What Is XRP?

Sep 24, 2021

Defining XRP

XRP is a cryptocurrency built with the purpose of providing rapid, cost-effective payment services across a global network. Now ranked in seventh place by market cap, XRP has a solid base thanks to its valuable use cases and partnerships with major actors in the finance world. 

XRP is the native token of the XRP Ledger and RippleNet, which uses an alternative consensus algorithm based on the Federated Byzantine Agreement (FBA). This also means that the native token is not mined by users, but was actually pre-mined (100 billion XRP) prior to its launch in 2012.

It takes only three seconds to settle transactions via the XRP Ledger (XRPL), compared to Bitcoin’s 10 minute block time or SWIFT’s several working days. The costs are also minimal, with the standard transaction fee capped at 0.00001 XRP, which, at the time of writing, is equal to 0.000007 USD. This makes the Ripple network an incredibly attractive option in reducing financial costs, especially for cross-border payments. 

The story of XRP involves the standard alphabet soup common among cryptocurrency, but with several ripples. Let’s take a closer look!


How It Works


We’ve already seen that XRPL is a decentralized and public digital ledger. Its consensus algorithm, the XRP Ledger Consensus Protocol, relies on validator nodes to process transactions. A supermajority of validator nodes must agree on the transactions in order to reach consensus; the network can tolerate up to 20% of faulty validators. 

Users choose their own set of validators - and anyone can run a validator node - though the protocol currently supplies a default list of recommended and trustworthy validators. This list is called a Unique Node List (UNL). Although Ripple claims the UNL does not imply centralization for legal reasons, it is still considerably more hands-on than other protocols. 

As a ledger with open-source code, XRPL technically does rely on Ripple to function, but Ripple does not own it. 


XRP is the native cryptocurrency running on the XRP Ledger. It is designed to facilitate difficult fiat trades by providing on-demand liquidity (ODL) and functioning as a transfer of value. XRP offers instant transacting and minimal exchange rate slippage, which means it essentially provides optimized transaction services between currencies. This includes international payments, remittances, and currency exchanges - all of which traditionally involve a series of currency conversions through various intermediary banks.

XRP has a finite supply - the 100 billion that were pre-mined during the protocol’s development. After launching, 80 billion XRP were set aside while the rest was divided among the founders.  Uncirculated supply can be introduced to the network only when the company chooses to release the tokens on the market. 

In 2017, however, Ripple locked 55 billion XRP into a series of escrows programmed to release a maximum of one billion XRP per month (for the following 55 months). This was meant to provide more transparency and predictability around Ripple’s XRP release schedule. 


Ostensibly unlike XRPL, RippleNet is part of Ripple - it is the digital payment and exchange network built on the XRP Ledger. As a payment solution for financial institutions, RippleNet has attracted a number of high profile partners. These include Santander, Standard Chartered, Accenture, Bank of America and American Express. 


A Little History

The first version of Ripple actually dates way back to 2004, when Ryan Fugger designed RipplePay - a decentralized P2P financial network. Its purpose was to provide fast and safe financial transacting across borders, at a better cost than payment networks like SWIFT. 

This was later picked up by Jed McCaleb, the founder of the Mt. Gox exchange, who wanted to transform RipplePay into a crypto network. At this point, work was already being done on the XRP Ledger and the cryptocurrency itself. McCaleb and Chris Larsen acquired RipplePay in 2012, and founded OpenCoin, later renamed as Ripple. 

At that time, the project also adopted the Ripple Gateway system. Gateways are businesses that move assets to and from the XRP Ledger. They essentially create a familiar, reliable bridge between XRPL and users. This marked shift pushed Ripple closer towards TradFi, by harnessing the traditional respectability of established financial institutions. 


Controversies and Legal Issues

Ripple has also unfortunately been embroiled in a number of controversies, ranging from issues around its centralized infrastructure and company opaqueness surrounding the XRP token, to several lawsuits, the most recent of which involves the U.S. Securities and Exchange Commission (SEC). 

We’ve seen that Ripple relies on centralized elements, like the UNL as well as the company’s large stake in XRP. Despite claiming otherwise, this gives Ripple an uncomfortably large sway over the price of the token itself. Even shadier is the company’s insistence that Ripple and XRP are separate entities, with the generous amounts of XRP reportedly being gifted to Ripple by devs. Users have also previously complained about the scheduled monthly release of XRP, which supposedly kept the token price low. 

The XRP community is a strong and resilient one, however. The lawsuits and general FUD surrounding the token, the company, and its founders have failed to dismantle XRP as one of the top-traded cryptos in the world. The community chants its mantra ‘XRP is the future!’ as often as it can to drown out the nay-sayers. And so far it has worked - Ripple has remained relatively unscathed.


On a related and more legally problematic note, Ripple has been embroiled in an ongoing lawsuit with the SEC over whether or not XRP is a security. If deemed a security, the company would be subject to stricter regulations, heavy fines, and possibly even an end to XRP sales. While this is not Ripple’s first run-in with the law - an initial lawsuit in 2015 regarding the Bank Secrecy Acts and resulting in KYC checks being introduced, and a lawsuit with blockchain company R3 - it is the most existentially concerning.

While the SEC maintains that Ripple illegally distributed unregistered digital asset securities for seven years, Ripple insists on XRP’s status as a utility token and currency. By doing so, the company draws a clear line between investors buying shares versus XRP. Moreover, Ripple criticized the SEC’s previous lack of clarity (having deemed XRP to be a currency in 2015) as well as its questionable timing. This legal feud has resulted in exchanges delisting XRP and the token value plummeting. 

This case has greater implications within the industry, as it reveals the broad misunderstandings surrounding crypto assets among arms of the government as influential as the SEC. That a regulatory body like the SEC can turn around and sue an established company has caused outrage, with even the former SEC chair deriding the commission’s move. It has been deemed an “assault on crypto at large” by Ripple.



XRP, Ripple’s native token, was built to facilitate cross-border transactions by acting as a currency bridge. This takes place on the XRP Ledger, a decentralized and open-source platform. While some critics fixate on Ripple’s relatively centralized infrastructure, this distinct hybridity is what allows it to work closely with other centralized institutions.

Despite its tenacious nature, XRP still took a hit following the SEC lawsuit (and this was before the recent drop in crypto assets). And yet, even if Ripple were banned, with over 90% of its customers located outside the US, it could always relocate its operations elsewhere. An increase in regulatory activity can also be a bullish signal of the industry’s progression into the mainstream. Ripple has been in the eye of the storm for some time now, but winning this battle could prove invaluable for the future of the crypto industry.

Featured image courtesy of BitHub.pl

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