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Ripple (XRP) is a cryptocurrency, but slightly different from most digital currencies. Ripple is in the hands of one company. This makes the currency more centralized than other cryptocurrencies. Although Ripple is getting better known, it is still relatively unknown to the general public. In this article we will explain everything you need to know about Ripple.

In short, what is Ripple?

Ripple is both a payment network (RippleNet) and a cryptocurrency (XRP). It is important to make this clear. When you buy Ripple online, you buy XRP.

RippleNet

RippleNet is a payment network for financial institutions. It is designed to solve the global problem of sending money from one country to another. Under the current system, international payments take 3-5 working days, and sometimes they can take weeks. Ripple's CEO says it's strange that in the age of the Internet, we still can't move our own money in real time. He says that the quickest way to get money from New York to London now is to get on a plane and bring the money physically. It is as if the Internet and globalisation have renewed all the markets, except for the market for international payments. In addition, international payments to banks often cost between $5 and $50, plus any costs for exchange rate differences. Finally, between 3 and 5% of international payments between banks go wrong.

RippleNet enables banks and financial institutions to transfer money within the network. One advantage of the Ripple network is the low transaction costs. In addition, all transactions are stored in the public, decentralized ledger, called the Ripple Consensus Ledger. For example, all payments can be traced through the blockchain and international payments can no longer go wrong.

XRP

Ripple (XRP) is the currency used in the payment network for all transactions. The idea behind XRP is that it acts as the common currency within RippleNet so that transactions in the same currency are converted. Anyone who sends money through the system first exchanges their currency for XRP. The recipient then receives XRP and exchanges it for his own currency. For example, in a transaction of U.S. dollars, the dollars are converted to XRP, which are then exchanged almost in real time on the other side of the world, for example for Japanese Yen. In this way, dollars are no longer directly exchanged for Yen.

Ripple XRP reduces the time and costs involved in cross-border payments. In this way, banks save time and money, and maintain their liquidity. Currently, sending $500 to the other side of the world costs about $5.56 in transaction costs. Using Ripple for the same transaction would save about 60% in transaction costs. In addition, each transaction is processed in the system within 4 seconds. Transactions via Ripple are therefore very fast. In comparison, transactions at Ethereum can take more than 2 minutes and for bitcoin even more than 1 hour.

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The currency is also scalable. XRP can currently handle 1500 transactions per second. For comparison: Bitcoin can currently handle about 7 transactions per second. XRP is designed to be able to scale up to 50.00 transactions per second, just like Visa. In this way, XRP aims to become the standard for international banking payments worldwide. However, XRP is not intended to be a currency for buying business online, unlike bitcoin, which wants to become a global payment method.

Ripple can also be used for domestic payments. For example, some banks in Japan use Ripple for domestic payments, due to slow payment traffic in that country. But Ripple is mainly focused on cross-border payments, as this is currently the main pain point for banks.

XRP is currently the third largest cryptocurrency in terms of market capitalization (after bitcoin and Ethereum). Some time in 2017/2018, XRP even caught up with Ethereum and XRP was temporarily the second largest crypto.(Data from CoinMarketCap)

Conflicting interests

The XRP currency is not essential to the Ripple payment network, which could survive without XRP. In other words, banks don't need XRP when they want to make transactions over the Ripple network. This is an important point that many people who invest in XRP don't know.

It is important to understand that creating value for individual investors (by increasing the value of XRP) is not the focus of Ripple. Individual investors and financial institutions have different definitions of 'value' in that respect. Financial institutions see value in how XRP can be used in their business operations, while individual investors see value mainly in the price increase of XRP. In fact, there is even some tension between the interests of these two target groups. The current market price of XRP is not important for financial institutions. They only use XRP as a means of exchange to transfer money abroad. Banks do not care how much XRP they send in a transaction, but they do care if the value of XRP suddenly changes as long as they have the currency. As a result, banks benefit much more from price stability of XRP, which in turn is not in the interest of individual investors. If banks make a loss on a transaction because the value of XRP suddenly drops sharply during this transaction, then this is detrimental to the Ripple system. Of course it is nice for a company to see the value of its shares (or cryptocurrency) increase, but the price increase of XRP is much less important for the company Ripple than creating value for financial institutions and connecting banks to the network. This makes it important for Ripple to pursue a stable price for XRP.

Supply

There are a total of 100 billion Ripple coins, of which about 43.2 billion are currently in circulation. The Ripple coins that are not in circulation are all already made by the parent company. Ripple is therefore not mined, like for example the bitcoin. The company owns about 60% of the total number of XRP, which gives the currency a centralized character. The company has 55 billion Ripple in a smart contract, allowing them to market up to 1 billion Ripple coins per month for 55 months. The question is what Ripple will do with the coins that are released monthly. If they suddenly put them all on the market at the same time, then the price of XRP will drop monthly due to the increased supply. This is not in the interest of both banks and individual investors.

Competition

When you now transfer money abroad, banks use a complex process. Banks currently use nostro and vostro accounts. These are bank accounts with other banks in the local currency. For example, if you want to use your ABN account to transfer euros to an account at Bank of America, then ABN should have an account with money at Bank of America (nostro) and vice versa (vostro). This way, banks can properly withdraw the money at the same time. Most banks use SWIFT (Society for Worldwide Interbank Financial Telecommunications) for this purpose.

You can see RippleNet as a competitor to the widely used SWIFT system. SWIFT is an old-fashioned international payment network, but they have been (too) slow to respond to technological developments. In this respect, RippleNet is a modern competitor that fits in with the economy of the future. However, SWIFT works well (it is slow, but has no bugs) and that is why banks are still using it en masse. Large financial institutions are fairly conservative and are not keen on change. So the question is to what extent RippleNet will be used by banks in the future.

The company and team

Both the payment network and the currency are managed by the Ripple company. The commercial company is based in San Francisco, and employs about 200 people full-time. The company has raised money from large investors to grow, unlike many cryptocurrencies that raise money with an ICO (initial coin offering). The company's strategy is to promote open standards for payment transactions and ensure that as many financial institutions as possible adopt this standard. In practice, the company makes software and sells it to banks so that they can integrate fast payments into their existing systems. The proposition to banks is faster and cheaper international payments from A to B. In order to take advantage of the maximum benefits, both the bank that sends the money and the bank that receives the money must use the software. Ripple is one of the few cryptocurrency startups that sells software to large banks. Instead of fighting the status quo, they work with banks to improve the current situation. The standard business structure they use also gives them more credibility towards banks in that context. Ripple's ultimate goal is to make an Internet of Value possible, in which money moves around the world via the Internet just as quickly and cheaply as information.

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The company Ripple has succeeded in engaging key leaders from the financial world as employees. For example, there are experienced managers from the banking world, and Ripple, for example, has also hired a former SWIFT director. With the knowledge of all these professionals, Ripple has an excellent understanding of the financial industry that they want to innovate. If you look at their management team, you can see that (unlike some other crypto-currencies) they are not in their twenties and have just graduated. They are businessmen with a lot of experience. This also gives the company a good image towards banks.

Partners

Because of the benefits of Ripple, the system is already being tested by more than 75 financial institutions worldwide. Some of these customers are American Express, UBS, Santander, Royal Bank of Canada, National Bank of Abu Dhabi and National Australia Bank. Ripple works with these financial institutions to apply blockchain technology to payment transactions so that payments can be made faster and cheaper. On the other hand, competitor SWIFT has more than 11,000 banks as partners worldwide. So there is still a lot of room for Ripple to grow. The list of partners is growing all the time, as long as Ripple gets more credibility in this conservative industry.

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Who invented Ripple?

The idea behind Ripple is older than bitcoin. Ryan Fugger came up with a similar decentralized system in 2004, called RipplePay. He made this system available in 2005. However, it did not get off the ground on its own. In 2012, Ryan Fugger gave control over Ripple to developer Jed McCaleb (creator of the online exchange website Mt. Gox, which he had sold to someone else) and his business partner Chris Larsen. The new organization was named OpenCoin in 2012, but changed its name to Ripple Labs in 2013. In 2013, the Ripple source code was made public. In that year, McCaleb left the organization as well, and went to work to create his own cryptocurrency: Stellar (XLM). In 2015, the name of Ripple Labs was changed to Ripple. The CEO of Ripple has been Brad Garlinghouse since 2012.

What's the price of Ripple?

The price of Ripple was relatively stable from 2013 to early 2017. On January 1, 2017, the price of Ripple was approximately $0.0063. After that it went fast:

On March 24, 2017, the price was for the first time more than 1 dollarcent.

On 6 May 2017 the price was above 10 cents for the first time.

On 21 December 2017 the price was for the first time more than 1 dollar.

On December 29, 2017, the price was for the first time more than 2 dollars.

On January 3, 2018, the price was for the first time more than $3.

Since then, the price has fallen to $0,27. (12/11/2019) (Data by CoinMarketCap)

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Criticism

Ripple XRP is extremely centralized, unlike most other cryptocurrencies. The company made all Ripple coins before launch, and still owns more than half of all coins. Many people find cryptocurrencies interesting, because of its decentralized nature. The vision of some cryptocurrencies is that banks will no longer be needed in the future. Ripple has an opposite approach, and thinks that banks will be central in the future when it comes to international finance. Many things at Ripple are managed centrally by Ripple Labs, and banks have a lot of influence on this currency. For example, the company behind Ripple could theoretically increase the amount of Ripples without the community's permission. Although they have said that they will not do so, there is nothing technically that could stop them if they change their mind. Because of this, some people think that Ripple is the opposite of what cryptocurrencies wants to achieve. How Ripple is set up is, according to some, contrary to the philosophical ideals that crypto stands for.

conclusion

Ripple is an interesting cryptocurrency to keep an eye on. Unlike many other digital currencies, Ripple is managed centrally. This goes against the decentralized nature of cryptocurrency, which means that some people don't need it. It exploits the advantages of the blockchain, but does not rebel against the current banking system. On the contrary, it cooperates with banks. It is difficult to predict what will happen to Ripple. If Ripple can connect more banks and transform the financial sector with its payment network, Ripple's price will rise significantly in the future. The future of Ripple therefore depends on the adoption of banks. But if that doesn't happen and some big investors get their money out of Ripple, then the price will go down considerably. However, we can conclude that Ripple has the potential to renew the global market for international payments, and that XRP may play a role in this.