This article examines the various aspects of Ripple digital currency. The company supporting XRP token is called Ripple Labs.
This article also examines some of the misconceptions about Ripple; Because, as you know, this digital currency has created a strange polarity in the crypto space.
Ripple and XRP Overview
First of all, we need to explain that Ripple and XRP, although mistakenly used interchangeably, are not the same.
The Ripple Network is a protocol for providing liquidity to global markets. It allows cross-border payments with low fees. XRP tokens are computing units within the XRP ledger database. It acts as a link between banks (bridge currency).
On the other hand, Ripple Labs, Inc. is a private company that sells RippleNet banking software. The software was previously divided into three separate products called xCurrent, xRapid and xVia.
Meanwhile, only xRapid used actual XRP. Other products worked independently of XRP or any other digital currency.
- It is very well funded.
- It has a great team with close ties to US lawmakers and financial institutions.
- It has a well-known brand and media often discuss it after Bitcoin and Ethereum.
- It has a lot of fans on social media.
- The cheap price of this token attracts many investors who believe that Bitcoin is very expensive. (Of course, this is basically meaningless)
Weaknesses of XRP
- XRP is not required for transactions within the Ripple protocol. Banks can use traditional currencies for their cross-border payments, which are less prone to fluctuations.
- XRP suffers from points of centralization, and Ripple company controls about 60% of these tokens.
- It is not resistant to censorship and Ripple has a huge impact on its network.
- It lacks a good “tokenomics” (token economic) to raise the prices. So banks do not need to use it, which reduces demand.
- It faces a lot of competition from large companies such as Facebook, digital currencies of central banks, private stable coins, and so on.
Practical uses of XRP
Ripple provides liquidity to global markets and enables fast cross-border transactions with low fees. Ripple Labs Inc created the XRP token in 2013. It also owns and sells the RippleNet products.
It is worth noting that XRP is very different from other digital currencies such as Bitcoin and Ethereum. Bitcoin and Ethereum are censorship-resistant and have a peer-to-peer payment and transfer system.
But XRP, unlike the other two currencies, has never been resistant to censorship and has never had such a goal. The purpose of XRP is not to use peer-to-peer payments. The only goal was to create a network to improve international bank payments.
Technology of Ripple XRP
We emphasize again that XRP and Ripple are not the same, although they are often used interchangeably. In this section, we will examine the technology of both.
RippleNet is a currency-agnostic system that allows banks to settle transactions in their preferred currency. The job of this system is only to find the cheapest way to exchange currency A for currency B.
xVia is another product that does not require XRP. It is a messaging application. It allows users to send invoices and other information to both parties.
xRapid is the only product that requires the use of XRP. By the use of xRapid, banks will not need to have other currencies stored in other banks. They can obtain the required liquidity by exchanging with XRP and then exchanging XRP with the desired currency.
XRP can settle transactions in 4 to 5 seconds and process about 1,500 transactions per second. The Ripple network has advantages over existing cross-border payment methods such as SWIFT, which take a few days to settle transactions and also has a high fee.
Ripple settles transactions using the Interledger protocol. This protocol is suitable for payments across multiple payment systems. It uses intermediaries to coordinate transfers across multiple ledgers.
Ripple uses Federated Byzantine Agreement (FBA) consensus algorithm to enable faster and cheaper transactions in comparison to its counterparts. In this system, each trusted node has its own chain of transactions and independently validates transactions.
These transactions publish within the network and the validators compare them with their results. The Ripple network uses multiple servers to achieve consensus. Transactions must receive at least a minimum amount (80%) votes to remain in the ledger.
Economic of XRP
At start, 100 million XRP tokens were created in the “pre-mine” process, and no new tokens will be created. So we see that XRP has deflationary properties.
But only a small percentage of these tokens are openly traded, and the rest is for Ripple. At present, Ripple owns about 55% of the tokens.
This means that the majority of the tokens are under the control of the company and the company can affect the profitability of the people participating in this project.
XRP shows a great deal of wealth concentration. Not only more than 50 percent of the tokens are under the control of the company, but also the top 100 XRP accounts.
Only about 43.67 billion XRP tokens are in circulation. This means that it will encourage adoption among banks and each bank needs a small amount of XRP to complete the transaction and cover the fees.
Although creator primarily designed XRP for banks, people have also bought it to invest, which contradicts the token’s mission and causes it to fluctuate.
If banks use XRP as a bridge currency, this token should struggle to gain high value in the long run. This way, banks and individuals do not need to hold large amounts of this token to do transactions.
Governance of XRP
Ripple was created in November 2012 by Chris Larsen, Arthur Britto and Jed McCaleb. Its name was RipplePay then. The project changed brands several times, and finally settled under the support of Ripple Labs Inc. in September 2013.
McCaleb left the company in 2013 due to disagreements over the course of the project, and Larsen remained as CEO until 2017.
XRP is not decentralized and has the trusted nodes under control. Changes to the code will be voted on by trusted nodes and must be voted on by a majority before adopting the new version. It is the responsibility of trusted nodes to control the validation, vote on protocol changes, and modify fees.
Ripple has a lot of decision-making power to determine trusted nodes. If a node fails to upgrade changes, it runs the risk of being eliminated. Ripple can implement new features with or without community consensus.
Nodes that disagree the current state can refuse the upgrade, but due to Ripple’s control, it will remove the nodes immediately.
Vulnerabilities of Ripple XRP
Ripple owns about 60% of XRP tokens. It means that the company has complete control over the future of the project. Ripple has no resistance to censorship at all, and we have seen many times that the company has blocked people’s funds.
As we mentioned before, this project has a strange wealth centralization. Concerns about this centralization are so great that Bitmex stated in a report that:
All public keys issued when downloading Ripple software are under the control of the company.
This means that all access to the code runs through the company.
The economic problems of XRP are due to the fact that 100 billion XRP tokens are in circulation. Moreover, the amount of tokens destroyed as a transaction fee is very small.
With this low destruction rate, banks and other individuals will not need to maintain a lot of XRP to use the protocol, which means little demand. The biggest obstacle here is that banks do not need XRP to perform transactions within the protocol. XRP also faces many competitors.
Network effects of XRP
Undoubtedly, XRP is one of the most popular digital currencies after Bitcoin and ether. It is available at many major exchanges such as Coinbase and Binance. This digital currency is always among the top 5 currencies in terms of trading volume.
However, XRP always lags behind the top 5 currencies due to its type of application. Many banks, such as Moneygram, have come forward to test Ripple’s distributed ledger. By the end of the first quarter of 2020, more than 200 banks had tested RippleNet.
Companies that have used xRapid have saved 40 to 70 percent in costs in comparison to traditional systems. They have also achieved transaction time of about 2 minutes.
XRP has been very strong on social media like Reddit and Twitter and has a lot of fans and followers.
Team of Ripple XRP
McCaleb founded Ripple, who later left Ripple and started Stellar. Before creating Ripple, McCaleb also created eDonkey and the Mt.Gox exchange.
Currently, Brad Garlinghouse is the CEO of Ripple. He has lots of technology experience, and has recently published articles about Ripple.
Chris Larsen is one of the founders of the project and a former CEO of Ripple, who is currently Executive Chairman of Ripple’s Board of Directors. He has proven himself in the world of FinTech before Ripple and has a good record in this field.
David Schwartz is Senior Manager of Technology and Cryptography. He has decades of experience in cryptography and has worked for the NSA before.
There are many other famous people in this project, such as Ethan Beard, who all have a lot of experience in the field of digital currency and software technology.
User experience of Ripple XRP
Many exchanges and wallets support Ripple as the third largest digital currency. Prominent hardware and security-based wallets such as Ledger, as well as popular desktop and mobile wallets, support this currency.
All wallets have advantages and disadvantages in terms of security, usage, etc., and the choice of wallet type is up to you. XRP has rules for the minimum inventory in its addresses, and most of the time you have to put at least 20 tokens in that address to activate the addresses.
Transaction speed, settlement time and transaction cost are the best features of Ripple. Whats more, due to its semi-centralized nature, this currency performs much better in terms of scalability than Bitcoin and Ethereum.
While Bitcoin and Ethereum process about 5 to 15 transactions per second, XRP has the capacity to process 1,500 transactions per second and the transaction speed is much higher. XRP is also much cheaper in terms of fees than the other two.
Legislation of Ripple XRP
The US Securities and Exchange Commission has not commented directly on XRP. Therefore, due to the lack of transparency of the legislators about this project, Ripple still remains as a legal project. Given its characteristics, Ripple has the potential to be considered a securities in the future.
Of course, if banks use XRP as bridge currency, it would no longer make sense to invest and expect to make a profit, and as a result, XRP would be out of the realm of securities.
As we mentioned earlier, XRP is centralized and its relationship with Ripple has been publicly announced, so it can be considered a joint venture.
Ripple is currently engaged in a federal lawsuit over the company’s connection to XRP and tricking customers into buying the token.
Ripple will continue its invitation of banks, but in the meantime, the role of XRP is unclear. It is also unclear whether banks will use it or not. This is due to the uncertain state of US government legislation on digital assets.
Ripple has proposed a new upgrade called Cobalt that can reduce transaction time. Progress on this upgrade is slow and no specific date has been announced.
In addition to the issue of legislation, there are other issues around the project, such as the competitors. They have affected its acceptance and use, leading it into a war.
Final word on Ripple XRP
Despite these problems and obstacles, XRP has billions of dollars in reserves and has close relationships with banks and institutions that can help the project overcome the challenges.
what is your opinion? Do you believe in the Ripple XRP project? Let us know what you think.