Ripple, the world's second-largest cryptocurrency by value, hit a record high on Wednesday as its strong rally continues.

The digital coin jumped 29 percent to an all-time high of $3.20 in afternoon trading, according to CoinMarketCap. Ripple, or XRP, now has a market capitalization of $122.7 billion and remains solidly in second place to bitcoin, which has a market value of about $251 billion, the website showed. Ripple 12-month performance Source: CoinMarketCap

The website showed ripple has gained more than 49,500 percent over the last 12 months, and more than 160 percent over the last week.

What is ripple?

Unlike bitcoin, Ripple is a company that has created coin known as XRP that is aimed at enterprises. Ripple markets itself as a cross-border payments solution for large financial institutions based on blockchain technology.

Currently, an international payment may take a few days to complete, and at a high cost. A headache for banks is high-volume, but low-value, transactions — the kind that Facebook might pay out to app makers, for example. These can often be expensive and unprofitable for banks because it takes a lot of effort to move the money and the percentage cut won't be as high as for a larger transaction. Ripple is trying to solve this problem via its technology. XRP can be used by enterprises to get instant liquidity needed in a high-value transaction, without having to pay fees. XRP acts as a bridge between fiat currencies during a transaction. Ripple said transactions in XRP can be settled in four seconds, faster than any major cryptocurrency right now.

Why is it rallying?

Ripple has been conducting trials with a number of financial institutions, including American Express and Santander. Its price was also helped by news in December that Japan's SBI Holdings and SBI Ripple Asia, which was formed as a partnership between the two firms in 2016, created a consortium with Japanese credit card companies to utilize blockchain. Blockchain is the technology that underpins cryptocurrencies, including Ripple.