Decoding Ripple and XRP
At the beginning of this year, XRP broke out of its price of $0.30 and suddenly shot up to trading at $4 per token. And while the cryptocurrency’s price has since receded to the $1 range, interest in the world’s third largest digital asset based on market value is sustained.
Despite being the world’s number 3 cryptocurrency, people still don’t know much about how Ripple and XRP work. So here is a brief explanation about Ripple, XRP and how they impact the cryptocurrency world.
What is Ripple?
So the first question that people ask is – what are Ripple and XRP? Ripple, unlike Bitcoin, is a centralized system that handles real-time settlements, is also a currency exchange as well as remittance network.
Ripple is a digital currency system in which its native token (abbreviated as XRP) is created by consensus within the network rather than being mined the way Bitcoin is.
Ripple is not a cryptocurrency, the way Bitcoin is. In fact, Ripple’s CEO, Brad Garlinghouse categorically stated that Ripple was not a cryptocurrency. The company prefers to refer to its token as a digital asset instead.
Why is Ripple Growing in Popularity?
There are a lot of arguments against Ripple’s purpose and usefulness. For example, critics point out that the very validation system is something that anyone with a Bitcoin, Ethereum or other blockchain network could run to generate XRP. All that is needed are nodes list like the ones in Ripple’s network.
Ripple developers, on the other hand, say that XRP is better than the traditional blockchain cryptocurrencies because it is fast, more efficient and much more scalable. Additionally, XRP is much less expensive to get than the energy-draining proof-of-work required for Bitcoin mining.
With regard to the complaint that XRP is too centralized, developers have stated on the Ripple blog that eventually, this system would also move towards decentralization. In fact, Ripple’s CTO Stefan Thomas went so far as to say that XRP would be even more decentralized than BTC as the technology developed further.
Another issue that critics constantly bring up is that the relationship between the Ripple platform and its digital asset XRP is rather ill-defined. Because XRP hasn’t been clearly defined and because of the way it was created, the SEC might end up classifying it as a security.
However, supporter of the digital asset see the question of XRP being classified as a security is arguable. Firstly, Ripple’s business doesn’t influence the value of the XRP directly, though heavy demand from large banking corporates would definitely impact its value. This also answers the question of purpose – XRP makes financial products built on its platform cheaper and faster.
Critics also say that financial institutions would never go for large-scale adoption of Ripple. However, there a bunch of companies have already adopted three Ripple products – xRapid, xVia and xCurrent.
So far, whatever promises the developer team at Ripple as made, they have fulfilled. This gives a lot of investors the faith that Ripple will continue to do so and fulfil its goals, no matter how ambitious.