What is XRP?

XRP was launched in 2012 by the co-founders of Ripple Labs, a payments company that maintains the XRP network and builds tools to hasten its adoption. As of July 15, 2023, the coin has a market capitalization of US$37.2 billion. That's enough to put it fifth among all cryptocurrencies.

What is XRP?

Though XRP launched in 2012, its story begins in 2004, when a precursor to XRP called Ripplepay was developed by software engineer Ryan Fugger. Fugger later merged this idea with work completed by Jed McCaleb, Arthur Britto and David Schwartz, who were working on a blockchain payments system. They joined with another group to create OpenCoin, and the company's name was eventually changed to Ripple Labs.

Between 2014 and 2018, over 100 banks signed up to use the Ripple protocol. However, these banks did not convert all of their money to XRP tokens, since the value of the cryptocurrency is incredibly volatile. Instead, they use XRP through a financial messaging technology called RippleNet, developed by Ripple Labs.

Why use RippleNet?

The main point of XRP and RippleNet is to help banks move money across the world.

International transactions can be cumbersome to process and come with large transaction fees. Moreover, current cross-border financial systems demand that businesses set aside a lot of money to fulfill their monthly payment obligations, such as salaries or taxes. Larger companies have to tie up potentially billions of dollars to fulfill these obligations. Often these amounts are in local currencies, adding another level of complexity.

These payments can take a long time to process. Normally, a supplier is paid on credit within 30 or 60 days. This credit costs money, driving up the prices of goods and services.

Ripple promises that things get a lot easier if you convert that money to XRP and send it through the blockchain. The cost of an XRP transaction is very small and transactions are processed within three to five seconds.

Funds that would otherwise be locked up for days before payments are settled can be put to better use. And suppliers could be paid a lot sooner, helping companies secure cheaper deals. A report from a Santander fintech summit estimated the potential savings of using a more distributed system at over $20 billion.

Another advantage to traditional financial payments networks is that the XRP blockchain is decentralized(ish). Transactions on the XRP blockchain are validated by a network of more than 150 pre-approved independent validators. Ripple operates six of them.

This structure is called a Federated Consensus. It means that there is less chance of a single point of failure, since those validators would all have to conspire to ruin the blockchain. (However, the number of validators is trivial compared to the number of validators on the Bitcoin blockchain, which is estimated at over 10,000).

How is XRP different from Bitcoin?

Speed and low cost are the main advantages that XRP has over cryptocurrencies like Bitcoin, where a batch of transactions takes 10 minutes to clear. At peak hours, transactions can take a couple of hours. On the other hand, XRP’s blockchain can process about 1,500 transactions per second.

Bitcoin transactions are processed by a vast network of power-hungry computers. To ensure that miners remain profitable, Bitcoin users must foot their bills by paying hefty transaction fees. A single transaction can cost upward of $50. Meanwhile, XRP transactions cost less than a dollar.

Bitcoin isn’t very convenient for payments. Instead it's become a decentralized store of value that some claim is resistant to inflation, censorship, and financial crashes.

XRP, however, is more suited for payments. It’s also more energy-efficient. All that Bitcoin mining consumes as much energy as a small country, and the hardware needed to mine also contributes to a high startup cost. XRP works completely differently. All the XRP that will ever exist was created at its inception, and the vast majority of it is held by Ripple Labs.

Each month, Ripple sells more and more XRP to traders to raise money and to keep the price afloat. While this centralizes the cryptocurrency, it does greatly reduce the carbon-footprint of the currency. The co-founder of Ripple, has said that while the Bitcoin blockchain consumes the same amount of electricity as 12 million American homes, XRP uses that of 50.

SEC Litigation

In December 2020, the US Securities and Exchange Commission accused Ripple of selling unregistered securities, causing many exchanges to delist the token. Ripple countered that XRP is not a security, but a currency.

On July 13, 2023, a judge found that sales of XRP on public exchanges did not qualify as securities transactions. Institutional sales to hedge funds and other sophisticated investors to raise capital, however, did qualify. It was at least a partial win for XRP, and some exchanges began listing the token for sale following the decision.

As of the publication of this article (July 15, 2023), litigation is ongoing.

How to buy XRP

Crypto exchanges require traders to set up accounts and often require a form of identification. Once you have an account with the right exchange, you can buy a cryptocurrency or fiat currency that trades against XRP. On most other exchanges, you’ll have to buy a currency like USDT, a cryptocurrency that’s pegged to the price of the dollar. You might incur charges for buying XRP. These vary according to the exchanges and the currency with which you complete your purchase.

Once you’ve bought the XRP, it’s yours! You can trade it against other cryptocurrencies such as Bitcoin and Ethereum, or sell it for fiat currencies. You can take that crypto off of exchanges and move it to your own private wallet and send it across the blockchain.