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What Is Ripple?

Ripple is a technology that acts as both a cryptocurrency and a digital payment network for financial transactions. It was first released in 2012 and was co-founded by Chris Larsen and Jed McCaleb. Ripple's main process is a payment settlement asset exchange and remittance system, similar to the SWIFT system for international money and security transfers, which is used by banks and financial middlemen dealing across currencies.

The token used for the cryptocurrency is premined and utilizes the ticker symbol XRP. Ripple is the name of the company and the network, and XRP is the cryptocurrency token. The purpose of XRP is to serve as an intermediate mechanism of exchange between two currencies or networks—as a sort of temporary settlement layer denomination.

Ripple's Digital Currency XRP
The digital currency, XRP, acts as a bridge currency to other currencies. It does not discriminate between any fiat/cryptocurrency, which makes it easy for any currency to be exchanged for another. Each currency on the ecosystem has its own gateway—e.g., CADBluzelle, BTCbitstamp, and USDsnapswap. If River wanted bitcoins as payment for the services rendered to Lawrence, Lawrence does not necessarily have to be in possession of any bitcoins. He can send the payment to his gateway in Canadian dollars (CAD), and River can receive bitcoins from his gateway. One gateway is not needed to initiate a complete transaction; multiple gateways can be used, forming a chain of trust rippling across the users.

Holding balances with a gateway exposes the user to counterparty risk, a risk that is also present in the traditional banking system. If the gateway does not honor its liability, the user could lose the value of their money held at that gateway. Users that don’t trust a gateway can, therefore, transact with a trusted gateway that in turn deals with the "untrusted" gateway. This way the IOU will be transacted through the trusted, or creditworthy-certified, gateway. Counterparty risk does not apply to bitcoins (and most altcoins) since a user’s bitcoin is not another user’s IOU or liability.

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Category
Cryptocurrencies
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