In the world of cryptocurrency, it’s hard to ignore cryptocurrencies that go from $0.006 to $3.77 in just over a year.
For those who aren’t particularly mathematically inclined, that is an absolutely wild 62,733.33% return on investment or about 628x one’s money.
Someone who put a mere $100 into Ripple on January 1, 2017 (price of $0.006) and waited until January 4, 2018 (price of $3.77) would have seen that $100 turn into $62,800. Not a bad payday.
However, while many have heard about bitcoin at this point and perhaps even know a thing or two about it, most are still scrambling to get an idea of what Ripple, one of the top performers of 2017, is all about.
- 1 What is Ripple?
- 2 Ripple vs. Bitcoin
- 3 How Ripple Works and What It’s Used For
- 4 How to Invest in Ripple
- 5 Conclusion
What is Ripple?
Ripple was originally released in 2012 and while most think of the cryptocurrency Ripple when they hear the Ripple name, Ripple in fact does many things and was released as a currency exchange, real-time gross settlement system (RTGS), and remittance network.
Thus, similar to Ethereum, a platform for decentralized applications, the name of the platform is also used to refer to the cryptocurrency (one part of the platform).
The Ripple currency (XRP) was made so that people, especially banks, would be able to exchange money both cheaply and instantly, no matter where they are in the world. Not only does Ripple allow the exchange of money cheaper and faster than banks, it also does so faster than most cryptocurrencies.
Ripple vs. Bitcoin
While Ripple, like bitcoin, is a cryptocurrency, and being released in 2012, is also one of the older cryptocurrencies along with bitcoin, Ripple and bitcoin are fundamentally different in a variety of ways.
While bitcoin and other cryptocurrencies are known for their mining processes, where miners, or individuals or organizations using mining hardware like computers or specialized mining machines, use computational power to solve cryptographic puzzles and validate transactions on the blockchain (a cryptocurrency’s record book of all transactions), Ripple is different and doesn’t rely on mining to verify transactions.
Instead, independent servers run by individuals or organizations, such as banks, compare transaction records with each other to ensure that transactions are legitimate.
By eliminating the computational work needed to validate transactions for cryptocurrencies like bitcoins, Ripple benefits from much faster transaction settlement times as well as low transaction fees as there are no miners that users of Ripple have to pay for validating their transaction.
Furthermore, no mining means that Ripple’s energy footprint is negligible whereas bitcoin’s energy consumption as a result of increased mining activity is sky-high. In fact, as of November 20th, 2017, bitcoin mining uses more electricity than 159 countries, including the likes of Ireland and Nigeria.
Built for Enterprise Use
While bitcoin was originally conceived as a peer-to-peer digital currency for everyday use by your average person, Ripple instead focuses on enterprise use and banks in particular are their target market.
While bitcoin might be a challenger to fiat currencies like the dollar and euro, Ripple is meant to be a challenger to global transaction systems, such as SWIFT, the world’s foremost network for financial institutions to send and receive transaction information.
Though individuals can also use Ripple to exchange value in the form of cryptocurrency, Ripple is especially useful for businesses, such as banks, which can find tremendous utility in a network like Ripple’s that allows them to move large sums of money across the world quickly and economically.
More Legitimacy Among Business and Government Entities
Bitcoin is largely seen as a challenge to the existing financial system. Indeed, the bitcoin genesis block, or first block of the bitcoin blockchain, contains the following message:
The Times 03/Jan/2009 Chancellor on brink of second bailout for banks
Many see the message as a comment on the instability and untrustworthiness of the global financial system as banks, who many credit as being the perpetrators of the 2008 global financial crisis, were seemingly given a get-out-of-jail-free card for their mistakes while the average citizen had to pay the cost via taxes.
As a result of its stance as a challenger to the existing financial system, many key business and government figures, including Jamie Dimon, CEO of J.P. Morgan Chase, have come out against bitcoin, with Dimon himself calling bitcoin an outright fraud.
On the other hand, Ripple doesn’t seek to overthrow the existing financial system but instead be part of it and improve it.
Indeed, some of the organizations on the Ripple network that help validate transactions include the likes of MIT and Microsoft, while bitcoin miners are largely those from the cryptocurrency world and not the traditional business world. In addition, many big banks like Standard Chartered, Santander, UBS, and BBVA have signed up to use Ripple’s services.
No Scalability Issues
An issue that bitcoin has been facing for the past few years is the issue of scalability, or how to handle an increasing amount of transactions, as the cryptocurrency continues to become more popular. Bitcoin was designed to handle 3-6 transactions per second, which won’t work if bitcoin is to gain mainstream adoption.
Indeed, bitcoin’s inability to handle scalability problems has led to many seeking greener pastures as it has been effectively rendered useless as a day-to-day currency as average transaction fees and times have soared.
As of February 14, 2018, the average bitcoin transaction fee is $2.94. However, the average fee has been as high as $52.18 (December 23, 2017). This means that for small, everyday purchases, such as a cup of coffee, bitcoin is currently not doing the job since it makes no sense to use bitcoin if the transaction fee is even more than the actual purchase.
Moreover, the time it takes to confirm a bitcoin block, which contains multiple transactions, has also soared. As of February 14, 2018, the average bitcoin block confirmation time is 71 minutes, or a little over an hour.
Since most consider a block to be valid after 6 confirmations, this means that it takes 426 minutes (71 minutes * 6 confirmations), or over 7 hours, for a Bitcoin block (and the transactions within it) to be validated.
While bitcoin can only handle 3-6 transactions per second and suffers from scalability issues, Ripple has no such problems and instead consistently handles more than 1,500 transactions per second (probably more as the data from Ripple’s website is from July 2017).
While some may think that Ripple is not facing scalability issues because it is not as popular and widely used as bitcoin, think again.
While bitcoin suffers from scalability issues as its popularity continues to grow, Ripple isn’t even flinching despite the fact that the Ripple network handles 5 times as many transactions as the bitcoin network on a daily basis.
Fixed Supply Since Day 1
Bitcoin and Ripple both have a fixed total supply of their cryptocurrencies. For bitcoin, it is 21 million. For Ripple, it is 100 billion.
However, a key difference between the two cryptocurrencies is that bitcoin’s circulating supply, or supply of bitcoin in use, is variable as bitcoins continue to get mined and new bitcoins are added to the circulating supply until the total supply hits 21 million. On the other hand, there is no mining in Ripple and all 100 billion Ripple were created when Ripple was released.
As the bitcoin community fights with itself in an effort to figure out bitcoin’s direction moving forward, Ripple has no such infighting and has closed 36.6 million ledgers without any problems, such as hard forks (splits in the currency) like bitcoin.
In the years since its inception, bitcoin has suffered from a variety of forks, with some of the more notable ones being Bitcoin Cash and Bitcoin Gold, as each camp tries to govern and mold bitcoin the way that it wants to.
While Ripple’s solid track record of governance probably has a lot to do with the fact that it is led by parent company Ripple Labs instead of a large network of developers and miners (bitcoin) – more room for dissent – Ripple’s stability makes it more legitimate in the eyes of business and government communities as bitcoin’s instability can turn away big institutional players who don’t necessarily take big risks.
For example, a business is less likely to invest in bitcoin and use it if after a month of using it, there is a split in the currency, and the original bitcoin becomes useless and the business has to start from square one to adapt to the new bitcoin.
How Ripple Works and What It’s Used For
As stated, Ripple was originally designed as a currency exchange, real-time gross settlement system (RTGS), and remittance network. Here’s how that all works.
Through the use of RippleNet, Ripple connects banks, corporations, payment providers, and digital asset exchanges and offers an enhanced way to send money throughout the world. Payment networks are connected, transactions instantaneous, funds traceable, and costs low.
RippleNet consists of the following:
- xCurrent (payment processing)
- xRapid (liquidity sourcing)
- xVia (payment sending)
xCurrent is a software solution that allows banks to process global payments for their customers and track them using Ripple’s blockchain. With xCurrent, banks can also message each other in real-time to confirm payment details as well as delivery.
xCurrent comes with a rulebook that Ripple Labs developed with the RippleNet Advisory Board, which includes prominent members, such as Bank of America Merrill Lynch, RBC, Standard Chartered, and Santander. This rulebook ensures consistency in legality and operations for all transactions.
xRapid allows payment providers to source on-demand liquidity, which subsequently lowers liquidity costs and improves payment providers’ customers’ experience.
Instead of having to pre-fund local currency accounts in every country in which they operate, payment providers and other financial institutions can use xRapid to lower the amount of capital needed to source liquidity. xRapid is powered by the actual Ripple cryptocurrency, XRP.
xVia is a payment interface that allows banks, businesses, and payment providers to send payments across different networks using a single, standard interface. xVia requires no separate software installation and allows its users to send payments wherever they want while also benefitting from the transparency and information like payment status and invoice information offered by Ripple’s blockchain technology.
How to Invest in Ripple
Being one of the more popular cryptocurrencies, it’s easy to purchase Ripple both using fiat currency (like USD and EUR) as well as other cryptocurrencies. Some of the cryptocurrency exchanges that offer Ripple for purchase include
For a more complete list, visit Ripple’s website.
While some call 2017 “The Year of Bitcoin,” perhaps a more appropriate name would be “The Year of Cryptocurrency,” as it wasn’t just bitcoin but other cryptocurrencies like Ripple as well, that saw a huge increase in value and helped put cryptocurrency on the map for the general population.
Although bitcoin is the original cryptocurrency, others like Ripple deserve a second look.
While bitcoin’s future seems tentative as it faces scalability issues and possible regulation from antagonist establishment entities, such as banks and governments, Ripple offers fast transactions at a low cost and has support from the likes of Microsoft, MIT, Standard Chartered, and more.
Who knows, it might be Ripple that performs the prophesized “Flippening” and overtakes bitcoin by total market capitalization.