What is XRP Currency? Is XRP, like Bitcoin and Ethereum, a blockchain-based digital currency? Is XRP the same as Ripple? For fans of digital currencies, or in the broader sense of decentralization fans, the names Ripple and XRP have always been sensitive. Some see Ripple as exactly the opposite of Bitcoin’s goals and aspirations, while others see it as a way for banks and financial institutions to enter the realm of digital currencies.
As in the article “What is Ripple?” While bitcoin has been created with the goal of realizing peer-to-peer transactions and eliminating intermediaries and banks, Rapil believes that banks are not bad in themselves and that it is only the way they do things that causes payment and money transfer problems.
In this article with the help an essay From the Quin Desk website, we explain what XRP is and how it differs from Ripple.
Ripple dates back to 2004, when bitcoin did not yet exist. The company also launched the XRP project much earlier than many other digital currencies in 2012. In recent years, however, Ripple has reduced its focus on XRP and shifted its focus to its international payment network. Ripple International Payment Network is a collection of financial products for international money transfers whose main customers are banks and financial institutions.
Now, in the last days of 2020, when Bitcoin and other digital currencies are breaking historical records, Ripple has faced an official complaint from the US Securities and Exchange Commission. According to court documents, Ripple is accused of raising $ 1.3 billion in capital by selling unregistered securities as digital assets. As of this writing, the price of XRP has fallen by more than 60 percent in two weeks as a result.
Such an event, regardless of the impact it will have on the future of XRP and Ripple digital currency, has raised new concerns for the digital currency community. Concerns such as whether legislators are razor-sharp against bitcoin and other decentralized digital currencies?
To answer this question, we must first understand how XRP digital currency works, how it relates to Ripple, and its similarities and differences with Bitcoin. In this article, we have tried to answer all these questions briefly.
How does Ripple work?
When we talk about bitcoin and Ethereum, we usually mean a blockchain network with a dedicated digital currency; But this is not our definition of Ripple. Ripple is, in fact, a large American company founded with the goal of creating an international payment network for banks and financial institutions. Ripple initially used XRP digital currency as the main fuel for its international payment technology, but later changed its approach and focused on developing three different products to achieve cheap and fast international payments:
- XCurrent: XCarnet is a platform that facilitates overseas payments to banks and financial institutions by utilizing a distributed head office called Interledger. The main purpose of X-Carnet is to enable instant payments and transactions with all currencies, not just digital currencies. By providing sufficient liquidity from a variety of currencies and creating a decentralized financial messenger, XCarnet allows banks to interact financially with each other without worry.
- XRapid: Xerpid is a platform for solving the liquidity problem in interbank transactions that uses XRP digital currency directly. The platform converts Fiat money into XRP and, once transferred, converts it into the money needed at the destination bank. In this way, the source bank will not need to use an intermediary bank or liquidity provider to communicate with the destination bank.
- XVia: Xvia is a user interface designed to be easier to use than X-Carnet and XerPaid, and allows you to communicate between different Ripple products in a simple way.
In late 2019, X-Carnet, Experpid, and Xvia merged to be renamed RippleNet. Replant is an international payment network that focuses on fast financial transfers between financial institutions.
By creating this payment network, Ripple intends to solve the problem of international money exchanges in the world forever. More than $ 155 trillion is smuggled across the globe each year. The problems of money transfers by banks and financial institutions have remained unsolved for years, and due to the growth of technology, the international transfer of large sums of money still takes between 3 and 7 days, which requires very high fees and time-consuming administrative work.
In addition to Replant, Ripple also oversees the XRP or “XRP Ledger” office. XRP is a blockchain-like network that records and manages XRP digital currency transactions. XRP, like all other digital currencies, is stored in digital currency wallets and transmitted through these wallets.
In 2012, when XRP was launched, Ripple introduced it as a faster and cheaper alternative to Bitcoin, as its transactions took only a few seconds. Of course, achieving this speed was not surprising, as the XRP network is a centralized network and does not use proof of work (extraction – consensus algorithm used in the Bitcoin network to process transactions).
So keep in mind that Ripple is a company that has introduced a digital currency called XRP to increase the efficiency of its products. This digital currency is concentrated, according to many experts.
What is the Ripple Unique Node List (UNL)?
One of the main components of the XRP network is the list of trusted participants in the network, or more precisely, the Unique Node List (UNL).
The UNL is a committee of network validators (such as bitcoin network miners) who, under the management of the XRP General Office, simultaneously act as miners and miners in the XRP network.
These validators reach a consensus every 3 to 5 seconds and publish a new version of the XRP General Ledger containing the latest verified transactions.
Although anyone can become a validator by running XRP code, this does not mean that network validators trust each other unnecessarily. To gain this trust, they must create a list of unique nodes (UNL); A list of valid credentials selected and organized by Ripple.
There are currently 35 validators in the XRP network that verify transactions, 6 of which are owned by Ripple itself.
Ripple also provides a software platform called RippleX for developers and businesses to build their applications on XRP. This platform includes tools and programs for interacting with XRP General Office. It is also possible to build applications on PayID and Intelger, two separate XRP protocols in RippleX.
What is the difference between Replant and XRP?
The performance of the Ripple-based organization network (Replant) is not dependent on the XRP digital currency. According to a report on Ripple’s website, banking customers (from Mexican Bank Santander to PNC Financial Services in the United States) have used Replant’s “China-centric banking blockchain” system to settle remittance and currency exchange accounts.
The company claims to provide services to six continents and the total value of financial transactions made by Replant reaches half a billion dollars. The service currently covers more than 55 countries and supports 120 national currency pairs.
The on-Demand Liquidity service, formerly known as Xerpid, is the only replicate feature that uses XRP digital currency. The service is currently available in Australia, the Eurozone, the United States, Mexico and the Philippines.
So keep in mind that Ripple XRP has no use in most services.
Compare XRP with Bitcoin
Unlike Bitcoin, XRP coins cannot be mined, but Ripple produced the entire XRP inventory at the beginning of the network. At scheduled intervals, the company withdraws parts of it from its trust account and sells them on the open market. At the time of writing, of the 100 billion coins available, more than 45 billion XRP are in circulation.
XRP is designed to sacrifice decentralization for speed. Because Ripple does not use a bitcoin consensus mechanism, the security of this network is significantly lower, but on the other hand, the processing speed of transactions in this network is very high, because the management of UNL credentials is very central. So these validators can quickly reach consensus and share data.
Because the mining mechanism has no role in the XRP transaction verification process, its transaction speed is very high. Instead of miners competing for block rewards and recording transactions in their general ledger during the process, validators validate and validate transactions without promising rewards (and only by earning transaction fees). Ripple chooses these credentials as its trusted credentials, and because of the special design of XRP, the existence of these credentials is essential to prevent recurrence (an attack in which a saboteur spends a digital asset two or more times). In addition, we need to keep in mind that the way this trust-based model works is not so unlike the performance of credit cards or other digital payment networks.
Ultimately, XRP centralization makes it a permissive network that is less resistant to censorship and change than open source blockchains (such as Bitcoin and Ethereum). Anyone can set up a node and participate in a network consensus by running bitcoin software. But only nodes approved by Ripple (UNL member nodes) are allowed to participate in the XRP consensus. Similarly, XRP credentials could potentially collude with each other to censor a transaction. However, the Bitcoin proof-of-work system makes it virtually impossible to collude nodes to censor transactions.
If we want to express the differences between XRP and Bitcoin in the simplest possible way, something like comparing a “Company” and one “Economy” will be. Ripple controls XRP supply at a predetermined rate, and a Ripple-approved stakeholder committee also validates network transactions. While the supply of bitcoin is done through the process of extraction (or mining) at a predetermined rate (by mathematical algorithms), the global and decentralized mining industry also processes network transactions.
Is a similar future waiting for other digital currencies?
As we have said, the supply and management of XRP digital currency is highly dependent on Ripple, and this dependence inevitably raises a lot of sensitivities among legislators.
If digital currency is considered a security, it may experience similar problems to Ripple. Whether or not a digital currency is a security will be the responsibility of a country’s financial regulator. In the United States, for example, the Securities and Exchange Commission (SEC) is the financial markets law enforcement body and has recognized that XRP is a security based on Ripple policies. Of course, this claim must be proven in court.
Therefore, it can be said that if the digital currency is affiliated with a company or official business, there is an expectation of profit in it and the policies of that company can affect the future of that digital currency, it may be in trouble like XRP. Accordingly, it can be assumed that in the future a large number of digital currencies, due to the type of business and their economic program, will be exposed to similar legal measures.
Also read: Get acquainted with different types of tokens
However, this is not the case with many digital currencies on the market. Bitcoin and Ethereum, for example, are among the digital currencies that will be safe from restrictive legal action because of their decentralized supply and management and lack of dependence on a secondary business (unlike Ripple). It is interesting to note that the Securities and Exchange Commission has also made its views on Bitcoin and Ethereum clear, excluding them from securities laws and investment instruments.