What is Ripple?

First of all, it is vital to make a clear distinction between Ripple and XRP. These two concepts are often conflated with each other. Ripple refers to the comprehensive platform that aims to become the number one global settlement system. XRP, in contrast, is the token employed to exchange currencies on the platform instantaneously. The protocol would allow banks to process transactions faster and more efficiently. Whereas it may now take a couple of days before an international wire transfer is fully prepared, Ripple aims to arrange this within just a couple of seconds. Ripple’s ambition is to replace the systems currently used by banks to handle transactions. Systems like the well-known SWIFT protocol. The XRP token acts like the platform's metaphorical fuel, comparable to ether’s function on the Ethereum network.

The Ripple platform was invented and developed by Ripple Labs. This company is firmly in charge of the development of the platform, which contrasts with the practice of open source development. As opposed to most issued tokens, XRP tokens have been available right from the start. A fair share of them have already been sold to investors. This also entails that it is not possible to mine XRP tokens, which distinguishes Ripple from networks like Bitcoin. It is estimated that about 60 percent of all XRP tokens are still in the hands of Ripple Labs. These tokens are saved in escrow, a type of digital vault. Every month, the organisation is allowed to sell up to one billion tokens to finance new projects or make new investments. However, as the monthly sale of so many tokens would inevitably drive the coin's value down, rest can be assured that Ripple Labs will not lightly engage on this path. However, it does show how much power the organisation behind the platform has over, among others, its own token. In this regard, the project is not as much focused on decentralisation and financial independence as most cryptocurrencies. It actually aims to support banks instead of undermining them. 

The main target of Ripple Labs is thus to spark a revolution within the banking environment and to replace outdated payment systems. Whereas Bitcoin and other cryptocurrencies are built on the notion that financial transactions should be separated from financial institutions, Ripple aims to accomplish the opposite.

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Who came up with Ripple - XRP?

Ripple was first envisioned and developed by an American company called Ripple Labs. It was initially operating under the license name 'OpenCoin' and was renamed in 2015 to Ripple Labs. Its headquarters are situated in San Francisco, California. Ripple Labs was founded by Jed McCaleb and Chris Larsen, who together came up with the idea of developing a digital currency system featuring a consensus-based decision-making mechanism, as opposed to the mining process that characterises other cryptocurrencies like Bitcoin.

Ripple Labs is a privately financed enterprise and managed to trigger five successful investment rounds between April 2013 and September 2016. Among its investors were significant players like Google Ventures, Google's venture capital branch. As previously discussed, the company possesses about 60 percent of all available XRP tokens. This has caused quite some controversy within the crypto community. It sometimes seems like it is impossible to form a nuanced opinion on Ripple; most of the community is either vehemently against the company or loyally supportive of its endeavours.

Despite this dichotomy, the company is doing really well. The XRP token has firmly established itself in the market value top five, and Ripple has received many awards over the course of its existence. In 2014, Ripple Labs was named one of the world's most innovative companies by the renowned MIT Technology Review, which hailed its development of the Ripple Protocol. 

The history of Ripple and XRP price

Ryan Fugger came up with Ripple in 2004. The idea was to create a monetary system that would allow people to create their own money decentrally. He built the first version of the system in 2011 and named it Ripple Pay. Meanwhile, Jed McCaleb worked on a digital payment system that involved network verification of transactions, as opposed to the mining process used by Bitcoin. In August 2012, McCaleb and Chris Larsen joined forces, and together they approached Ryan Fugger with their idea to launch a digital coin. After some discussion, Fugger decided to team up with McCaleb and Larsen, and in September 2012 they began OpenCoin. Its purpose was to develop the Ripple Protocol.

From that moment onward, the project quickly gained traction, which the XRP price reflects. In 2015, the company was still fined for operating without an institutional license, but in 2016 Ripple Labs became the fourth company in the world with a BitLicense, the permit required to trade in virtual currencies. Ripple Labs announced in April 2017 that it had added several major banks to the network, including the Spanish BBVA group, worth about 60 billion dollars. In November of the same year, the company announced a promising deal with American Express. The financial services corporation will help Ripple develop the payment network of the future.

Why do people buy Ripple?

Facilitating international payment traffic is a very profitable endeavour. If XRP manages to replace the dollar as the global reserve currency, we can expect the coin's exchange rate to skyrocket. Many banks are currently experimenting with Ripple. Only time will tell whether they manage to transform Ripple into the world's largest settlement system. CEO Brad Garlinghouse is at least not afraid of the competition posed by banks attempting to create their own cryptocurrencies. He expects all banks to eventually launch their own coins, which would then lead to a similar problem as the one we face now. In the end, this digital system would still require a single digital coin that acts as the global reserve currency. And indeed, that coin should then be XRP. Do you think it's time to buy XRP or sell XRP?

How does Ripple work?

The Ripple Protocol aims to become the global standard for money transfers between different financial institutions. The current system is both slow and very expensive in its application. Consider that Alice works in the Netherlands and transfers part of her salary to her family in China every month. To finalise this transaction, Alice's Dutch bank will first have to exchange her euros to US dollars. These US dollars are then wired to the bank of Alice's family in China. They have no use for dollars, so the Chinese bank will first have to exchange the sum to the Chinese Renminbi. This transferring of different currencies to accomplish one single transaction costs a lot of money and much time.

Ripple eliminates a significant share of these costs and allows for much quicker transactions. The dollar is currently the world's foremost reserve currency, a term you are probably already familiar with. It often serves as the exchange currency for transactions between two different currencies. The XRP token aims to become the alternative for the dollar in this regard. It should become the foundation of all future money transactions. The process explained above can also be implemented through the Ripple platform, which would be much faster and entail fewer costs. The transferring and processing of money on the Ripple platform takes no longer than four seconds, regardless of geographical positioning. Therefore, Ripple Labs' vision is to eventually replace the dollar as the world's primary reserve currency.

Which problem does Ripple solve?

The SWIFT system, which is the current standard for international wire transfers, has been in use since 1974. Seven major global banking companies back then joined forces to construct a network that is now being used by the entire financial world. The problem with SWIFT and other outdated systems is that the exchange of different currencies costs a lot of time and money. The Ripple platform aims to change this. The processing of international transactions should no longer take up several days but should be arranged within a couple of seconds, without any high costs.

What are the pros and cons of Ripple?

The main advantage of Ripple is that it has a clear use case: it solves an existing problem. The network could spark a revolution in the banking environment and become the settlement system of the future. Transactions on the network are fast and cheap, even when compared with other cryptocurrencies. The processing of an XRP transaction only takes four seconds. 

Furthermore, several banks are already cooperating with Ripple, which provides the project with much additional legitimacy. However, the plan does violate the ideals that formed the foundation of the crypto revolution. Bitcoin was initially envisioned to function as an independent payment method and to decouple banks from transactions. This is also why it is problematic to compare Ripple with other cryptocurrencies. Ripple also strives to get rid of its reputation as a heavily centralised platform, which is why it has eagerly been adding the familiar nodes to its network. This way, the company wants to distinguish itself from traditional banks in front of the crypto community.

Ripple's primary challenge is that more and more banks are becoming aware of the potential of blockchain technology and that they are trying to experiment with native tokens. Multiple financial institutions, including the renowned JPMorgan, have already announced their own tokens. Whether Ripple can sustain itself in this clash among such major financial institutions is yet to be seen. 

What makes Ripple unique?

Compared to other cryptocurrencies, the Ripple Protocol is quite the odd man out. It never aimed to serve as a decentralised payment method. Instead, its goal is to become the number one settlement system of the future. This makes Ripple unique vis-à-vis the rest of the crypto market.