Ripple (XRP)

Ripple is a distributed, open-source payments network that allows fast way to send payments on the web. It can automatically exchange different currencies  using its internal currency called “Ripples (XRP).

Ripple has been increasingly adopted by banks and payment networks as settlement infrastructure technology.  One of the specific functions of XRP is as a bridge currency.Ripple’s design focus is as a currency exchange and a distributed-RTGS, as opposed to emphasizing XRP as an alternative currency.

In Ripple, users make payments between each other by using cryptographically signed transactions denominated in either fiat currencies or Ripple’s internal currency (XRP). For XRP-denominated transactions Ripple can make use of its internal ledger, while for payments denominated in other assets, the Ripple ledger only records the amounts owed, with assets represented as debt obligations.

XRP

Users of the Ripple network are not required to use XRP as a store of value or a medium of exchange. Each Ripple account is required, however, to have a small reserve of 20 XRP.

Ripple doesn’t collect transaction fees like banks, credit cards, Paypal for transferring money. However, it does take “a small portion of a ripple (equivalent to ~1/1000th of a cent)” from each transaction. That amount is destroyed rather than retained. 

XRP are currently divisible to 6 decimal places, and the smallest unit is called a drop with 1 million drops equaling 1 XRP

When a user conducts a financial transaction in a non-native currency, Ripple charges a transaction fee. The purpose of the fees is to protect against network flooding by making the attacks too expensive for hackers. Thus, to engage in trade, each Ripple account is required to have a small reserve of 20 XRP, (US$0.16 as of October 3, 2016), and a transaction fee starting at .00001 XRP (US$.00000008 as of October 3, 2016) must be spent for each trade. This transaction fee is not collected by anyone; the XRP is destroyed and ceases to exist.

Ripple in News

  • On June 13, 2016, Ripple obtained a virtual currency license from the New York State Department of Financial Services, making it the fourth company with a BitLicense.
  • On August 19, 2016, SBI Ripple Asia announced the creation of a Japanese consortium of banks in a new network that will use Ripple’s technology for payments and settlement.  The consortium was officially launched on October 25, 2016 with 42 member banks. As of July 2017, 61 Japanese banks had joined, representing over 80% of total banking assets in Japan.
  • On September 23, 2016, Ripple announced the creation of the first interbank group for global payments based on distributed financial technology. As of April 2017, members of the network known as the Global Payments Steering Group (GPSG) are Bank of America Merrill Lynch, Canadian Imperial Bank of Commerce, Mitsubishi UFJ Financial Group, Royal Bank of Canada, Santander, Standard Chartered, UniCredit and Westpac Banking Corporation. The group will “oversee the creation and maintenance of Ripple payment transaction rules, formalized standards for activity using Ripple, and other actions to support the implementation of Ripple payment capabilities.

Ripple has various products

  • xCurrent – Banks use xCurrent to process global payments for their customers
  • xRapid – Payment providers use xRapid to source on-demand liquidity
  • xVia – Businesses use xVia to plug into RippleNet to send payments

Quite a few institutions are well on their way to achieving this goal, and they will use Ripple’s technology to do so. In fact, close to 30 of the 150 banks signing up for Ripple’s technology have already integrated so far.However, very few institutions are actively talking about using the native XRP asset to facilitate money transfers

Challenges

Unlike Bitcoin, you cannot mine XRP as it is pre-mined by the founders with 100 billion XRP. The network creators usually only keep a fraction of the tokens for themselves, pre-selling the rest to anyone that wishes to buy some. Ripple, however, still owns about 60% of the originally issued tokens. This raises a few issues.

However. Ripple has recently taken steps to promote its XRP market and put the majority of their XRPs into an escrow (then again, the escrow is unlocking 1bn XRP every month for the next ~4.5 years, so it could be better).

Why you may not want to invest in XRP

Although Banks are using Ripple technology, they are not bound to use or not using XRP. 

Also, the destruction rate of XRP is quite low.Currently, the default transaction fee is 10 drops (0.00001 XRP). So if the bank doing 1 million transaction a year, they need 10 XRP.

When I look at XRP charts (https://xrpcharts.ripple.com/#/), in 1 minute, 1.5 XRP was destroyed (21 Oct 2017). At this rate, per day 2160 XRP will be destroyed and in 1 year, only 1 million XRP will be destroyed. That means, the XRP will not be a scarce in our lifetime. 

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