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Mechanism and performance of Ripple (XRP)

8 mins read

Is Ripple (XRP) Centralized?

Since there is no clear central administrator for so-called “decentralized” currencies such as Bitcoin and Ethereum, all decisions and changes must be made by an unspecified number of participants involved in the coin.

On the other hand, Ripple is in a state where Ripple Inc. itself cannot move XRP freely because a company called “Ripple Inc.” owns more than half of XRP and locks up most of the XRP it owns.

All transactions and changes in specifications are under the direction of Ripple Inc.

In other words, Ripple has different properties from “distributed” such as Bitcoin.

 

Use “XRP Ledger” instead of block chain

Most crypto assets such as Bitcoin and Ethereum have their transaction history recorded in a transaction ledger on the Internet called “block chain”.

On the other hand, in the case of Ripple, transaction records are accumulated on a unique payment system called “XRP Ledger”. Unlike block chain, which was developed for personal use, XRP Ledger is mainly a ledger for financial institutions such as banks and corporations.

In addition, the “consensus algorithm (consensus building)” is different between Bitcoin and Ethereum, which use block chain, and Ripple, which uses XRP Ledger.

A consensus algorithm is “a kind of rule that defines who approves a transaction.” In this consensus algorithm, Bitcoin uses a method called PoW (Proof of Work), and Ripple uses a method called XRP Consensus.

 

Ripple (XRP) does not employ mining

In the world of crypto assets, the series of operations from approving a transaction to receiving virtual currency as a reward is called ” mining “. Ripple does not require this mining work, which is used in Bitcoin and other products.

As mentioned above, Ripple (XRP) has a maximum issuance limit of 100 billion, all of which have already been issued when Ripple’s distributed ledger began to move in 2005.

Basically, the virtual currency provided as a reward for mining is newly issued, so Ripple without new issuance is designed with a mechanism that is not premised on the adoption of mining in the first place.

Transactions are approved by approvers called validators. This validator cannot participate freely like Bitcoin mining in the world of “rejection at first glance”.

 

Three benefits of Ripple (XRP)

Ripple has three main benefits:

 

  1. Low cost international remittance

Originally developed to improve the efficiency of international remittances, Ripple boasts an overwhelming remittance speed. Another big attraction is that the fees for remittances are low.

As mentioned earlier, Ripple employs a consensus algorithm for approval work. Unlike Bitcoin’s PoW, it does not require competition for an unspecified number of people to solve calculation problems, which simplifies the labor of transactions and realizes overwhelming approval speed.

In addition, since XRP has a “bridge function”, it is possible to exchange not only legal tenders such as yen, dollars and euros, but also virtual currencies such as Bitcoin.

 

  1. Simple remittance

When sending money overseas at a financial institution, a large fee is collected via a financial institution that acts as a relay called “correspondent bank” until the money is deposited in the account of the country to which the money is sent. Because you have to.

When you transfer fiat currency, you will be charged a fee each time you go through a correspondent bank, so the transfer fee will be high.

Also, when correspondent banks are closed, the procedure may be delayed and it may take some time to complete the remittance.

However, financial institutions around the world, including Japan and the United States, will be able to use the virtual currency Ripple (XRP) as a bridge to carry out overseas remittance procedures by using the Ripple (RTXP) system.

In theory, remittances can be completed in seconds, and fees can be significantly reduced.

 

 

  1. Partnering with financial institutions around the world

Ripple’s international remittance network, Ripple Net, is attended by more than 300 financial institutions in more than 40 countries (as of December 2020).

No other crypto asset has such a proven track record in alliances, which is a testament to Ripple’s worldwide attention.

Ripple, with its fast remittance speeds and low fees, is attractive to banks and remittance companies. Also, unlike Bitcoin, which has no administrator, it is owned and locked up by a corporation called Ripple, which seems to give a sense of security to companies considering hiring.

Currently, many banks and remittance companies have announced alliances with Ripple, and in Japan, well-known banks such as Mizuho, Mitsubishi UFJ, and SBI Holdings have announced alliances.

Although not a partnership, Ripple has been funded by GV (formerly Google Ventures) in the past. The IT network champions at the forefront of the times also seem to be looking at Ripple.

 

Challenges facing Ripple

Ripple, which seems to be doing well as it continues to form alliances with financial institutions around the world, actually has the following issues.

 

  1. Existence of rival “SWIFT”

The first issue is the existence of an organization called ” SWIFT “, which is a rival for Ripple.

Called “International Interbank Financial Communications Association”, SWIFT is a Belgian-based non-profit organization responsible for current international remittances. The recent rise of Ripple is not always welcome for SWIFT, who works in the same field of “international money transfers.”

The battle for share with rival SWIFT is an unavoidable issue for Ripple.

It will be a big issue for Ripple in the future to appeal how it is a better remittance system than SWIFT and to have more financial institutions introduce it.

 

 

 

  1. Securities problem

The second is the so-called “securities problem”.

The problem is that in the case of virtual currencies that have an operating company like Ripple, those issued by that company for the purpose of earning money may be classified as “securities” like stocks and corporate bonds. It originates from the question.

If the US Securities and Exchange Commission (SEC), which is in a position to make that decision, recognizes Ripple as a security, Ripple may be delisted from cryptocurrency exchanges.

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