What is XRP (Ripple)?

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?

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. 

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What Is Ripple?

Ripple is the company that runs XRP and its technological operations. The company specializes in payment and transaction settlement and hopes to replace the current system that financial institutions use to process payments. 

In practice, Ripple is a trusted third party that allows two entities to transact. Because it can process transactions quickly, it can spot discrepancies and make sure the transactions are corrected easily. 

Ripple works to facilitate transactions for both fiat and cryptocurrencies. It uses XRP as a way to facilitate these transactions by exchanging the tokens for XRP and then sending them to another party.

For example, if a bank in the U.S. wants to send U.S. dollars (USD) to a bank in France, Ripple will exchange the USD for XRP, and then exchange the XRP for euros. While this may seem like an extra step, the use of XRP can make the transaction much quicker and, in some cases, less costly. 

How Does XRP Work?

XRP is unique in that it operates in several different markets, including both fiat and crypto. It is also less decentralized than other tokens, which has resulted in some trouble.

Most crypto projects allow anyone to verify transactions, usually through a proof-of-stake (PoS) or proof-of-work (PoW) verification system. These systems allow anyone with either tokens to stake (PoS) or computer equipment to mine (PoW) the ability to verify transactions for a reward. 

XRP does not allow anyone to verify transactions. Instead, it uses a smaller group of trusted validators who are chosen by the owners of XRP tokens. These validators continually update the XRP ledger and check for discrepancies. If there is an issue, the validators can quickly come to a conclusion and resolve it. 

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.

How to Mine XRP

Typically, mining refers to a PoW blockchain. Users can contribute computing power, which can then be used to earn rewards, usually in the form of tokens. 

However, because XRP and Ripple use a slightly different and centralized form of consensus, it is not possible to mine XRP unless you are a trusted validator, of which there are only 35. 

Pros and Cons of Investing in XRP

Now that you have a basic understanding of what XRP is, take a look at some of the pros and cons of investing in the project. 

XRP (Ripple) Advantages

• Low fees: One of XRP’s main selling points is its low fees. Fees are a constant 0.00001 XRP, which is negligible on a per-transaction basis. 
• Institutional adoption: Some institutions are already using XRP to exchange currencies and accept payments. As more businesses begin using XRP, the price could increase.
• Currency exchange: XRP can allow for cheaper and faster currency exchange, as there is no bank in the middle taking a large amount in the form of high fees. 

XRP (Ripple) Disadvantages

• SEC lawsuit: XRP was part of a 2020 lawsuit filed by the SEC. Though the case was dropped, it still was a roadblock for XRP adoption and could mean that there may be more lawsuits in the future. 
• Centralization: Ripple is a centralized company headed by Brad Garlinghouse. Though it is unlikely, mismanagement could derail the company and lead to a reduction in the price of XRP.
• Volatility: XRP is extremely volatile, often moving several percentage points in a single day. This makes it a risky investment. 

XRP vs. BTC

XRP and BTC have several differences that should be highlighted:

• Consensus: XRP uses a small group of trusted validators to process transactions. Bitcoin uses a PoW system, allowing anyone to join and validate.
• User base: 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. 

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