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Whether you are new to the cryptocurrency space or have been here since 2009, there’s a good chance you have come across Ripple and the cryptocurrency XRP. While at first, it’s easy to mistake Ripple and XRP as the same thing, this isn't the case by any means. In fact, many are surprised to learn that the terms XRP and Ripple are not interchangeable.
What is Ripple?
Simply put, Ripple is the company that created the Ripple Consensus Ledger. In this way, Ripple functions as both a platform and a currency. Ripple developers utilize an open-source protocol to provide users with a host of benefits. These benefits include secure, fast, and inexpensive transactions.
However, Ripple is not meant to function purely as currency such as with Bitcoin. Whereas Bitcoin was meant as a means to circumvent the traditional financial system, Ripple fulfilled a totally different market niche. The platform was designed to bridge the gap between traditional financial institutions and the blockchain sector.
Importantly, Ripple (XRP) is different than many other popular cryptocurrencies for some key reasons. Primarily, it differs from the competition because it was created by a private, for-profit company. Today, Ripple has offices in San Francisco, New York, London, Sydney, Luxembourg, Singapore, and Mumbai. The firm serves more than 300 financial institutions across over 40 countries.
The history of Ripple begins back in 2013 when a group of intuitive developers decided to join forces to create something unique within the market. At that time, Jed McCaleb, best known as the creator of the EDonkey network, invited a team of advantageous investors to participate in a project known as Ripple Labs. Importantly, McCaleb is also a major figure in the sector. He was pivotal in the creation of numerous crypto-based startups including Ripple, Stellar, and Overnet.
Ripple Labs is the official name of the tech firm that developed the Ripple payment protocol. Notably, this San Francisco-based firm was founded officially in 2012. Originally, Ripple Labs entered the market under the name Opencoin. However, in 2015, the firm rebranded into its current name.
Ripple Labs was founded by a well-known angel investor and privacy activist, Chris Larsen. Larsen is a charismatic figure who is best known for co-founding online mortgage lender E-loan back in 1996. He was joined by the programmer and entrepreneur, Jed McCaleb.
Notably, McCaleb is best known as one of the co-founders of the infamous Mt.Gox exchange. Mt.Gox was one of the first Bitcoin exchanges in the world and for a long time, it was the largest Bitcoin exchange in the world. At one point, the exchange handled 70% of all Bitcoin trading volume. Importantly, he sold his shares and was not affiliated with the exchange during the June 2011 hack that sent Bitcoin prices plummeting for months.
RippleNet is the community of banks, financial institutions, and professionals that make up the Ripple business community. Since its inception, Ripple worked hard to secure this vast network of industry professionals. These firms are privy to Ripple's advanced blockchain system.
The network enables banks to enjoy a frictionless experience as they send funds globally in seconds. Today, RippleNet includes some of the best-known institutions in the sector. Here are some of the major milestones during the RippleNet expansion so far:
Bank of America
In 2016, BOA announced a partnership with Ripple. It turned out that the bank had been secretly testing the firm's technology as a way to improve inter-bank infrastructure for months prior to the announcement.
In 2016, SBI Holdings and Ripple inked an agreement to integrate the bank into RippleNet. The move was seen by banking executives as a way to streamline remittances and instantaneous cross-border payments. Not surprisingly, since the concept emerged, more than 47 banks have signed on to the project.
Standard Chartered Bank (SCB)
In 2016, Standard Charter Bank joined a team of other investors to put forth $55 million towards further development of Ripple’s technologies. In total, the investment took Ripple’s Series B funding round up to $93 million in total.
Santander and American Express
In 2017, Ripple partnered with the credit card firm American Express and major banking firm Santander. The strategic partnership was meant to further streamline cross-border payment systems. Notably, the news helped bolster XRP prices at that time. Specifically, XRP's market value shot up over 35% when the news went public.
Royal Bank of Canada
In a surprising maneuver, the Royal Bank of Canada released a detailed report titled “Imagine 2025” in which the bank went into detail regarding their testing of Ripple’s technologies. Specifically, the report states that RippleNet can reduce average banking costs by 46% per payment. Additionally, RBC’s report states that the settlement time for transactions processed through Ripple is only 3-5 seconds. This is a huge improvement over the current system which takes 2-3 days on average.
In June 2019, Ripple secured a partnership with one of the most recognizable names in the remittance sector. MoneyGram. Again, the goal of the project was to provide money gram access to Ripple's cross-border payment technology:
- National Bank of Fujairah PJSC (NBF)
- Westpac Institutional Bank and Bank of Australia
- UniCredit, Reisebank, ATB, National Bank of Abu Dhabi, UBS
- MUFG Bank
Together, RippleNet continues to work on the development of a new framework to implement across the network. Notably, the guidelines cover important aspects of the functionality of the network. These points of concern cover legal compliance, operational custody, and other standards for acting as the intermediary.
What is XRP?
XRP serves a very important purpose within the Ripple Ecosystem. This token is the digital asset that facilitates the use of the network's utilities. In this way, XRP functions as a utility token. This token represents the transfer of value across the Ripple Network.
You can think of XRP as the mediator for exchanges. These exchanges can include both cryptocurrencies and fiat currencies. In essence, XRP is sort of a wild card. It allows participating banks the ability to facilitate global money transfers without the need to consider exchange rates and such.
For example, let’s say a bank in the US needs to send $5 million to another institution located in the EU. Under normal conditions, this transfer would be a costly and time-consuming process for many reasons. Firstly, the funds would need to go through a number of third-party verification systems to ensure they are actually available and sent securely.
Each of these parties adds to the total cost of the transactions, as well as the amount of time it takes to complete the transfer. On top of these fees, banks would have to consider the international money conversion rate. In the example listed, the US bank will lose some of its holdings in the conversion over to Euros.
Here is where XRP serves its utility purpose perfectly. The previously listed example would go much smoother via the Ripple ecosystem. The US bank could simply convert its funds over to XRP. This process is as simple as selecting the number of funds you desire to convert and clicking a button.
Now that the bank's fiat currency has been converted to XRP, it's easier to send the funds anywhere in the world. Best of all, the transfer costs only a fraction of the traditional systems in place currently. To put the savings in perspective, sending a payment of $1,000,000,000 through your bank internationally can cost you thousands of dollars. Using Ripple, the exact same transaction only costs cents.
Additionally, since there is no cap on how much funds you can send via XRP, it provides banks with more flexibility in the market. Currently, sending over $1 million globally requires banks to meet a host of additional regulatory requirements. These requirements can delay transactions for up to 3 days. XRP eliminates these issues within the Ripple ecosystem.
Ripple Protocol Consensus Algorithm (RPCA) – A Cryptocurrency Without a Blockchain
While you might consider blockchains a core part of all cryptocurrencies, this isn't the case with Ripple. Ripple uses a proprietary decentralization technology and consensus mechanism – the Ripple Protocol Consensus Algorithm (RPCA). The Ripple Protocol consensus algorithm (RPCA), is applied every few seconds by all nodes, in order to maintain the correctness and agreement of the network. In the RPCA system, each server publishes a list of new transactions to the network, known as the “candidate set.”
Then, each server compares its list to the current state of the network and the proposed changes. Once the comparison is complete, the servers will vote on the state of all transactions. In the end, 80% of the nodes must agree on the new transactions to reach a state of approval. The system adds all the transactions that met these requirements to the distributed ledger. The system then closes the ledger. This closed ledger provides a point of reference to verify the next RPCA.
Ripple currently offers two main products to its users. The first product is known as xCurrent. xCurrent was among the first products Ripple Labs developed for the market. This global real-time gross settlement system provides users with some pretty impressive functionality.
For example, users can clear and settle transactions in minutes. Traditional money transfer systems can take 2-5 days to complete. Additionally, users gain access to the RippleNet messaging services which allows the network to maintain instant communication.
xRapid takes xCurrent a step further and eliminates the need for accounts at all. This protocol is able to source liquidity from the local market to complete the transactions. For example, when a bank may want to send $1 million to another bank in the network, the xRapid system would buy XRP with the sender's money and then sell XRP on the side of the buyer to complete the transaction.
This process allows banks to send smaller amounts internationally because it eliminates much of the overhead in doing so. Additionally, it enables banks to send money to locations that may cost well above the average transfer rate. Consequently, these products enabled Ripple to compete in the market from day one.
xRapid is revolutionary because banks don't want to hold XRP, or any cryptocurrency, for long periods of time. Instead, the system exchanges the funds to and from XRP in seconds. This speedy transaction is possible because the XRP ledger can handle 1500 transactions a second.
Investing in Ripple (XRP)
Ripple (XRP) is available for purchase on the following exchanges.
Uphold – This is one of the top exchanges for United States & UK residents that offers a wide range of cryptocurrencies. Germany & Netherlands are prohibited.
Kraken – Founded in 2011, Kraken is one of the most trusted names in the industry with over 9,000,000 users, and over $207 billion in quarterly trading volume.
The Kraken exchange offers trading access to over 190 countries including Australia, Canada, Europe, and is a top exchange for USA residents. (Excluding New York & Washington state).
Paybis is a truly global company offering services to residents from 180+ countries, including Canada, Europe, UK, & USA.
WazirX – This exchange is part of the Binance Group, which ensures a high standard of quality. It is the best exchange for residents of India.
Uphold Disclaimer: Terms Apply. Cryptoassets are highly volatile. Your capital is at risk. Don’t invest unless you’re prepared to lose all the money you invest. This is a high-risk investment, and you should not expect to be protected if something goes wrong.
Fiat to XRP
The process can take a bit longer if you are planning to enter the market with fiat currency. In this scenario, you will need to connect your bank account or debit/credit card to your exchange account. This process can take days as some platforms send a verification transaction to the bank. This transaction is usually just a couple of cents. You will need to verify its amount to prove you own the bank account attached to your exchange account.
Once you have proven that the account belongs to you, you will then need to purchase one of the cryptocurrencies that have a fiat pairing. Basically, not all cryptocurrencies are available to purchase directly with fiat currency. Many exchanges require you to purchase Bitcoin or Ethereum first. Once you possess one of these major cryptos, you can then trade them for any exchange pair they qualify at.
The fastest service is by Paybis, as it offers super fast credit card processing.
How to Store Ripple (XRP)
If you seek to make a major investment in XRP or if you are planning on HODLing this crypto for long periods of time, a hardware wallet is the best option. Hardware wallets keep your crypto stored offline in “cold storage.” This strategy makes it impossible for online threats to access your holdings. The Ledger Nano S or the more advanced Ledger Nano X both support Ripple (XRP).
Investing in Ripple Stocks
Ripple Stock is another way that you can participate in Ripple's growing ecosystem. Unlike XRP, Ripple stock is a direct investment into Ripple. Purchasing Ripple stock requires you to meet all the current securities laws in place in the US. As such, investing in Ripple stock can be a bit more difficult for those unfamiliar with the stock market.
Since Ripple isn't a publicly-traded company, the only way to acquire shares in the firm is via private investors on the secondary market. To buy and trade Ripple stock you will need to qualify as a “sophisticated investor”. Consequently, you must be an accredited investor to buy shares of Ripple Inc. at this time. To qualify as an accredited investor, you will need to show that you possess $1 million in liquid assets at this time, or that you earned over $200,000 per year for the last 3 years in a row.
Once you are able to prove your investment qualifications, you are ready to invest. The first thing you will need to do is head over to shareposts.com or the MicroVentures app. Here you will need to register for an account. Once you are qualified and approved, investing is as simple as finding Ripple Inc. and deciding how many shares you desire.
Ripple continues to see growing adoption across the sector and for good reason. This future-oriented firm has effectively carved out its niche in the market for years to come. Consequently, you can expect to hear a lot more from this community as XRP and Ripple expand their presence in the traditional financial markets. For now, Ripple appears to have a bright future ahead of it as more financial institutions express interest in joining the RippleNet.
*July 14, 2023 UPDATE*
After a multi-year court battle, Judge Torres, who was presiding over the case, announced a split decision surrounding the charges laid against Ripple Labs by the SEC.
“For the foregoing reasons, te SEC's motion for summary judgment is GRANTED as to the Institutional Sales, and otherwise DENIED. Defendants' motion for summary judgment is GRANTED as to the Programmatic Sales, the Other Distributions, and Larsen's and Garlinghouse's sales, and DENIED as to the Institutional Sales.”
Simply put, Ripple was found guilty of selling unregistered securities directly to institutions, as these were clearly viewed as investment contracts. Outside of this point, which is in favor of the SEC, it is widely viewed that Ripple ‘won' the case. It was found that both programmatic sales of XRP and those made by Larsen & Garlinghouse did not constitute the sale of unregistered securities.
This decision was made due to the following distinction.
“…the vast majority of individuals who purchased XRP from digital asset exchanges did not invest their money in Ripple at all. An Institutional Buer knowingly purchased XRP directly from Ripple pursuant to a contract, but the economic reality is that a Programmatic Buyer stood in the same shoes as a secondary market purchaser who did not know to whom or what it was paying its money…Therefore, having considered the economic reality and totality of circumstances, the Court concludes that Ripple's Programmatic Sales of XRP did not constitute the offer and sale of investment contracts.”
These rulings are significant, as many of the circumstances of the case and points made echo those of other digital assets on the market. While each and every case is unique, a modest level of clarity has now been provided for the status of altcoins.
While the ruling may be challenged by the SEC, digital asset exchanges have already begun relisting the asset now that the fear of regulatory violation has diminished. Moving forward, a trial will decide whether Larson and Garlinghouse knowingly aided in the illegalities that the company did take part in.
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