What is XRP? Beginner’s Guide
Launching in 2013, XRP aims to complement traditional payments, migrating transactions that occur today between databases controlled by financial institutions to a more open infrastructure.
One of the more ambitious cryptocurrencies to go live in the wake of bitcoin, XRP is notable for a design that sparked continuing discussion about how blockchains can be architected and the use cases they should attempt to address.
That’s because the XRP Ledger introduced a new way of operating a blockchain’s transaction and records system, one proponents argue makes it more suitable for regulated entities that must follow strict laws on money transmission.
Unlike Bitcoin, which allows anyone to contribute computing power to validate transactions and secure the software, the XRP Ledger grants this power only to approved participants.
Because nodes do not earn XRP for maintaining a correct version of the ledger’s history, all 100 billion XRP in existence were created and distributed to individuals and companies (as well as the general public) at launch through gifts and online giveaways.
If these design decisions continue to cause debate, so too do parts of the project’s go-to-market strategy, which relied on the creation of a for-profit company, as opposed to a non-profit (a model that would later become the norm).
The company, called Ripple, now acts as principal steward in the funding and development of the XRP Ledger and plays an outsized role in its development and digital economy.
Who created XRP?
Unlike other cryptocurrencies, XRP does not have a single prominent creator or founding figure.
Yet, there are a number of individuals who have been involved in jumpstarting its technology and associated business entities.
This includes the founders of OpenCoin (now Ripple), technologist Jed McCaleb (who founded Mt Gox, the first successful bitcoin exchange, and Stellar, the software that powers the XLM cryptocurrency) and Chris Larsen, founder of the fintech companies E-LOAN and Prosper.
McCaleb is credited with coming up with the XRP Ledger’s novel technical design.
Other notable contributors to XRP’s technology, include:
- Stefan Thomas, a contributor to the Bitcoin Core software and former CTO of Ripple
- David Schwartz, co-author of the original Ripple white paper and current Ripple CTO
- Arthur Britto, co-author of the original Ripple white paper.
How does the XRP ledger work?
The XRP Ledger was not a fork of the Bitcoin (BTC) blockchain, meaning it did not use its code. However, it did draw on a number of aspects of Bitcoin’s design.
Like Bitcoin, the XRP Ledger allows users to send and receive cryptocurrency using public- and private-key cryptography. Transfers between addresses require digital signatures.
The XRP Ledger, however, does not use mining or require specialized computing hardware to secure its ledger and validate transactions. Rather, the XRP Ledger enables servers to send transactions for consideration by its network.
Only transactions validated by “unique nodes,” permissioned servers that maintain a “unique node list,” can create consensus on the network as to which transactions are valid.
Using this more trusted design, XRP nodes can quickly validate transactions, provided at least 80% of participants deem them to be valid according to software rules.
Why does XRP have value?
The XRP Ledger’s software maintains a limit on the amount of its cryptocurrency that can ever be created, capping this total at 100 billion XRP.
Of this supply, Ripple initially gave away 55 billion to users on forums through giveaways. The remaining XRP was to be escrowed by the company to fund its technology development.
While the XRP Ledger does not require “transaction fees,” it does mandate that a small amount of XRP be put up by the sender to be destroyed and deducted from the total supply.
Still, this doesn’t put a large upward force on price activity. According to the XRP website: “At the current rate of destruction, it would take at least 70,000 years to destroy all XRP.”
Public announcements aside, there remain allegations that available data providers do not have a clear record of XRP’s supply nor clear insight into how its market functions.
Prompting debate is that Ripple acts as a principal market maker for the XRP economy, selling the cryptocurrency to help pay the costs of maintaining the XRP Ledger’s technology.
Since 2017, Ripple has locked away some funds in an XRP Ledger-based escrow system, where they are released on a monthly basis.
Why use XRP?
Banks and financial institutions have so far tested both Ripple’s technology and the XRP Ledger primarily as alternatives for cross-currency and international payments, areas where frictions between intermediaries remain high.The most notable Ripple customer is now MoneyGram, which began using RippleNet in 2019.
This progress with financial institutions has led to speculation that the XRP Ledger could come to serve as a kind of distributed alternative to SWIFT, the financial messaging platform used by banks for money transfer and messaging.
Investors continue to show interest in XRP and its ambitious roadmap, viewing it as a hedge should it turn out regulated financial entities do not or cannot use bitcoin or other cryptocurrencies in traditional payments or to improve back-end money transfer.
A number of internet users have also turned to XRP for small consumer payments in consumer use cases like tipping.