What Is XRP?
XRP, the native cryptocurrency of the XRP Ledger, is an open-source blockchain designed to improve global financial transactions. Created in 2012 by key developers, XRP enhances currency exchanges and offers a cost-effective, fast, and less energy-intensive alternative to Bitcoin. While Ripple, a blockchain services company, uses XRP in its payment solutions, it doesn't own the cryptocurrency. XRP is pre-mined with a total supply of 100 billion tokens, making it unique compared to other cryptocurrencies.
KEY TAKEAWAYS
XRP is the native cryptocurrency of the XRP Ledger, an open-source blockchain designed for fast and efficient global financial transactions.
Unlike most cryptocurrencies that operate on a proof-of-work system, XRP uses a unique consensus protocol to validate transactions, making it faster and less energy-intensive.
XRP was pre-mined with a total supply of 100 billion tokens, distinguishing it from Bitcoin and similar cryptocurrencies.
Ripple, a company associated with XRP, utilizes the cryptocurrency for facilitating transactions but does not own the XRP Ledger or the XRP cryptocurrency.
XRP's transaction mechanism involves burning a small amount of the token, contributing to its deflationary nature.
IMPORTANT
People often associate Ripple with owning XRP and XRP Ledger. However, Ripple does not own them but runs six unique nodes on the XRPL network.1
The Origin and Evolution of XRP
In 2011, Jed McCaleb, David Schwartz, and Arthur Britto began developing the XRP Ledger to address Bitcoin's limitations. In 2012, when the XRP Ledger was launched, its native token, XRP, was created to aid its function. The three developers released XRP and XRP Ledger in 2012, and were joined shortly after by Chris Larsen, and the Opencoin company was formed.
The XRP Ledger aimed to provide faster, easier, and more secure global transactions like Bitcoin's creator Satoshi Nakamoto envisioned. However, it has been marketed more to businesses, though anyone can use it.
Ripple was the name of the original open-source project, which included XRP (at the time called "ripples"), the Ripple Consensus Ledger, the Ripple Transaction Protocol, and the Ripple Network.Opencoin, which later rebranded to Ripple Labs, developed the XRP Ledger and continues to support this open-source project.
In 2020, the XRP Ledger Foundation launched with funding from Ripple and other companies to further develop the XRP Ledger.2
Understanding the XRP Ledger and Its Cryptocurrency
Many call XRP "Ripple," but it's an independent, open-source cryptocurrency used by Ripple in its solutions due to its fast and efficient delivery. Ripple is a crypto services and tech company.
XRP operates on its decentralized, open-source blockchain, the XRP Ledger (XRPL). Unlike most cryptocurrencies, XRP is pre-mined, with a maximum token supply of 100 billion. The token’s total supply was/are distributed in three ways:
First, 80 billion XRP tokens were allocated to Ripple (the company). To ensure a stable supply of XRP, 55 billion XRP were locked in an escrow account.
Then, Ripple co-founders and the core team received the remaining 20 billion XRP.
The escrowed XRP was to be released at 1 billion per month over 55 months.3
The initial idea behind XRP was straightforward: it was described as a peer-to-peer trust network. XRPL and Ripple claim XRP processes transactions in seconds, is cheaper, and uses less energy than other cryptocurrencies.
Comparing XRP and Bitcoin: Key Differences
While XRP and BTC have some similarities, they differ in several key ways.
Consensus Mechanisms
XRP uses a special consensus mechanism that relies on trusted validators or a Unique Node List (UNL) to decide which transactions to include in the next ledger. For transactions to become valid, most trusted validators need to agree. On the other hand, Bitcoin relies on miners to solve complex mathematical problems—using proof of work—in validating transactions.
Cheaper, Faster, and Energy Efficient
XRP’s unique consensus mechanism (XRPL Consensus, also called Federated Consensus) allows it to authenticate transactions faster and cheaper. This process consumes far less energy. It’s the opposite for bitcoin and most cryptocurrencies, whose mining processes cause transaction confirmations to take longer and cost far more.5
Scalability of XRP
The XRP ledger can handle up to 1,500 transactions per second. With Payment Channels, it may scale to tens of thousands per second. Payment Channels are opened between transacting parties. The XRP is flagged by the blockchain so that it isn't spent again, and the parties can send and receive payments while the channel is open. The payments are settled in bulk when the channel is closed. This lets thousands of transactions settle together without overloading the blockchain's consensus system.
Is XRP Coin a Good Investment?
Consider your views on the market and consult a financial advisor familiar with cryptocurrencies to determine if XRP fits your investment goals.
How Safe Is It to Invest in XRP?
All cryptocurrency prices are volatile, and there is a significant risk of loss. Discuss XRP with a financial advisor to understand its potential impact on your portfolio and its investment safety.
Why Is XRP So Important?
XRP is really no different than many other cryptocurrencies. It is the native token of a blockchain that operates like several others. Its position in the market is a function of investor belief and hope, and how much they are willing to buy and sell it for.
The Bottom Line
XRP, a native token of the XRP Ledger, holds a significant position in the cryptocurrency market due to its efficiency and cost-effectiveness compared to Bitcoin. This digital asset is frequently utilized for global transactions by financial institutions on the Ripple network, benefiting from its fast processing and low transaction costs. However, investing in XRP, much like any cryptocurrency, carries substantial risks due to its price volatility. Investors should carefully assess their risk tolerance and consult with financial advisors before proceeding, ensuring they do not commit more funds than they are prepared to lose.
