What is XRP?
XRP is a cryptocurrency operating on the XRP Ledger, a blockchain developed by Jed McCaleb, Arthur Britto, and David Schwartz. McCaleb and Britto later established Ripple, utilizing XRP to facilitate transactions within the network.
Investors can acquire XRP for various purposes: as an investment asset, for exchanging with other cryptocurrencies, or to facilitate transactions on the Ripple network.
Distinctively, the blockchain underlying XRP operates differently from most other cryptocurrencies. While many cryptocurrencies allow anyone to participate in ledger access and verification by solving complex equations, XRP’s ledger requires consensus among the majority of ledger holders for verification.
The Ripple network, which manages XRP, adopts a consensus protocol that somewhat centralizes operations. Although its validation software is available for download by anyone, it maintains unique node lists. Users can select these nodes to verify transactions based on their trust in the participating entities’ integrity.
Validators within the network update their ledgers every three to five seconds, ensuring consistency among them. In cases of discrepancies, validators halt operations to rectify the issue. This method enables the network to efficiently and securely validate transactions, providing a competitive advantage over cryptocurrencies like Bitcoin.
According to Lee, “Bitcoin transaction confirmations may require significant time, often many minutes or hours, and are associated with high transaction costs. In contrast, XRP transactions are confirmed within approximately four to five seconds at a significantly lower cost.”
What Is Ripple?
Ripple, the company behind XRP, operates a payment settlement system and currency exchange network with global transaction processing capabilities.
“Ripple was conceived from the outset to serve as a replacement for SWIFT or to provide an alternative settlement layer for major financial institutions,” explains Pat White, CEO of Bitwave.
Acting as a trusted intermediary between parties in a transaction, Ripple swiftly verifies exchanges to ensure their proper execution. The network facilitates exchanges involving various fiat currencies and cryptocurrencies, including Bitcoin.
Each transaction made on the network incurs a small fee, deducted in XRP, the native cryptocurrency.
“The standard transaction fee on Ripple is set at 0.00001 XRP, significantly lower than the substantial fees levied by banks for cross-border payments,” notes El Lee, board member of Onchain Custodian.
How Does XRP Work?
The XRP ledger employs distributed ledger technology (DLT), rather than blockchain technology, to facilitate the transfer of tokens representing fiat currency, cryptocurrency, or any other form of value. As the protocol is entirely open, individuals can access it without requiring approval from Ripple Labs. This openness enables both banks and non-bank entities to integrate the Ripple protocol into their systems.\
How to Mine XRP
“Mining” serves as the distributed verification system employed by most blockchain-based cryptocurrencies. It not only facilitates transactions but also introduces new currency into the cryptocurrency system, typically rewarding verifiers for their network support efforts. For instance, Bitcoin gradually releases its maximum supply limit of 21 million tokens as transactions are verified.
In contrast, XRP was “pre-mined,” implying that the XRP Ledger generated 100 billion units, which are subsequently released to the public at intervals.
Ripple retains a portion of XRP in circulation, serving as an incentive for fostering the cryptocurrency’s growth and long-term success. Another segment of XRPs is reserved for regular release into the market through sales.
This approach has raised concerns that a substantial amount of XRP might be released simultaneously, potentially diluting the value of existing XRP in circulation, as the comparative scarcity of any currency contributes to its value.
“The company has attempted to mitigate uncertainty by implementing various mechanisms such as trust and predictable release,” notes Tim Enneking, principal of Digital Capital Management. This distinction between mining and pre-mining could also be a factor in its 2020 conflict with the U.S. Securities and Exchange Commission (SEC).
