XRP (Ripple) is a cryptocurrency token designed specifically for international remittances. Apart from stablecoins and exchange tokens, XRP has the third-largest market capitalization behind Bitcoin and Ethereum. This article aims to provide a brief introduction to XRP for beginners.
XRP is a token primarily developed by Ripple Labs Inc., a fintech (financial technology) company headquartered in San Francisco. Ripple Labs provides an international remittance network called the “XRP Network.” XRP is the token used on that network. XRP is intended to be used as a bridge currency by financial institutions when they conduct international remittance.
Traditional international remittances conducted through SWIFT require high fees and time, making them unsuitable for small-scale transfers. This is because not all financial institutions that are members of SWIFT are directly connected. In many cases, funds cannot be transferred without involving other banks, known as "correspondent banks." Transferring funds through multiple banks not only incurs fees and time delays but is also subject to exchange rate fluctuations at each bank.
Conversely, the XRP network allows financial institutions to make cross-border remittances directly to other banks using XRP. Unlike SWIFT, even if different financial institutions were not previously connected, they can still make direct transfers without the need for correspondent banks, reducing the time and cost associated with international remittances. This technology has the potential to significantly change small-scale international transfers.
XRP differs from many other tokens in that it does not use blockchain. Instead, it uses a distributed ledger technology called XRP Ledger, and adopts an approval algorithm called RPCA (Ripple Protocol Consensus Algorithm).
Bitcoin adopts a proof-of-work (PoW) approval algorithm, which requires mining for transaction approval and takes time. On the other hand, in the case of XRP, the transaction is completed as long as 80% of the transaction approvers (validators) approve it, and mining is not required. Blocks can be added to the XRP Ledger quickly, and as a result, XRP can process 1,500 transactions per second and takes only a few seconds to send. This capability is essential for XRP as it is designed for international remittances, which require the ability to handle a high transaction volume in a short time frame.
The list of XRP's transaction validators is known as the Unique Node List (UNL). Originally, UNL consisted of financial institutions selected by Ripple Labs. That approach was criticized for being too centralized and Ripple is currently replacing their chosen transaction validators with validators chosen by third parties.
The total supply of XRP is 100 billion XRP. All 100 billion XRP were issued at the time of release in 2012 and are not currently being issued.
Ripple Labs has owned more than half of the total supply until now. Having so much XRP has raised concerns among users that if Ripple Labs sells a large quantity of XRP on the market, the price will plummet. Perhaps for this reason, the company announced in its Q3 2022 market report that Ripple Labs’ XRP holdings have fallen below 50% of the total issuance number for the first time ever.
In addition, some of the XRP held by Ripple Labs is locked up (frozen) in escrow (deposited to a third party).
Because XRP is used by financial institutions for international remittances, a sharp price decline or sudden surge would pose a difficult problem. If there is a surge in demand for XRP by financial institutions or if large holders purchase a significant amount of XRP, the price could easily skyrocket. The XRP locked by Ripple Labs is used to stabilize the price of XRP. For example, during price surges, they can release more XRP into the market and lower the price.
XRP seems to be a novel and innovative token, but it currently faces legal challenges. In 2020, the U.S. Securities and Exchange Commission (SEC) deemed XRP to be a security and sued Ripple Labs executives for raising funds by selling XRP without proper registration.
Whether or not XRP is a security is an important issue not only for Ripple Labs but also for the entire cryptocurrency industry. This is because if the court recognizes that XRP is a security, it may mean that other cryptocurrencies are also securities, and the entire cryptocurrency industry would be subject to SEC regulation, severly limiting the utility of each token and project.
As of July 14, 2023, Ripple Labs and the SEC have finally reached a conclusion in their three-year-long lawsuit. The court ruled that XRP is not a security. After the announcement of the verdict, the price of XRP surged by over 15% in a short period of time, with a 24-hour increase of 92.89%. The token price has now exceeded $0.9. This victory in the lawsuit is not only significant for Ripple Labs but may also be a crucial turning point in cryptocurrency regulation, holding broader implications for the future.
Disclaimer: This information does not provide advice on investment, taxation, legal, financial, accounting, or any other related services, nor does it constitute advice to purchase, sell, or hold any assets. MEXC Learn provides information for reference purposes only and does not constitute investment advice. Please ensure you fully understand the risks involved and exercise caution when investing. The platform is not responsible for users' investment decisions.