XRP is a cryptocurrency that powers real-time gross settlements on the XRP Ledger (XRPL) blockchain. Developers David Schwartz, Arthur Britto, and Mt. Gox founder Jed McCaleb began developing distributed ledger in 2011 to improve cross-border payments.
XRPL was launched in June 2012 along with XRP, the same year fintech company Ripple Labs was founded (originally called NewCoin, then OpenCoin, before becoming Ripple Labs) by veteran Silicon Valley entrepreneur Chris Larsen and the three developers.
After the company was founded, XRPL architects offered 80 billion XRP tokens to Ripple for the company to start developing the network.
This Forkast The explainer will explore:
What is Ripple?
San Francisco-based Ripple Labs is the operator of RippleNet, a payment and exchange network dedicated to removing obstacles and delays in the existing financial system through blockchain-powered innovations.
RippleNet was designed to provide an alternative to the SWIFT network by offering faster and cheaper cross-border payments via XRPL and XRP.
The company uses XRPL technology to improve cross-border payments, liquidity and central bank digital currencies (CBDCs).
The native token of the XRP Ledger — XRP
XRP is used as a transaction fee in XRPL, cross-border transactions, international settlements, and liquidity supply.
XRP has a peak supply of 100 billion tokens, with almost half in circulation as of October 2022. The 100 billion XRP was pre-mined in January 2013, where the founders retained 20%, 77.8% was allocated to Ripple Labs and 0.2% was airdropped on different forums.
Ripple initially placed 55 billion XRP tokens in an escrow account which still had 45.7 billion in October 2022.
Financial institutions can use XRP to link two currencies to facilitate cheaper and faster cross-border transactions. XRPL’s decentralized exchange converts payments using the cheapest currency exchange order available.
For these banks and institutions to use XRP’s payment technology, they often join the RippleNet financial network that runs on XRPL.
According to Ripple White Paperthe network offers settlements in 3-5 seconds and can handle around 1,500 transactions per second with an estimated transaction fee of $0.0002 through its Unique Node Lists (UNLs) consensus mechanism.
UNL is a list of validators approved by a node operator. Each node operator chooses its own UNL, usually based on a default set provided by a trusted publisher. UNL helps nodes choose the most reliable validators.
What sets Ripple and XRP apart?
Central banks can use XRPL’s private network to manage and issue CBDCs, without building a full network from scratch. The US Digital Dollar Project recently announced it is working with Ripple to launch a pilot program to study a USD-based CBDC.
Sustainability is one of the main goals of Ripple Labs and XRPL. The blockchain uses a unique system consensus mechanism with reduced energy consumption. For 60 million transactions, XRP consumes 474,000 kWh of electricity, while Bitcoin needs 57.09 billion kWh, according to the Ledger’s Carbon Calculator. XRP emits 270 metric tons of CO2 for the same number of transactions, while the Bitcoin network emits 27.96 million metric tons of CO2.
Ripple Reviews
While Ripple Labs argues that XRPL is a decentralized public ledger, sub-cent transaction fees and fast settlements come at the expense of validator centralization. RippleNet has 139 active validators, mostly run by financial institutions, a centralized tally when placed next to Ethereum. nearly half a million.
While anyone can run a validation node on XRPL, each node sets up its own UNL. New validators cannot verify transactions unless they are part of another node’s list. Whereas validators on XRPL receive no financial incentivethe ledger should maintain a centralized node structure.
Additionally, the United States Securities and Exchange Commission (SEC) sued Ripple Labs in December 2020 for allegedly conducting a US$1.3 billion unregistered securities offering. The two are still fighting in the ongoing court case.
The 45% of the total existing XRP is in an escrow account controlled by Ripple Labs. Some critics worry that the massive amount of tokens held by a single entity could put the cryptocurrency at risk of price manipulation.
In August, Ripple Labs unlocked one billion tokens from the escrow account, causing XRP to lose 3.4% of its value over the next 24 hours.
What future for Ripple & XRP?
The future of Ripple Labs largely depends on the outcome of its ongoing legal battle against the SEC. But XRP is not the only cryptocurrency at risk of becoming a security in this landmark case. The outcome may have ripple effects on the entire cryptocurrency industry and how tokens are ranked.
Despite the ongoing lawsuit, the community has been actively developing new features on XRPL. Some of the most promising developments include smart contracts, non-fungible tokens (NFT)and side chains.
In March 2022, Ripple Labs has pledged 1 billion XRP in the extension of XRPL Grantsaimed at advancing the development of the XRP Ledger.
XRPL’s fast and inexpensive cross-border settlements have been Ripple Labs’ main selling point in integrating financial institutions with RippleNet.
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