Cryptocurrencies come in various forms and sizes, yet many share core foundational principles: peer-to-peer networks, cryptographic security, and consensus mechanisms. Among these, XRP stands out as one of the most prominent digital assets. Created in 2012 by OpenCoin (now known as Ripple Labs), XRP has grown to become the world’s third-largest cryptocurrency by market capitalization, reaching a total valuation of $40 billion. Ripple, the company behind XRP, has made significant strides in the global payments industry.
While Bitcoin, Ethereum, and XRP are all traded on major exchanges, XRP operates differently from many other cryptocurrencies listed on platforms like CoinMarketCap. For the average investor, understanding the technicalities of the relationship between XRP and Ripple may not be essential. However, recognizing Ripple’s underlying technology and its target market can offer valuable insights for evaluating market trends.
Ledger Technology and Consensus Protocol
XRP is a cryptocurrency built on distributed ledger technology. Think of XRP as a settlement currency—similar to the role the U.S. dollar plays in global finance—while XRP accounts function like entries in a digital ledger.
The XRP Ledger Consensus Protocol (XRP LCP) is the mechanism that maintains agreement across the network. Like other consensus models, a group of computers running this protocol validates transactions and agrees on the ledger’s history.
A common challenge for all cryptocurrencies is double-spending—where a user might attempt to spend the same funds twice. Most cryptocurrencies, including Bitcoin and Ethereum, use Proof-of-Work (PoW) or Proof-of-Stake (PoS) to solve this issue. XRP, however, uses a different method.
XRP employs a trust-based alternative where a limited number of nodes, known as the Unique Node List (UNL), are selected to have the final say on the ledger's history. Ripple oversees which nodes are included in this list. These nodes broadcast transactions and vote; the system requires a 90% agreement to validate a transaction and update the ledger.
This approach avoids the computationally intensive mining process used in PoW systems, enabling XRP to process transactions in as little as four seconds. Ripple researchers have also proposed a new algorithm named Cobalt, which could lower the consensus threshold from 90% to approximately 60%.
Network Structure and Validation
Ripple’s efficiency is seen as an advantage by many, but some in the crypto community express concerns over the relatively centralized nature of its node system.
Users can technically define their own UNL, but Ripple recommends using its curated list. Straying from the recommended UNL could lead to payment delays or failures.
Currently, the Ripple network consists of 70 validating nodes, with five recommended nodes maintained directly by Ripple. This differs significantly from Bitcoin, where anyone with technical knowledge can participate in mining or operate a node.
Ripple plans to expand its list of recommended nodes, aiming to include entities operated by trusted companies and universities while phasing out outdated validators.
Development and Governance
The core software powering the XRP Ledger is called Rippled. It was open-sourced in 2013, and its development is hosted on GitHub. Written in Python, proposed upgrades—called Ripple Improvement Proposals (RIPs)—are thoroughly analyzed before being merged into the main codebase.
Compared to other major cryptocurrencies, XRP has a smaller core development team. Ripple takes a cautious approach to new features, which has sometimes led to criticism over slower update cycles. Recently, the company published new technical documentation and is considering adopting academic-style peer review processes to enhance transparency.
Token Supply and Economic Model
Most cryptocurrencies, like Bitcoin, have a fixed supply and are issued through mining. XRP operates under a different model.
XRP is used to pay minimal transaction fees within the network—similar to Ethereum’s gas mechanism. However, these fees are not paid to miners; instead, they are destroyed. This design helps prevent spam transactions by making it costly to flood the network with low-value operations.
Some investors worry about the deflationary effect of this token-burning mechanism. In late 2017, Ripple stated that, at the then-current burn rate, it would take at least 70,000 years to destroy all XRP.
Another concern involves initial token distribution. At launch, the founders received 20 billion XRP, and the remaining 80% was allocated to Ripple. Many feared these tokens could be sold in large volumes, destabilizing the market. To address this, Ripple placed the majority of its XRP holdings in escrow, with plans for gradual distribution over time.
How XRP Differs From Other Cryptocurrencies
The Ripple network supports multiple currencies, including fiat currencies like the U.S. dollar, euro, and yen. It also plans to integrate Bitcoin and other digital assets in the future. The network automatically handles currency conversion, allowing users to send and receive payments in any supported currency.
Unlike Bitcoin or Ethereum, XRP is not mined. The total supply was pre-mined—100 billion XRP were created at launch. While early distributions were made to founders and partners, institutions now must purchase XRP directly from Ripple Labs, and retail investors can buy it on exchanges.
Transaction confirmation on the Ripple network takes only a few seconds, thanks to its consensus model. Additionally, Ripple clients do not need to download the entire blockchain—only the most recent ledger and a link to historical data are stored, reducing operational overhead.
XRP’s total supply is designed to gradually decrease due to transaction fee burning, and Ripple has committed to never creating additional XRP.
Value Proposition and Use Cases
While XRP’s anti-spam function is important, many cryptocurrency enthusiasts are more interested in its potential for institutional use. Ripple has partnered with major banks and international payment providers to facilitate faster, cheaper cross-border transactions.
Many companies are exploring the use of XRP as a bridge currency for liquidity. Converting fiat to XRP and back can reduce settlement times and costs significantly. As Ripple’s CTO Stefan Thomas has emphasized, liquidity and real-world application are central to XRP’s value.
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Frequently Asked Questions
What is the main purpose of XRP?
XRP serves as a digital asset for fast and low-cost transactions, particularly in cross-border payments. It acts as a bridge currency between different fiat and digital currencies.
How is XRP different from Bitcoin?
Unlike Bitcoin, which uses Proof-of-Work mining, XRP uses a consensus protocol managed by a selected list of validators. XRP transactions are faster and cheaper compared to Bitcoin.
Can I mine XRP?
No, XRP cannot be mined. All 100 billion tokens were created at launch, with a portion held in escrow by Ripple for gradual release.
Is Ripple the same as XRP?
No, Ripple is the company that developed the XRP Ledger and various payment solutions. XRP is the independent digital currency used within the Ripple network.
Why do some people consider XRP centralized?
Because Ripple recommends a Unique Node List (UNL) of validators and maintains significant influence over the network, some critics argue it is more centralized than decentralized cryptocurrencies like Bitcoin.
What happens to burned XRP tokens?
Transaction fees paid in XRP are permanently destroyed, reducing the total supply over time and providing built-in deflationary pressure.