What is XRP?
Launched in 2012, XRP is a cryptocurrency built for payments. It aims to be a currency bridge between financial institutions using multiple currencies. It achieves this by migrating transactions to an open infrastructure allowing the settlement of payments and remittances in real-time. XRP often gets compared to the SWIFT payments system for international money transfers, which global banks and intermediaries use today when dealing across currencies.
What is Ripple Labs?
Ripple, the company behind XRP launched in 2012, but has undergone many rebrands and iterations over the years, during its long and complex history. The journey originally began with a money transfer platform known as RipplePay in 2004 by software developer Ryan Fugger. Separately in 2011, OpenCoin was founded by Jed McCaleb who’s also the creator behind the now defunct Japanese bitcoin exchange, Mt. Gox. After discussions with the RipplePay team, Fugger handed the project over to McCaleb. Three developers then came together including McCaleb, inspired to develop a better version of Bitcoin. They created the XRP network in 2012, called the XRP Ledger (XRPL), with XRP as the native currency, and rebranded the company once again to Ripple Labs in 2013, then finally to Ripple in 2015. The XRPL Foundation launched in 2020, a non-profit entity to accelerate the development and adoption of the network.
How does XRP Work? – The XRP Ledger
The XRP Ledger has a unique design that neither runs on a proof-of-work (PoW) or proof-of-stake (PoS) protocol. Instead, it introduces a new way for the blockchain to operate by using the XRP Ledger consensus protocol to validate balances and verify transactions. The XRP Ledger is maintained by independent participants. Unlike Bitcoin, the XRP Ledger grants computing power only to approved participants. And instead of producing blocks, like a PoW blockchain would, the XRP Ledger creates “ledgers.” Each ledger holds data tying it to the previous ledger in the chain. The XRP Ledger enables servers to send transactions for consideration by the network. The transactions can only be verified once achieving agreement from a certain number of validators. In real time this only takes between three and five seconds for the XRP Ledger to confirm each transaction, so it’s much faster and efficient than Bitcoin’s 10-minute block time.
Another thing to note about the XRP Ledger, nodes aren’t rewarded in XRP for processing transactions like Bitcoin miners do. So the 100 billion total supply of XRP was created and distributed out at launch. The token distribution included 20% for the founders of XRP and 77.8% allocated to Ripple to fund its development.
For a more in depth explanation of how the XRP Ledger works, check out this video series by the XRP Foundation on YouTube:
Real World Integration
By 2018, over 100 banks had signed up to use Ripple, mostly for the infrastructure’s messaging capabilities, rather than XRP cryptocurrency itself. As it becomes more intertwined with traditional finance, Ripple and XRP have found themselves under regulatory scrutiny from the United States Securities and Exchange Commission (SEC). They are deeming XRP to be a security which would place it under their jurisdiction. So in December 2020, the SEC charged Ripple and two of its executives with raising more than $1.3 billion through an unregistered offering of digital asset securities. Ripple’s argument is that the SEC’s action came too long after its creation of XRP and already other US government agencies have given XRP a classification other than that of a security. The legal battles continues into 2022.