What is Ripple? The name has been incredibly prominent within the cryptocurrency space, for reasons both positive and negative. In short, Ripple is a payment protocol that facilitates fast, frictionless cross-border payments with minimal fees. This technology is based on a series of servers communicating constantly, while maintaining a distributed ledger with the latest state of balances and transactions.
The payment protocol also hosts its native asset, XRP, which acts as the chief medium for transferring value over the network. XRP, rebranded in late 2018, formerly bore the name Ripple.
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How Does RippleNet Work?
RippleNet is the latest iteration of Ripple’s payment protocols. In late 2019, Ripple, Inc. united all its products into one network, which could be used in various ways to transfer value. RippleNet allows for the usage and transfers of XRP, but there is also the option to generate value and liquidity without resorting to using the XRP asset.
In the words of Ripple, Inc., RippleNet is “ the most advanced blockchain technology for global payments—making it easy for financial institutions to reach a trusted, growing network of 300+ providers across 40+ countries and six continents.”
RippleNet works by potentially hosting multiple potential assets of value. The network hosts an On-Demand Liquidity mechanism, which could allow transfers of value and exchanges across the world.
In 2020, RippleNet collaborates with more than 200 banks in various stages of exploration, and On-Demand Liquidity hosts around 15 companies with more members taken on board. The network allows payments in any fiat asset, as well as crypto assets, including Bitcoin (BTC). This set of features is impossible for Bitcoin, and only slightly accessible for Ethereum. Bitcoin itself has stuck to its first-layer solution, using the BTC asset as a unit of payment.
How is Ripple and XRP Different from Bitcoin?
The past few years opened a competition between Ripple and Bitcoin. Ripple’s protocols promised to displace the older, less technically advanced Bitcoin network. But the biggest challenge to Bitcoin was the fact that Ripple did away with mining, and used a lighter form of encryption to avoid DDOS attacks, while also carrying virtually unlimited transactions. Bitcoin’s protection comes from transaction fees, but on certain days, even the Bitcoin network is overwhelmed by transactions. Bitcoin carries between 300,000 and up to 700,000 transactions per day, or up to 7-15 transactions per second.
The Ripple protocol, however, is tailored to process up to 1,500 transactions per second. The exact number of XRP daily transactions, however, is not as transparent.
Bitcoin, for most of its history, has relied on voluntary miners and node operators. The connections between them rely on the general Internet infrastructure, with a few exceptional nodes that are easier to contact. Overall, the Bitcoin network has more than 10,300 nodes communicating across the globe, and it takes minutes for all nodes to update to the latest state of the ledger and confirm the transactions.
Ripple, on the other hand, has a list of so-called validators, which have known locations and even names. The validators communicate roughly every 4 seconds, which updates the ledger and achieves consensus on transactions.
How Does XRP Work?
XRP is the native token of the Ripple network. Initially, the Ripple protocol was created in 2004, with the intention of revolutionizing interbank transactions. But XRP appeared later, around 2013, when Ripple Labs started its activity, and the team took up Jed McCaleb on board as its leader, later bringing in new investors.
The XRP asset was then conceived as having multiple use cases within the network. The immediate use case for XRP is to serve as a vehicle for carrying transactions, by representing any type of asset. Using XRP is also required to pay network fees, where each transaction will erase $0.00001 from the ledger. This serves to avoid spam transactions, in case transfers were entirely free.
XRP was envisioned with a total supply of 100 billion units, which are indivisible, unlike Bitcoin. Of those billions of units, millions were distributed in various stages of airdrops, preliminary sales, or private placements. XRP has been distributed to multiple owners, including banks, for testing. But the biggest XRP holder is Ripple, Inc., which held 55 billion units, with the aim of releasing them gradually on the open market. This process however, may take more than a decade to complete.
XRP has tied Ripple, Inc. to multiple partners, including Jed McCaleb, as well as R3, a big early partner which negotiated a vast XRP haul back at the time the asset was trading below a penny.
XRP Vs BTC
Ripple has issued multiple challenges to the leading position of Bitcoin. The project was, in fact, already years ahead of Bitcoin at a protocol development level. Yet Ripple did not think of linking itself to the world of digital assets, at least not before Bitcoin had already established its success.
The involvement of Jed McCaleb was what brought Ripple into the world of cryptocurrencies. From that point onward, the competition between Ripple and Bitcoin intensified. This was the time that the narrative of Ripple and its protocol ‘making Bitcoin obsolete’ started to appear and be repeated.
But Ripple’s asset was still hovering at sub-penny prices, while Bitcoin had already made its forays into four-digit territory. Bitcoin was going through its own growth pangs at the time, with the challenges of mining starting to bring in larger business interests.
The Mt. Gox scandal also scarred the reputation of Bitcoin, showcasing some of the big risks involved in the new world of cryptocurrency. But as the years passed, the growing trading ecosystem brought Ripple’s reputation to fight that of Bitcoin. While the Bitcoin community spread more slowly, with significant skepticism and setbacks, Ripple was positioning itself deliberately, building a strong community and a new narrative.
By the time 2017 rolled in, Ripple was ready to make its biggest attack. The aim to displace Bitcoin, both in terms of market capitalization and usage, became central and drew in many true believers. Around that time, Bitcoin was also going through a mining boom, which showed how costly its production was. Ripple positioned itself with a system that did not require that much electricity, while promising to be more scalable.
The years in development, in addition to big promises and an overall bull market, pulled out the XRP market price from its sub-penny positions, and into a growth boom unseen before. True believers were ready to even abandon Bitcoin for the chance of owning an asset that aimed to make Bitcoin obsolete.
Around 2017, Ripple was known as “the coin for the banking industry,” and ironically took to the task of creating “the bankers’ coin”. This paradox for Ripple went against the Bitcoin ethos, which was about independence and offering people an alternative to banking.
Bitcoin aimed to create a censorship-resistant, globally distributed community which was entirely open-source. But the nature of the network, which indeed turned out to be slower than Ripple, ended up reinforcing the belief that the Bitcoin protocol was obsolete.
Those narratives were immediately reflected in trading activity, and Ripple’s asset achieved several spikes against Bitcoin over the years. Ripple’s XRP has reached peaks above 18,000 Satoshi, with new enthusiasts abandoning Bitcoin. Now, Ripple is awaiting a new revival against Bitcoin, at around 2,700 Satoshi.
Bitcoin, both as protocol and as the BTC tradable asset, held its ground. As of 2020, XRP and Ripple are charting their own path, and the hopes of displacing Bitcoin are more distant. Ripple has shown that adoption will not come by a storm, but as a gradual trek, adding banking partners, traders, and building an ecosystem from the ground up.
But Ripple has managed to ride on the back of Bitcoin, both to increase its visibility, and to establish a market price and appeal to investors.
Does Ripple Compete with Ethereum?
Ethereum (ETH), in its latest use case, has transformed itself into a platform allowing for tokenization and asset representation. Ethereum is offering second-layer solutions, with the aim of switching to a system of staking, which in a way resembles the communication between Ripple validators.
Ripple’s protocol has the potential to take over multiple use cases that now belong to Ethereum. The RippleNet usage can build up features that now exist throughout multiple Ethereum projects. Those would include:
- Decentralized exchange for crypto-based assets;
- Forex exchange by representing fiat currencies;
- Fintech and payment ecosystems to compete with banks;
- International remittances.
The advantage of Ripple and the RippleNet protocol lies in curated partners, a more careful tracking of liquidity, and a concerted effort to present the solution to the world of mainstream business.
Ethereum has built up those use cases through various unrelated startups, which are now struggling to gain attention and bring liquidity to their tokens. Ripple, on the other hand, proposes a unified solution to those use cases.
Ethereum also has the disadvantage of requiring higher payments for its transactions. On the Ethereum network, gas fees are also variable, and may become extremely high. Additionally, Ethereum is still being mined, meaning securing the network also requires a significant investment in hardware. The Ethereum distributed ledger is also immensely hefty, and only a few entities store the vast information.
Ripple, on the other hand, has a technique of adding small-scale ledgers to achieve the latest state.
Ethereum is also going through a transformation, with its protocol still incomplete. The Ethereum ecosystem brings out some of its innovations through tokens and other side projects, which means there is no unified standard, and each token does not communicate with others. There is also no common liquidity pool, unlike Ethereum’s On Demand Liquidity system.
The Ethereum network, like Bitcoin, has the potential for time lags, as well as unexpected glitches in block discovery and distribution. Both networks have had periods of instability, congestion, and problematic transactions. This is especially true of Ethereum, where high transaction fees can clog the network for days.
The Ethereum network is also an open market, meaning one entity can take over and consume most of the resources. The Ripple network can carry sufficient transactions to satisfy real-world demand.
Unlike Ethereum, Ripple’s protocol is also not amenable to gaming or distributed apps, and is tailored to serving finance solutions.
Ethereum has the advantage for now of having a higher market cap in comparison to XRP. But for years, Ripple was highly visible, and even hinted at displacing Bitcoin as the asset with the highest market capitalization. But for now, Ethereum has taken over the crypto-ecosystem, by allowing the creation of startups. Ripple, on the other hand, has targeted the world of business and especially banking. Ethereum, on the other hand, is a system that aims to disrupt finance with a nascent industry of grass-roots solutions, interest rate schemes, and fintech payment platforms.
Why Ripple Rebranded Its Asset
For years, XRP was known as Ripple. But in late 2018, the public profile of the asset worsened. For one, early investors started asking questions on what the use case was for the coins they received or bought.
Then, the US Securities and Exchange Commission moved in to question Ripple on the role of its assets. The connection between the activities of Ripple, Inc. and the market price of its native token was put under question. Investors realized Ripple had been using its token to raise funds, thus raising suspicions it was in fact selling a security.
Ripple, however, wanted to deny explicitly that the performance of XRP was tied in any way to the company, and represented a form of shares into its business. Hence, the asset used its ticker symbol as its name, and altered its logo for a new impression.
The asset was then framed as a form of goodwill and an airdrop to popularize the case for Ripple. While Ripple takes care to observe how XRP trades and is distributed, the company’s chief work is related to the RippleNet protocol, and not to directly supporting XRP and XRP owners.
Who is Jed McCaleb?
Jed McCaleb, a serial entrepreneur who moved in from his other projects, has been a prominent figure in the crypto space. Previously the founder of eDonkey and Overnet, Jed McCaleb led the expansion of Ripple’s influence until 2013. Jed McCaleb served the company as CTO, and at the end of his term received a promised 9 billion XRP, with the stipulation of not selling the entirety on the open market.
Jed McCaleb then went on to tweak the Ripple protocol, and create an open-source, widely accessible version he named Stellar. Stellar held more appeal within the crypto community, and even went out to compete with Ethereum. But soon, the project was also viewed with skepticism, as it became clear the network consensus was achieved by a handful of servers, making the project relatively centralized.
Jed McCaleb also left his position as Stellar CTO in 2019, leaving the future of the project to the Stellar Development Foundation.
Jed McCaleb is still a significant owner of XRP, sparking fears he may keep selling, keeping the price of the asset relatively depressed. Despite this, Jed McCaleb is viewed as one of the most influential figures in the crypto space.
Is Ripple a Better Investment than Bitcoin?
There is no certain way to say which asset will be a better investment. Bitcoin has a vast trading network with spot markets and futures, while Ripple’s XRP trades in much smaller batches.
There has been a narrative that in case of success, and if Ripple is adopted as the de facto standard of interbank payments, XRP may displace Bitcoin in terms of market capitalization, with an exorbitant price per unit of $589.
Other landmark prices by staunch supporters include a trek to $1, or even $5 as a possibility, which would make many XRP owners very rich. However, much of the valuation of XRP remains tied to the performance of Bitcoin. Without Bitcoin, the crypto market would falter, and Ripple would be transformed into another fintech company competing within the regular world of business.
Still, Ripple’s XRP now trades at just $0.21, after years of sliding. At that price, speculative interest and buying increase again, as XRP is accessible enough to merit a small investment, in expectation of future growth.
XRP has been less volatile than Bitcoin, but that is not an entirely positive feature. XRP has stagnated, moving within a small price range for now. But the asset is unpredictable and may rally again, based on renewed enthusiasm.
Ripple’s success lies in the mix between a traditional business model and a rootedness among crypto assets. Where XRP prices will go is anyone’s guess, but the project presents another chance for a speculative investment with the potential of a significant upside.
Where is Ripple Now?
Ripple has been a deft communicator, under the guidance of its CEO, Brad Garlinghouse. The company boosts its presence with bank partnerships.
Ripple has also expressed readiness to move onto a new form of fundraising, by performing an initial public offering. Thus, Ripple would tap on financing both from the crypto world, and from the world of traditional finance.
Ripple has also accrued a crowd of true believers and “hodlers”, some of which have acquired XRP during peak prices. The long period of prices falling has started to disappoint some of the holders. Ripple itself has become a holder, as it slowed down the selling of its escrow stash in 2019.
The Ripple project has also accrued an army of skeptics, especially derived from those supporting Bitcoin. For them, Ripple is an impostor within the crypto space, by merit of being guided by Ripple, Inc. and thus being more centralized than Bitcoin. For Bitcoin maximalists, Ripple’s attempt is futile.
But Ripple has attempted to support its growth, greeting the fact that XRP is becoming more liquid, as well as gaining derivative markets. The XRP asset was finally accepted as an offering on Coinbase in the summer of 2019, and Ripple has managed to connect itself to the biggest crypto exchanges. Following in Bitcoin’s footsteps, Ripple will also see the effect of XRP futures trading, offered by OKEx this year.
Holding onto XRP is also relatively easy, as Ripple’s native coin is supported by most widely used wallets, including Exodus. Ripple’s protocol also allows storage with Coinbase Custody.
In 2020, investing in XRP is still risky, as Bitcoin has taken the lead. Ripple’s position is lumped with altcoins, and confidence in the asset is still relatively low.
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Images via Shutterstock, Chart from Ripple Q4, 2019 report