintain the Bitcoin network. Since these relatively few validators are ultimately responsible for maintaining the integrity of the network. How can we conclude that they do not defraud Ripple users? Another attribute that raises concern is that you have to ultimately depend on trust to use the IOU tokens. In contrast, Bitcoin’s entire system is trustless and decentralized. Additionally, while Bitcoin is free for all, Ripple is committed to monitoring and reporting any anti-money laundering flags across the network as well as reporting suspicious activity to the relevant authorities. On the upside, since there is no such thing as Ripple mining, the network is in itself more energy efficient compared to Bitcoin’s extreme energy consumption.