Key takeaways
- Ripple is a company that builds payment solutions like RippleNet to help banks and businesses transfer money efficiently across borders.
- XRP is a digital currency designed for fast, low-cost transactions, ideal for international payments.
- The XRP ledger (XRPL) is a decentralized blockchain where XRP transactions occur and digital assets like stablecoins and NFTs can be created.
- XRP’s price has closely followed Ripple’s legal battle with the SEC, facing sharp drops after the 2020 lawsuit and major gains after favorable rulings.
It’s understandable why people often mix up Ripple and XRP.
- The XRP token was initially named “Ripple.”
- Ripple has substantial holdings of the XRP cryptocurrency.
- Jed McCaleb was a key figure in the creation of both Ripple and the XRP Ledger.
As if this all wasn’t too much to take in, there’s the XRP Ledger to get your head around, another major part of the ecosystem.
It’s a bit confusing, but in about 10 minutes, you’ll have the entire box of cables untangled and sorted by color!
Ripple and XRP overview
Ripple is a payment solutions company, while XRP (XRP) is the digital asset that powers the XRP Ledger. Let’s unpack each one.
What is Ripple?
Ripple is a tech firm launched in 2012 by Chris Larsen and Jed McCaleb. It’s best known for creating RippleNet, a decentralized global network that connects banks, payment providers, digital asset exchanges and corporations to facilitate seamless international money transfers.
RippleNet offers real-time messaging, clearing and settlement of financial transactions, enabling participants to send money globally with reduced friction.
Rather than focusing on just one cryptocurrency, Ripple offers a range of tools to improve international payments. That’s why you’ll hear about its solutions like on-demand liquidity (ODL), which uses XRP to bridge currencies and settle payments quickly.
The idea is to reduce the time and cost of moving money around the globe.
Ripple, however, holds approximately 38% of the total XRP supply in escrow accounts, often relocking previously released supply.
This is perhaps the greatest reason why Ripple is often mentioned in the same sentence as XRP.
What is XRP?
XRP is the digital token native to the XRP Ledger (XRPL). It was designed by David Schwartz, Jed McCaleb and Arthur Britto to settle transactions in just a few seconds at a low cost.
All 100 billion XRP tokens were created at the start, and a portion was given to Ripple to fund projects and expand adoption.
Importantly, the XRP ledger itself is open-source and runs independently of Ripple. Unlike Bitcoin, however, XRP doesn’t rely on energy-hungry mining. Anyone can build on XRP’s blockchain, the XRP Ledger (XRPL), or use XRP as a cryptocurrency. Transactions settle within seconds and cost a fraction of a penny — reasons many see it as a good fit for global payments, micropayments and more.
It’s a digital asset aimed at fast, low-cost transfers, making it a go-to choice for users who want speed and affordability in their transactions.
Did you know? In late 2017 and early 2018, XRP briefly surpassed Ethereum to become the second-largest cryptocurrency by market capitalization, trailing only Bitcoin.
How the XRP Ledger works
Launched in 2012, the XRP Ledger is the home blockchain of the XRP cryptocurrency.
It operates as a peer-to-peer network, allowing participants worldwide to engage in transactions without the need for a central authority.
The ledger records all XRP transactions and maintains a comprehensive history of account balances and states. Its design emphasizes scalability, speed and energy efficiency, enabling transaction settlements in approximately three to five seconds with minimal fees.
Unlike traditional blockchains that rely on proof-of-work (PoW) or proof-of-stake (PoS) mechanisms, the XRPL utilizes a unique consensus protocol known as the Ripple protocol consensus algorithm (RPCA). This protocol enables quick transaction validation without the need for energy-intensive mining processes.
In the RPCA, independent servers called validators propose and validate transactions. Each validator maintains a unique node list (UNL), comprising other trusted validators.
During the consensus process, validators share their proposed transactions with their UNL. Through iterative rounds of consensus, validators agree on the set of transactions to be included in the next ledger version.
A transaction is confirmed when at least 80% of the validators in a UNL agree on its validity. This method ensures that all participants reach a consensus on the ledger’s state every few seconds, allowing for rapid and efficient transaction processing.
Key features of the XRP Ledger
The XRPL is equipped with several advanced features that enhance its functionality and appeal to a broad range of users and developers.
- Decentralized exchange (DEX): A notable feature of the XRPL is its built-in decentralized exchange (DEX), which allows users to trade various assets directly on the ledger without intermediaries. Users can issue tokens representing assets, such as fiat currencies, commodities or other cryptocurrencies, and trade them seamlessly. The DEX supports an unlimited number of currency pairs, with exchange rates determined by market supply and demand, facilitating efficient value transfer and enhancing liquidity within the XRPL ecosystem.
- Tokenization: The XRPL’s architecture supports the issuance and management of various digital assets, enabling the tokenization of a wide range of assets. Users can create tokens to represent real-world assets such as stablecoins, commodities or non-fungible tokens (NFTs). This capability allows for the digitization of value and the seamless transfer of tokenized assets across the ledger. The XRPL’s tokenization features are designed to be user-friendly, with built-in functions to issue, transfer and redeem tokens, making it a versatile platform for asset tokenization.
- Payment channels: To facilitate scalable and efficient micropayments, the XRPL offers a feature known as payment channels. Payment channels enable users to conduct high-frequency, low-value transactions off-ledger, with the option to settle the net results on the ledger at a later time. This approach reduces the load on the ledger and allows for near-instantaneous payments between parties. Payment channels are particularly useful for applications requiring rapid, repeated transactions, such as streaming payments or pay-per-use services.
Did you know? XRP Ledger can handle up to 1,500 transactions per second and has the potential to scale up to 50,000 transactions per second through optimization. This capability makes it one of the fastest and most scalable blockchain platforms available.
The XRP Ledger for developers
If you’re ready to start building on the XRPL, you’ll find plenty of official, up-to-date documentation detailing how the ledger works — from basic concepts like accounts and transactions to advanced features like payment channels.
You can also tap into:
- Client libraries: Available in popular languages like JavaScript, Python and Java, these libraries streamline your interactions with the ledger and reduce the need for repetitive boilerplate code.
- Testnets and faucets: Experiment risk-free with test networks and grab test-XRP from faucets to simulate real-world transactions before deploying.
- Interactive tools: Use online resources and APIs to test, debug and visualize transactions in real-time. You can send sample requests or explore ledger data to confirm your code works as expected.
You’ll also find an active developer community offering examples, tutorials and answers to common questions. This ecosystem makes it easier to bring your ideas to life on the XRPL.
What projects are building on the XRPL?
In 2024, the XRPL accelerator’s launch program selected several projects to advance development on the XRP ledger. Here are a few examples worth checking out:
- Alt DRX: This project focuses on real estate tokenization, allowing individuals to own fractional shares of physical properties as digital assets that can be traded on the blockchain.
- Moai Finance: A multichain decentralized exchange (DEX) that connects different blockchain ecosystems to enhance liquidity and trading efficiency for digital assets.
- Propto: Utilizing the XRPL’s trustlines feature, Propto offers a transparent and accessible real estate investment experience, making property ownership more democratized.
Did you know? 18 projects in total were announced as part of the XRPL Accelerator’s first launch cohort in 2024.
The SEC vs. Ripple lawsuit
The legal battle between Ripple Labs and the US Securities and Exchange Commission has significantly influenced XRP price movements.
In December 2020, the SEC filed a lawsuit against Ripple Labs, alleging that the company and its executives, Brad Garlinghouse and Chris Larsen, had raised over $1.3 billion through an unregistered securities offering by selling XRP tokens.
Following this announcement, XRP’s price experienced a sharp decline, dropping approximately 12% within 24 hours.
Over the years, the case has seen various developments. In July 2023, a federal judge ruled that XRP was not a security when sold to the general public on digital asset exchanges, though sales to institutional investors were considered unregistered securities transactions. This partial victory led to increased optimism within the XRP community and contributed to a surge in XRP’s value.
In August 2024, Ripple was ordered by a Manhattan court to pay a $125-million penalty to the SEC for improperly selling XRP tokens, a figure significantly lower than the $2 billion initially sought by the SEC.
Following this, in October 2024, the SEC dropped its remaining claims against Garlinghouse and Larsen, marking a significant turn in the legal battle.
Criticisms faced by Ripple, XRP and XRPL
Despite their prominence in the crypto space, Ripple, XRP and the XRP Ledger (XRPL) have faced significant criticism.
- Centralization concerns: Ripple Labs holds significant influence over the XRPL through control of key validators and the default node. Critics argue this compromises decentralization, with concerns raised about Ripple’s ability to fork the ledger or modify escrow locks.
- Regulatory vulnerability: XRP’s centralization makes it susceptible to regulatory scrutiny. Its legal battle with the SEC goes to show how Ripple’s control can expose XRP to targeted regulations, potentially fracturing the network and eroding trust.
- Market perception issues: Critics label XRP as a “corporate-controlled token” tied to Ripple’s success. Jack Mallers and Will Foxley have criticized its limited traction in cross-border payments despite years of promotion. Ripple’s large XRP holdings further fuel concerns over market manipulation.
- Slow development and adoption: XRP’s slow progress in cross-border payments is another point of criticism. Despite major partnerships, its adoption has not met initial expectations.
To overcome its challenges, Ripple must focus on key areas of improvement. Broadening its validator network is essential to achieve greater decentralization and alleviate concerns about central control.
Additionally, ensuring transparency in reserve management can help build trust and credibility within the crypto community.
Keeping an eye on community involvement in XRPL governance is equally important, as it can enhance user engagement and contribute to a more resilient ecosystem.
Indeed, addressing these concerns is crucial for XRP’s long-term success.
Written by Bradley Peak