What is Ripple (XRP)? The Definitive Guide for Beginners

HardStacks / Cryptocurrencies  / What is Ripple (XRP)? The Definitive Guide for Beginners
ripple copper coin

With the advent of technology more and more innovations take place of the way things work in this world. One of these is the use of cryptocurrencies, with Ripple leading the way to enhance and mobilize banking transactions like never before.

Indeed, the banking industry is moving in a direction that is more efficient and offering greater convenience to clients. But the question is, what exactly is Ripple and how does it work?

Let us break down all these topics below to give you a clearer idea about what is Ripple.

Ripple in a Nutshell

You have probably heard of cryptocurrencies and how these are slowly gaining more popularity among savvy investors. But what sets Ripple apart from all these, is its unique purpose.

This cryptocurrency is geared towards boosting the liquidity of currency on a global scale as it allows money transfers worldwide and at the fastest and cheapest way possible. It offers promising improvement to the rather outdated processes involved in the banking industry.

Instead of the usual 2 to 4 business day waiting period for banking transactions, Ripple can significantly speed up the process in upwards to 10 seconds. This is the reason why Ripple XRP piques the interest of financial analysts and market experts considering its innovative features and benefits.

Just some highlights and points of interest about the Ripple XRP are as follows:

  • Initially released in the year 2012 by co-founders Jed McCaleb and Chris Larsen
  • Provides a more cost-effective and quicker means for cross-border banking transactions
  • Bridges fiat currencies as it does not discriminate cryptocurrencies
  • Designed for payment providers, banks, and other financial institutions

How Ripple Works

Although Ripple is a cryptocurrency, it is regarded more for its innovative digital payment features. This makes it seamless and efficient to transfer money no matter what form it may be whether it is in USD, Bitcoin, or Litecoin.

To simplify how it works, Ripple makes use of a medium called Gateway to link or connect two parties that are performing a transaction. This credit intermediary receives, as well as sends currencies to any public address via the Ripple network.

It is also possible for any individual or business to register and set up a gateway, which allows the registrant to be the middleman for a number of tasks such as making payment transfers on the network, retaining liquidity and exchanging different currencies.

Moreover, the Ripple XRP bridges one currency to another. It allows for the exchange of currency in a most efficient manner because it recognizes fiat and cryptocurrencies without discriminating either of them.

There is also a unique gateway for each currency, among these include USDsnapswap, BTCbitstamp, and CADBluzelle.

Suppose you want to receive Bitcoin as the payment for products or services another individual has obtained from you, the latter may pay in a different currency through the gateway, while allowing you to receive your preferred currency.

It is even possible to use multiple gateways instead of relying on a single one for completing a transaction.

One thing to note is that users may be susceptible to a counter-party risk when they hold their balances over a gateway. However, this also applies to the typical banking system.

Let us say that the gateway fails to honor its liability or IOU, it is ultimately possible for you to lose your money’s value that is currently held at this particular gateway.

On the other hand, this risk is not applicable to Altcoins and Bitcoins since this currency is not another individual’s liability or IOU.

Benefits to Consider

The innovative features of Ripple, however, offset some of its limitations. In seconds, transactions are completed on the network in spite of the number of transactions taking place.

This takes the stress out in completing wire transfers that normally take days or even weeks with banks. There is also a very low fee involved with every transaction, which goes as low as 0.00001 XRP for every standard transaction.

XRP is capable of processing thousands of transactions in one second, unlike the seven transactions that Bitcoin can complete per second.

It takes Bitcoin 2 hours or so to transact, which is a far cry from XRP’s 3.7 seconds – the latter being on par with Visa’s maximum throughput. With Ripple XRP, you can expect lightning speed transactions and greater scalability that no other cryptocurrency can offer for payment purposes.

At present, there are more than 90 banks globally including the Royal Bank of Canada, Santander, and Bank of England that have signed contracts allowing them to utilize Ripple XRP for faster transactions.

Ripple XRP: Is it Worth it?

While it is true that there is a volatility factor with Ripple, the length of time that payment providers are exposed to this risk is quite short. It does not go beyond 10 seconds.

This means that not a great amount of money is lost, as compared to the higher risk with Bitcoin, as you may be exposed to volatility for an hour or so.

Ripple is aiming to create an internetworking system on a global scale for international banking. With this in mind, a mobile money system may be set in place to make it more efficient and much faster to move currencies from one location to another no matter where you are.

With more financial institutions signing up for it and considering the promising features and innovations it is yet to unfold, Ripple may indeed be a breakthrough in the banking system that payment providers and the average person can truly benefit from.

David Warren

David Warren is the senior writer and lead researcher at HardStacks. He has been a financial engineer for over 30 years and has been investing in alternative assets since the Great Recession of 2008. He has a true passion for learning about economic cycles and educating others on how to protect and grow their wealth by investing in precious metals, real estate and cryptocurrencies.
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