The Ripple Cryptocurrency
Ripple is essentially a real-time gross settlement system (RTGS). Its application is mainly in the field of all things finance. Payments are made instantaneously, and for a cheap price, using the Ripple network.
The Ripple token is the XRP. But the token is not the exciting part of Ripple. Ripple is a network where money can be sent from A to B. Think of the implications. Any currency can be slapped onto the network and sent to the counterparty.
And you can set terms and conditions as to when the money gets sent, to whom and how much. Monetary intermediaries are rendered redundant.
Transactions are settled within seconds on the Ripple Network, which can be contrasted to days or week to complete a simple wire transfer. The fees are also close to zero.
At present, if you want to invest in a currency, you most often have to transfer to a reserve currency, in this case, the USD, and then exchange to another currency. You are being hit with double fees.
And of course, it is far slower. Ripple gets rid of this dilemma. All banks and financial institutions will be operating on the Ripple Network to facilitate the easy transfer of funds. Ripple’s network is known as Ripple Net.
Banks such as Santander, RBC, Standard Chartered, Credit Agricole, SEB, BMO, UBS and American Express are currently members of Ripple Net. The money still gets transferred to a reserve currency, the XRP, but all on the same network which is lightning fast and with near-zero fees.
The goal of Ripple is to be the world’s premier payment infrastructure. And it has the potential to do it. In 2016 the world sent over $155 trillion across borders alone, according to a Mckinsey Study.
But the underlying banking infrastructure was built for a pre-internet era and is incredibly costly, inefficient and slow. In a nutshell, Ripple eliminates these issues.
It is also an effective bridge between fiat currency and cryptocurrency, as both can easily be exchanged quickly and cheaply on Ripple Net. Ripple is most likely going to be the gateway that connects banks to digital currencies and allows the centralized control of financial transactions.
How Does Ripple Work?
Technically speaking, Ripple does not use a Blockchain, though the network is consensus orientated. Ripple uses a Hash Tree to summarize the data into a single value that is compared across its validating servers to provide consensus.
But for all intents and purposes it does the job just as well as a Blockchain. All transactions are 100% secure. Ripple has a Unique Node List (UNL) that protects against malicious servers.
The UNL controls the network rules and protects the system, but critics have pointed out that a regulating body or government could force a change using this system. Ripple will only recognize gateways that are compatible with financial regulations.
Unlike other cryptocurrencies such as Ethereum and Bitcoin (BTC), the Ripple token was issued on inception, much like a company. It issued 100 billion XRP, essentially to itself.
Again this raises questions as to how centralized Ripple actually is, as there is skepticism as to who owns all the coins. The founder, Jed McCaleb, certainly owns a large amount, and he has been embroiled in legal battles since setting up a new cryptocurrency, Stellar. Ripple was 100% pre-mined, and the coins are being released at a steady rate by the Ripple corporation into the cryptocurrency ecosystem.
The issue is that there is nothing whatsoever stopping Ripple from simply creating another 100 billion XRP, meaning it acts much like a central bank that can issue currency at will. The company has promised that it will not be releasing any more XRP tokens, which does not exactly mean all that much.
Ripple is in every way digital fiat owned by the company Ripple Labs, who currently own 60% of all XRP. This can be contrasted to Bitcoin exchanges, where the largest Bitcoin wallet is an exchange holding less than 1% of all Bitcoins.
But from a functional perspective, it takes five seconds for ripple transactions to be confirmed, in contrast to the 10 minutes, it takes Bitcoin on average. In terms of speed, which is the most important variable in financial transactions aside from security, Ripple wins hands down.
Ripple Net does not use a Proof of Work (POW) or Proof of Stake (POS) system to validate transactions. It uses a trust-based system, much akin to the way that people trust banks with their money.
Ripple actually uses a credit intermediary called Gateway that receives and sends money on the network to exchange currency. XRP is the reserve currency, so your Yen or US dollars or Euros are transferred to XRP and then transferred to the currency you wish to send to the recipient.
Thus, the element of counterparty risk is still present with Ripple. Users do have the option of choosing an untrusted gateway. This counterparty risk is not apparent in Bitcoin or other alternative cryptocurrencies.
The Ripple system is based on trust and Ripple keeps track of all IOU’s in a particular currency for every gateway/user. In terms of privacy, Ripple operates in much the same way as Bitcoin.
All of the transactions are recorded on the Ripple consensus ledger. So all of the transactions are public and not private. What this means is that it is still possible for people to track transactions with IP addresses, as well as other methods, in order to find out who made the transaction.
Some argue that because anyone can set up a Ripple Node that Ripple is decentralized. But this is quite a thin argument. At best it would mean that Ripple would be decentralized at the Node level of the network.
Ripple v Bitcoin
Ripple operates in the same sphere as Bitcoin, in the sense that it is specifically focused on changing the world of finance. This can be contrasted with many other cryptocurrencies which have different aims (Cryptocurrencies such as Ethereum have an infinite variety of applications).
So Ripple is in many ways the Bitcoin counterpart. Litecoin and Bitcoin Cash can be seen as minor players and Bitcoin derivatives. Ripple is owned and managed by Ripple Labs, while Bitcoin is maintained by thousands of developers and miners across the world, though there are certain Bitcoin core developers who wield more influence.
At present, it has to be said that Ripple beats Bitcoin hands down in terms of speed and cost of transfer. The Bitcoin network is far too expensive and far too bloated.
Bitcoin has not solved its scaling problem and Ripple is way more suitable to take on the world of finance at present. Ripple has the most scalable Blockchain right now by any measurement.
This means that it can be scaled up to cater for many more users quite easily. The reason Bitcoin is currently so slow and inefficient is that it did not scale well when more users came onto the network.
The scaling issue is fiercely debated by all Bitcoin developers. And it has to do with the block size of Bitcoin, which is currently set at 1MB. A larger block size will result in lower transaction costs and a faster network.
But it is not really a solution to the scaling problem, as it would need to be continually increased as time goes on to accommodate more users, and it also puts the network at risk of denial of service attacks, which would again lead to congestion and higher network fees. Bitcoin ultimately opted against increasing the block size and instead decided to follow Litecoin with a feature known as Segregated Witness.
Segregated Witness (SegWit) does not increase block size but increases the capacity of the block. In other words, it has the same result that increasing the block size would have, in that fees are lower and speeds are faster.
SegWit is supposed to be a lead in to something called the Lightning Network (LN). While this is by no means a reality at present, it would essentially do the same thing that Ripple Net would do. It would enable instant and near free transactions.
An accurate summary would be that Ripple Net is the perfect tool for banking and trading and tends to be far more centralized than Lightning Network. There is more controversy about who owns Ripple in comparison to Bitcoin, which tends to be far more decentralized.
It is really no surprise that banks tend to love Ripple Net and are jumping on board. The power would still reside with the banks themselves, albeit with lower fees and faster technology. Bitcoin does not have this problem, despite some rumors of potential centralization at the mining level.
Lightning Network can do everything that Ripple Net can. But there is no interest from banks because it cannot be centralized. This is the core difference between Bitcoin and Ripple.
Of course as time goes by both networks will grow and each will have a large chunk of market share. Ripple is built for enterprises and not really for individuals, as opposed to Bitcoin, which puts all power (and risk) in the hands of individual persons.
But the fact remains that at present, Ripple is in nearly all ways better than Bitcoin. In terms of taking over from typical banking operations such as Visa and MasterCard, only Ripple has the potential to succeed.
Ripple has been updated to cater for 50,000 transactions per second, much like Visa. Bitcoin can handle around 7 transactions per second right now with its 1 MB block size, which is pathetic by cryptocurrency standards.
So all theories about centralization and decentralization aside, Bitcoin has a long way to go before it can realize the potential of Ripple. On top of this, Ripple avoids the severe economic issue of the cost of mining.
The electricity costs to mine Bitcoin are astronomical and Bitcoin mining used more energy that the Republic of Ireland in 2017.
Even if Bitcoin was upgraded to 32 MB, it would still not be sufficient to cater for global transactions, and for this reason many have argued that it would be best for Bitcoin to remain as a store of value much like digital gold as opposed to tying to compete.
The Lightning Network should enable Bitcoin to handle far more transactions than Visa. But it is not here now, and in the meantime, Ripple is busy collecting banks who give more credibility to the network, creating a Ripple effect.
From a technological perspective, it could almost be said that Bitcoin is in fact an archaic dinosaur that has been widely adopted. In the same way that many software specialists bemoan how inefficient Windows is compared to Linux and Mac, the world does not care all that much and still uses it predominantly.
This is called the network effect, where platforms grow due to initial adoption and awareness. It plays a massive role in cryptocurrency and in all spheres. The first to market often wins, and if you say cryptocurrency, the first thing that an individual will think of is Bitcoin.
Ironically, it is Bitcoin’s focus on decentralization that has indirectly led to the issues with scalability, high fees and low speeds. Because there are a number of decentralized groups including miners, core developers, merchants and individuals, it is difficult to gain any form of consensus.
For example, in 2015 it seemed likely that an 8 MB block size would pass. But because this update remained unpopular with miners it was not adopted.
Bitcoin needs to solve its scalability problem quickly, and its decentralization means that problems do not get resolved quickly but slowly and incrementally over time. Ripple has a Board of Directors which makes all the decisions and is much like a company.
In one line, the difference between Ripple and Bitcoin is that Bitcoin aims to replace the financial system with a coin based consensus system, while Ripple aims to enhance the current banking system with faster transactions and lower fees. Though Bitcoin has a larger market cap, from a technological perspective Ripple is winning.
There are many in the crypto space who are adamant that Ripple is going to crush Bitcoin, and very soon. It is faster and less expensive, and has many large-scale agreements with banks. It also has a corporate style of governance which can get things done rapidly.
When banks start handing out Ripple credit cards to customers en mass, then adoption could take place very rapidly and take a lot of market share from Bitcoin. On the other hand, there are already a number of Bitcoin backed credit cards such as Wirex and Bitcoin friendly financial platforms such as Revolut.
And there are no Ripple ATM’s, nor will there be, for some time. Most likely each coin will develop and each will have its own use. The world is a big place, and an advantage of cryptocurrency is that it transcends national borders.
- The Ripple community on Reddit is very large. Most importantly, it is very well-managed. There is engagement from both the development and corporate team and take their time to let the community know what is going on with the project.
- Team Quality – Some of the brightest individuals from cryptographers, developers, engineers, business development, corporate management and legal. A very impressive team they have together.
- Listed on ALL major exchanges.
- No illegal activity that the coin is attributed to. Example: Bitcoin is associated with the dark web.
- They look to have the right regulatory framework set up. If regulation came out that negatively affected the whole crypto space, they are probably positioned to take the necessary steps to get into proper filing.
- Market Cap is roughly 29B at the time of writing (15 Dec 2017). This places them at the #4 spot currently in all of the cryptocurrency market.
- Ripple’s white paper is very meticulous. They tell you everything you need to know about the project from both a basic and advanced perspective. They give you a thorough vision of where they want to go with the project and why you should invest your resources in working with them.
- It makes processing international payments a lot cheaper and easier.
- It can deal with 1000 transactions per second with zero latency. Example: If no direct exchange is available when transacting between 2 different currencies at a specific time, then you could just use the XRP (Ripple Coin) to pay.
- Ripple has partnerships with big names in the financial industry. These include ATB Financial, the Canadian Imperial Bank of Commerce (CIBC), National Bank of Abu Dhabi (NBAD), Reisebank, Santander, UniCredit, and UBS. Most recently, Japan Bank Consortium and two of South Korea’s largest banks.
- As Ripple labs grow their business, it should create an increasing demand for their coin which should keep an underlying value for the coin.
- Banks that are using this network have to hold a minimum of 20 XRP that ensure their account is legitimate. This creates somewhat of a value proposition for the coin.
- Of the 100 billion XRP of Ripple coin made, Ripple owns 60%. The current circulation of coins is only 40B. If they were to dump XRP, Ripple would crash down to nothing. The creators have committed to locking most XRP up and plan on releasing this to the market at a slow and steady pace in the future.
- Is investing in Ripple ethical or not? This is ultimately helping banking institutions profit more and is taking away from the “decentralization” aspect.
How to Invest in Ripple
Ripple is more difficult to invest in compared to Bitcoin or Litecoin, which have been around longer. Often, purchasing Ripple will involve first investing in Bitcoin and then transferring Bitcoin to Ripple on the same exchange or some other service. But there are still many ways to buy Ripple directly without paying the additional fees of buying Bitcoin.
If you want to purchase Ripple using Euros or US Dollars, then you can use either BitStamp, Kraken, Bitsane or Gatehub. You can also try Litebit.eu for the purchase of Ripple using Euros.
In nearly all instances you will have to use a wire transfer from your bank in order to make the purchase, as opposed to a credit card purchase, which is really only available for cryptocurrencies like Bitcoin and Litecoin. All exchanges require verification and registration before you purchase Ripple. If the exchange does not ask for verification then go to a different exchange, as it is likely a scam.
A full list of Ripple friendly exchanges is available on the Ripple website. If you really need to pay with PayPal or credit card then look at Local Bitcoins, where you can filter for sellers based on your buying preferences. When using these methods sellers will often charge a large premium, due to a higher level of risk.
You can also invest in Ripple by buying Bitcoin and then exchanging the Bitcoin for Ripple on a platform such as Changelly or ShapeShift. These platforms are easy to use and Bitcoin can easily be bought with a credit card instantly.
The downside for this ease of use and speed is that the fees are far higher when paying with credit card and you are paying fees to buy Bitcoin and paying fees to exchange for Ripple, which is a double payment.
Where to Store Ripple
When you get your Ripple it is important that it is stored securely. If you keep your cryptocurrencies on an exchange they are not safe and this is a beginner mistake.
Generally speaking, serious cryptocurrency investors should consider either a Ledger Nano or a Trezor. These are hardware wallets that represent the ultimate in cryptocurrency security for a number of reasons.
Hackers need your passcode, pin and your hardware to gain access, and all transactions from your computer need to be verified on your hardware device. If you are storing coins for other people or have a large cryptocurrency portfolio, then you need one of these.
But for the majority of customers, a good desktop Ripple wallet will function just as effectively and is still extremely secure. Good desktop clients include Exodus, a multi coin wallet with an excellent interface and fantastic customer support. It is probably the best desktop wallet and is definitely the best multi coin wallet there is, hosting more that 29 cryptocurrencies at present.
If you are only investing in Ripple then you could consider Rippex, a desktop client made to store Ripple. It is straightforward to use and is also very secure. It is a well-established brand that has proven reliable in the past.
Rippex can also support Bitcoin and fiat money, and is very fast. Another great option for storing XRP is Toast. Toast works on Android, IOS, Windows, Mac and Linux and is very user friendly and secure.
It is easier to use than Rippex which many users report to be a little confusing. And Toast is completely free and open source. Rippex generally charges around .2%, but it depends on the currency or cryptocurrency.
It would be best to store Ripple on a hardware device, followed by Exodus or Rippex. One level below this would be wallets such as Toast. And the bottom rung of the ladder where things can get a little risky would be keeping them online in an exchange.
If you do decide to go ahead and keep them online, then one of the most secure sites would be Coinpayments. This is a cryptocurrency payment site which accepts the storage of over 100 different altcoins with a transaction fee of only .5%.
The company is registered in Canada and is one of the most authentic and regulated platforms on the cryptocurrency market. It is also one of the largest and fastest cryptocurrency payment networks, with nearly 300,000 vendors in over 180 countries.
The least safe online option would be on an exchange. Even large exchanges such as Bitstamp and Kraken are less safe than sites designed specifically for the storage of cryptocurrencies.
A hard lesson was learned with the Mount Gox exchange in Tokyo where 850,000 Bitcoins were stolen in the early days of cryptocurrency. But, judging by the amount of cryptocurrency still stored on exchanges today, the lesson seems to have been forgotten.
In many ways, Ripple is a better Bitcoin, and even if Lightning Network comes into play, Ripple Net still has some advantages. Bitcoin transactions still have to be confirmed by miners, while Ripple Net settles almost instantly. If you are looking for a coin to appreciate relative to Bitcoin for speculative purposes, Ripple could be a good bet.
Ripple has the backing of banks and corporations and is set to proliferate and take over from Visa. If you are interested in ideological concerns and wish to see a fairer and decentralized financial world, then Bitcoin wins hands down.
What could possibly happen is that banks and corporations will use Ripple and a large number of individuals and smaller businesses will use Bitcoin. Both will grow and take a certain percentage of market share, as both are different technologies.
The Bitcoin v Ripple race is big and real, and is much more relevant than Bitcoin v Ethereum as they are in different spaces. One thing that is certain, is that if banks do not engage in Ripple or some other effective cryptocurrency soon, they will be no more than a footnote in the world’s financial history. Whether it is Ripple or Bitcoin or another coin altogether, cryptocurrency is the way forward.