One of the greatest uses of crypto is for payments and transactions. However, most of the time, the emphasis is on peer-to-peer transactions and less on the institutional level. To fill this gap, XRP was created to facilitate transactions among financial institutions. Though the project was off to a promising start, a Securities and Exchange Commission (SEC) lawsuit filed against XRP served as a serious roadblock to continued growth. With the lawsuit now in the rearview mirror, XRP is looking to grow substantially and make its presence known. Take a closer look at the project.
- What Is XRP?
- What Is Ripple?
- How XRP Works?
- See All 20 Items
What Is XRP?
XRP is the token that powers the Ripple Network. The token is known for its low costs ($0.0002 per transaction), high speeds (3-5 seconds to finalize transactions), scalability (can process 1,500 transactions per second) and carbon neutrality.
The token is used for several purposes, such as a form of payment, store of value/investment, decentralized finance (DeFi) applications, stablecoins and central bank digital currencies (CBDCs).
The project runs on the XRP Ledger (XRPL), which is how the token can facilitate transactions at high speeds for low costs.
Started in 2012 by David Schwartz, Jed McCaleb and Arthur Britto, XRP’s founders were looking to create a new payment token that used less energy than its main competitors, such as Bitcoin.
What Is Ripple?
Ripple is a company that operates XRP and focuses on payment and transaction settlement, aiming to replace traditional financial processing systems. Acting as a trusted third party, Ripple enables fast and secure transactions between entities by identifying and correcting discrepancies efficiently. It facilitates both fiat and cryptocurrency transactions, using XRP as a bridge to streamline transfers.
For example, when a U.S. bank sends USD to a French bank, Ripple converts the USD into XRP before exchanging it for euros. While this adds an extra step, XRP's speed and efficiency can make cross-border transactions quicker and, in some cases, more cost-effective.
How XRP Works?
XRP operates in both fiat and crypto markets but is less decentralized than other tokens, which has led to some challenges. Unlike most cryptocurrencies that use proof-of-stake (PoS) or proof-of-work (PoW) systems allowing open participation in transaction verification, XRP relies on a select group of trusted validators.
These validators, chosen by XRP token owners, continuously update the XRP ledger and monitor for discrepancies. If an issue arises, they can quickly reach a consensus and resolve it, ensuring efficient transaction processing but limiting decentralization compared to other crypto projects.
Where to Buy XRP
If you are interested in buying XRP, it is available on a variety of crypto trading platforms. However, some of the best options are Kraken, Webull, eToro and Coinbase. These platforms are well known for their low fees, ease of use, and enhanced security. Creating an account is relatively straightforward, and most users can begin trading within a couple of business days.
Can You Mine XRP
Unlike traditional proof-of-work (PoW) blockchains, XRP cannot be mined. In PoW systems, users contribute computing power to validate transactions and earn token rewards. However, XRP operates on a unique consensus mechanism that does not rely on mining.
Instead, XRP transactions are verified by a select group of 35 trusted validators chosen by the network. This centralized approach allows for faster transaction processing but means that new XRP cannot be created through mining like other cryptocurrencies.
Why Should You Invest in XRP?
XRP offers fast, low-cost transactions, real-world adoption, and a fixed supply, making it a strong investment choice. It is widely used for cross-border payments, providing efficiency and scalability. With major financial partnerships and growing adoption, XRP continues to gain credibility. Its fixed supply model also helps protect against inflation, increasing its long-term potential.
Fast and Low-Cost Transactions
XRP processes transactions in 3-5 seconds with minimal fees, making it far more efficient than traditional banking and other cryptocurrencies. Its energy-efficient consensus mechanism eliminates mining costs while supporting over 1,500 transactions per second. This speed and affordability make it ideal for global payments and microtransactions.
Real-World Adoption
Major banks and payment providers use XRP for cross-border settlements, bridging traditional finance and digital assets. Ripple’s partnerships with institutions like Santander and SBI Holdings enhance XRP’s real-world use. As regulatory clarity improves, adoption is likely to grow, increasing its investment appeal.
Fixed Supply
XRP has a capped supply of 100 billion coins, preventing inflation. A portion of XRP is burned with each transaction, gradually reducing supply. This scarcity model can drive long-term value, making XRP a more predictable and potentially appreciating asset.
Considerations Before Investing in XRP
While XRP offers many advantages, it’s important to consider potential risks before investing. Regulatory uncertainty, centralization concerns, and market volatility can impact its future value. Understanding these factors will help you make an informed decision.
Regulatory Uncertainty
XRP has faced legal challenges, particularly from the U.S. SEC, which could affect its adoption and price. Regulatory decisions may impact how XRP is classified and used in financial markets. Investors should stay updated on legal developments to assess potential risks.
Centralization Concerns
Unlike Bitcoin, XRP’s network relies on a set number of validators, many of which are affiliated with Ripple. This raises concerns about centralization and control over the network. While Ripple argues that XRP is decentralized, some investors prefer fully distributed cryptocurrencies.
Market Volatility
Like all cryptocurrencies, XRP is highly volatile, with significant price fluctuations. Market sentiment, legal developments, and adoption trends can drive sharp price changes. Investors should be prepared for potential risks and consider diversification to manage exposure.
XRP vs. BTC
When comparing XRP and Bitcoin, both have unique characteristics that make them suitable for different use cases. XRP focuses on fast and low-cost transactions for financial institutions, while Bitcoin is primarily seen as a store of value. Understanding their differences in consensus mechanisms, user base, centralization, and fees can help investors decide which aligns with their goals.
Consensus
XRP uses a small group of trusted validators to process transactions. Bitcoin uses a PoW system, allowing anyone to join and validate.
Userbase
Bitcoin is designed to facilitate peer-to-peer transactions. Though it can be used in institutional settings, XRP is much more directed at institutions for use and adoption.
Centralization
XRP is run by Ripple, which is a centralized entity that supports the token. Conversely, Bitcoin is completely decentralized, and the creator (Satoshi Nakamoto) has remained anonymous.
Fees
XRP fees are much lower because of the validation system. The average Bitcoin fee is usually around $4 per transaction, while XRP incurs fees that are a fraction of a penny.
XRP Hopes to Bring Crypto to Financial Institutions
XRP has always hoped to fill the gaps in the crypto market. This is done through fast and low-cost transactions, focus on sustainability and looking at corporate adoption. This goal is accomplished through a combination of Ripple and XRP. Ripple is the company that helps with technological operations, while XRP is the cryptocurrency that powers the project.
Frequently Asked Questions
What exactly does XRP do?
XRP is a digital currency created by Ripple Labs to enable fast, low-cost international payments. It acts as a bridge currency for exchanging different fiat currencies, streamlining cross-border transactions. XRP aims to enhance liquidity and reduce reliance on intermediaries.
Is XRP worth buying?
XRP could be worth buying for those seeking exposure to cross-border payment solutions, but its value is volatile and affected by regulatory changes. Research and risk assessment are essential before investing.
How to buy XRP for beginners?
To buy XRP, first, choose a reputable cryptocurrency exchange like Coinbase or Binance. Create an account, verify your identity, and deposit funds using a bank transfer or credit card. Search for XRP on the platform, select the amount you wish to purchase, and place your order. For added security, consider transferring your XRP to a private wallet instead of keeping it on the exchange.
About Caden Pok
Caden has been involved with crypto since 2018, when he began investing, trading, and mining tokens. He took part in undergraduate research studying cryptoeconomics at the University of Michigan, where he will graduate Phi Beta Kappa with a bachelor’s in economics in 2025. He is experienced with DeFi technology and multiple blockchains, currently investing in Ethereum and Bitcoin.