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Crypto Explained: XRP and Ripple

Updated: May 30, 2022


What Is the Importance of Ripple?


Ripple intends to replace the current system used by large financial institutions and become the dominant platform for transferring value digitally. Ripple created XRP as a bridge currency to be used by the XRP ledger to transfer digital value. Ripple uses the XRP Ledger (XRPL) as a method of transaction because it's cheaper and faster compared to current bank methods. XRP is one of the largest cryptocurrencies in the world, worth around $82 billion at its most recent peak in 2021.


What is Ripples' Purpose?


First of all, let's set things straight. Ripple and XRP are not the same things. OpenCoin, Ripple's starting name, created XRP to be a transferable currency for RipplePay–hence the name XRP. While Ripple created XRP, it does not have ownership over the cryptocurrency but uses it for its platform.


The standard fee to conduct transactions on Ripple is set at 0.00001 XRP, which is minuscule compared to fees that banks and cryptos charge. Their fees can vary depending on the service provider but it usually ranges between 0.5% and 5% plus additional fees. The XRPL is a blockchain that provides a tool for banks, governments, and private businesses to transfer money from the same currency or different currencies in under three seconds for fractions of a penny.


What is Ripples' History?


Ripple launched XRP in June 2012 by Ripple Labs Inc. developers Arthur Britto, David Schwartz, and Brad Garlinghouse. Later, Chris Larsen joined, and the group started the company NewCoin in September 2012 (which changed later to Ripple). So far, Ripple has connected with more than 100 financial institutions, including Santander, Canadian Imperial Bank of Commerce, Kotak Mahindra Bank, Itaú Unibanco, IndusInd, and BeeTech.


XRP was the third-largest cryptocurrency until the SEC filed a lawsuit, which caused the cryptocurrency to drop heavily in value. While most cryptos are mined to add to the volume, XRP was created to only have 100 billion units from the inception and does not use the mining process. Therefore, it uses significantly less energy than Bitcoin, Ethereum, and other blockchains that use a network of computers in the mining process. Out of the 100 billion XRP in existence, Ripple holds 55 billion in escrow and releases it in a specific protocol of 1 billion per month for 55 months. The timed release is to provide liquidity to the XRP marketplace.


Ripple owns a large amount of its volume and can manipulate it. Due to this factor, the SEC caught sight of it and sued Ripple and two of its founders. According to Forbes, “the SEC sued Ripple and two of its top executives for seven years of distributions of the cryptocurrency XRP which the agency labeled as illegal unregistered securities trades.” This suit caused many large holders like Grayscale Digital to liquidate its XRP funds. To this day, the currency has not recovered.


Should I Invest in Ripple?


Ripple is one of the best cryptos to invest in because of its versatility, valuation, low fees, and established partnerships. The platform does more than transfer XRP; it can support other currencies, cryptocurrencies, and commodities. Also, transactions are faster with XRP compared to larger cryptos. According to the Motley Fool, “The average cross-border XRP transaction can validate and settle in about three to five seconds. This sure beats a one-week wait time using existing infrastructure, or the potential lag associated with Ethereum during peak use periods.”


With most XRP trades coming through Ripple, XRP has become known as a centralized asset compared to cryptos like Bitcoin–which trades on a multitude of platforms. However, Ripple has been successful for the past few years in making XRP decentralized by adding validators that are not controlled by Ripple. Decentralized currencies are better for investors because it means that no third-party establishment can manipulate the value of the cryptocurrency or track and sell your information.


With this SEC lawsuit, many investors are dropping out. Grayscale investment, one of the largest crypto holders in the world, liquidated all of its XRP following the case. Many investors are following the trend, which has caused XRP to drop more than 75% since its peak. Analysts predict that it will continue to drop until the court case resolves. However, some investors see the value of Ripple’s technology and are investing in this asset while it is depressed because of the SEC lawsuit. If Ripple continues to mature as speculators portray it to, it could prove to be a substantial investment.

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