Ripple is not just a cryptocurrency (or altcoin) – it is also a payment system known as Ripple Protocol. This network was officially released in 2012, but its creation was in 2004 which means it is older than Bitcoin.
The protocol itself is based on a Blockchain-like technology but not exactly the same. In contrast to a decentralized ledger of the blockchain, Ripple is more of a payment system, made exclusively for Bank usage for faster and easier hassle-free transferring of an asset and not just money, either fiat (USD, EUR, etc) or cryptocurrencies etc.
How does this Protocol work?
Let’s break down the system with a simple bank example. Suppose you owe your friend, Marly, 20 dollars and Marly wants you to transfer that money to her as she lives in another State. Instead of physically transferring money by meeting her, you ask your Bank to release that amount from your account and transfer it to Marly’s account. Here, you have deposited your money in your bank because you trust that entity and now your money has become your Bank’s liability.
When you ask your Bank to transfer $20 to Marly, they have been freed from that liability and are now responsible to transfer it to Marly’s Bank. Now, after making the request, it is now the recipient’s Bank responsibility to conduct the transfer. Marly is now trusting her Bank and waits for that transfer. However, due to Bank holiday, this transfer doesn’t get in effect immediately. Also, commission fees are charged by the bank.
To combat these situations, Ripple was introduced. It is faster and the charges are comparatively low. It is based on who trusts which entity and how much that entity owes. Here, you trust your own Bank and Marly trusts her Bank, however in transferring money Marly’s Bank owes your Bank the amount of money you transferred. In Ripple, these Banks are not actual banks but known as Gateways. Gateways serve as a link between the two trust parties and are used to transfer assets. It is a universal, shared public database or ledger for simplifying global asset transfers. It is intended to replace the SWIFT model adopted by Banks today which is more contrived and slow. If implemented by the Banks, Ripple will revolutionize the peer-to-peer transfer completely.
What is the Ripple Currency – XRP?
Ripple currency (XRP) is not minable like Bitcoin, but it can be traded. It is finite in number and is issued by its creator company – Ripple Labs.
Valuation of Ripple currency in itself is nothing but it is used for currency exchanges. It is used as a bridge currency. If no similar chain of trust is formed in between two exchanges, this protocol can be adopted. For example, if you wanted to get your payment in Yen from Bob but he doesn’t have Yen but has bitcoins, he can exchange Ripple currency equivalent amount of bitcoins and then the Gateway provides you with Yen. The charges are minimal for using this currency and the exact value keeps fluctuating.
What does the Future look like?
Ripple aims to provide frictionless experience to transfer money globally and has been successful to an extent cueing the value of Ripple’s XRP to see a major jump of more than 7000% in a year. The next area of focus for this currency would be the adoption of Ripple by major banks.