What is Ripple and XRP (XRP)?

By Kraken Learn team
9 min
14 Ağu 2023
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The beginner's guide to Ripple and XRP 📖

The XRP Ledger, or XRPL, is a payment-focused platform that enables financial institutions and payment providers to offer innovative financial services, including escrow services, digital crypto wallets, and other decentralized applications (dapps).

Ripple, also known as Ripple Labs, is the blockchain technology company that developed the XRP Ledger and focuses on providing banking solutions for traditional financial institutions. 

XRPL offers low transaction costs and high performance and its native token, XRP, is classified as a payment cryptocurrency. These tokens  offer a way to store and transact value using a distributed network rather than a centralized government. In this way, XRP’s main utility is to serve as the medium for transaction fee payments on XRPL.

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How does the XRP Ledger work? ⚙️

The XRP Ledger is a decentralized blockchain that uses its own digital currency to process and record financial transactions. 

The main components of the XRPL are:

  • Consensus Algorithm: XRPL uses a unique consensus algorithm based off of the distributed ledger technology (DLT) called the “XRP Ledger Consensus Protocol.” Unlike other cryptocurrencies like Bitcoin or Ethereum, XRPL doesn't rely on Proof of Work or Proof of Stake. Instead, the XRP Ledger Consensus Protocol mechanism ensures that all participants in this payment network agree on the order and validity of transactions in a computationally-light way. Whenever any crypto market asset, such as XRP, is sent from one address to another, the network’s validators work together to confirm and validate that transaction. This agreement happens every few seconds in what are known as “ledgers.”

  • Nodes and Validators: Nodes and validators are the backbone of the XRP Ledger. Nodes are computers or servers that maintain a copy of the entire blockchain and play a crucial role in keeping the network decentralized. Anyone can run a node to help ensure that no single entity controls the ledger. Validators are a subset of nodes with an extra responsibility and are carefully chosen to maintain the network’s integrity. Validators participate in the consensus process by collectively examining transactions and agreeing on their validity. This prevents fraudulent or double-spending transactions.

  • Transaction Agreement Process: XRPL achieves transaction agreement via 4 steps:

    • Proposal Phase: When a user initiates a transaction, it creates a proposal that is then broadcasted to the network. This proposal contains the details of the transaction, including the sender, recipient, and amount.

    • Validation: Validators on the network receive these proposals and begin the process of validation. They check the proposal against a set of rules to ensure its validity. These rules ensure the sender has enough XRP to complete the transaction and prevent double-spending.

    • Consensus: Validators communicate with each other to reach a consensus on the validity of the transaction. This involves a series of rounds where validators share their positions on the proposed transactions until they unanimously agree on a specific set of transactions to be added to the ledger.

    • Finalization: Once consensus is reached, the chosen transactions are finalized and added to the XRP Ledger. At this point, the ledger is updated, and the transactions become immutable.

XRPL’s key innovations 🏆

The XRP Ledger stands out for its features that aim to change the way transactions are processed.

These innovations are intended to help XRPL become a technology for the future of finance, offering a faster, cheaper, and more sustainable alternative to traditional systems.

Here's a closer look at its key features:

  • Streamlined development: XRPL offers a user-friendly environment for developers to build applications geared towards financial services.

  • Low transaction costs: XRPL enables users to send and receive money without incurring high fees. 

  • High performance: With its ability to process thousands of transactions per second, XRPL ensures rapid and efficient transaction speed to settle online payments.

  • Sustainability: XRPL is designed to be sustainable thanks to its energy-efficient consensus mechanism.

What problem does the XRP Ledger solve? 🧐

The current financial system relies on outdated infrastructure that is slow, expensive, and centralized to process money transfers, including payments and cross-border transactions, which makes it an ideal remittance network. These systems can sometimes take days or weeks to process online payments and incur significant fees as well. 

XRPL offers a public and decentralized alternative which can not only facilitate, but settle thousands of transactions per second at fractions of a cent per transaction. This makes it ideal for domestic and international payments. 

The decentralized XRPL eliminates the need for a central authority like a bank, further reducing costs and enhancing security. Its decentralized nature also makes it more resilient, as there is no single point of control that can be compromised.

Further, XRPL’s on-demand liquidity (ODL) enables cross-border payments by eliminating the need for pre-funded accounts and traditional banking relationships to help customers move funds globally.

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Why buy XRP? 🤷‍♂️

Someone may wish to purchase XRP for the following reasons:

  • Use XRPL’s dapps: The XRPL supports various financial dApps and XRP can be used for in-app transactions, rewards, and other functionalities.

  • Serve as a medium of exchange: XRP can be used as a peer-to-peer cryptocurrency within XRPL’s ecosystem and as a currency to purchase goods and services from merchants who accept the token.

  • Cover transaction fees: Pay transaction fees on the XRP Ledger.

How to use XRP cryptocurrency 📋

XRP token holders can use the token in several ways within the Ripple ecosystem:

  • Transaction fees: XRP is used to pay transaction fees on the XRP Ledger. Each transaction requires a small amount of XRP to be burned and is done to ensure security and prevent spam.

  • Bridge currency: XRP can act as a bridge currency for cross-border payments, facilitating faster and cheaper international transactions.

Ripple origin 🌍

Ryan Fugger, a Canadian software developer, conceived the initial idea for Ripple and developed RipplePay in 2004.

Jed McCaleb, Arthur Britto, and David Schwartz purchased Ripple from Ryan Fugger in 2012 and transformed it from a fintech credit platform into a digital currencies network. Chris Larsen also was instrumental in the development of XRPL, which was launched in June 2012.

Key Founders

Jed McCaleb

  • Title: Co-founder

  • Professional Background/Qualifications: Before his time at Ripple, Jed founded the early Bitcoin exchange MTGOX in 2010.

  • Key Contributions: Jed served as the CTO of Ripple until 2013, when he left to fork XRPL into the Stellar blockchain. 

Chris Larsen

  • Title: Co-founder

  • Professional Background/Qualifications: Before co-founding Ripple, Chris co-founded online mortgage lender e-Loan in 1996 and Prosper Marketplace, a peer-to-peer lender, in 2005.

  • Key Contributions: Chris served as the Ripple CEO from 2012-2016, and has been the executive chairman since he co-founded the company. 

David Schwartz 

  • Title: Co-founder

  • Professional Background/Qualifications: David has a background in software development, and served as the director of software development at Webmaster Incorporated before joining Ripple.

  • Key Contributions: David currently serves as the CTO and Chief Cryptographer at Ripple and was one of the original architects of XRPL.

Other Contributors

Arthur Britto

  • Arthur worked as a video game designer before joining Ripple, and had also previously run a Bitcoin exchange called ExchangeYourBitcoins. Britto served in an advisory role at Ripple until 2019. Over the years, Britto has remained a somewhat mysterious figure in crypto, as not much else about him has been revealed.

XRPL is also supported by the  XRP Ledger Foundation, an independent non-profit entity that works to support the development and usage of the XRP Ledger.

Ripple has raised over $300 million in funding across multiple rounds since its inception. Notable funding rounds include a $1.5 million angel financing round (led by a16z) in April 2013; a series A round of $28 million (led by CME Ventures) in May 2015; a series B round of $55.2 million (led by Digital Ventures) in March 2016; and a $200 million series C round (led by Tetragon) in December 2019. The company's most recent funding round, a series C round with an undisclosed amount, closed in November 2021 and was led by Mouro Capital.

XRP tokenomics 🧑🏽‍💻

There is a maximum supply of 100 billion XRP that were all premind in January 2013. The issued supply was distributed as follows:

  • 20% (20 billion XRP) to the founding team.

  • 80% (80 billion XRP) to Ripple Labs Inc.

In 2017, Ripple Labs locked 55 billion XRP in an escrow account to address concerns about potential market manipulation. This system releases 1 billion XRP monthly to Ripple, with unused portions returned to escrow. Although Ripple's control over circulating XRP has been relatively low, this arrangement ensures a continuous release of XRP for the company's use.

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