XRP is a Centralized Virtual Currency

Ripple is, at its core, a payment network with a virtual currency XRP used in that network, operated by Ripple Labs. According to its measured market cap, XRP is the second largest virtual currency after Bitcoin, just before Ethereum. XRP has also seen quite a rise during past, taking the second place of cryptocurrencies in just few years. After several requests from our customers we have added XRP available for trading in Coinmotion.

When speaking of Ripple and XRP the terms can sometimes be confusing. Ripple refers usually to the payment network and XRP to the virtual currency. Sometimes the name Ripple can also be used to refer to the virtual currency, which is fairly common for example in news articles. In this article we refer to the virtual currency with the term XRP and to the payment network with Ripple.

Ripple Tries to Simplify Trades

The basic idea behind Ripple’s’ payment network is to act as an intermediate between any trades. In theory one could use it to exchange a trading card for a car provided, if there were be people in the Ripple network willing to make the exchange.

Let’s for an example say that Tero from Finland, Ahmed from Iraq and John from USA were all using Ripple network. Tero would want to exchange his valuable trading card for a car. Ahmed wants a trading card, but he doesn’t have a car. But he has oil. John on the other hand has a car, but doesn’t require some trading card, for he is not that interested in collectibles. What John wants is oil!

By using Ripple Tero could exchange his trading card for John’s car. Ripple network would automatically connect all traders to each other with most optimized way possible, reducing the market friction. Everyone would get what they want.

Of course this is a simplified version, but it exemplifies the basic idea of Ripple. What kind of trades would actually be possible within Ripple network depends about the users of the network, mainly the bigger institutions like companies and banks.

Ripple has shown potential for global adaptation by established financial institutions and companies. The companies are interested on using Ripple to faciliate the financial transactions between them.

But this is all in theory: Even though hundreds of companies have stated in one way or another of being interested in Ripple, only little actual use is done and most companies and institutions are still just looking on to the subject.

XRP is a virtual currency, but not a cryptocurrency by its strict definition.

XRP is Not a Cryptocurrency

What one needs to know about XRP is that it is not cryptocurrency in the strict meaning of the word. It shares many attributes with actual cryptocurrencies: it is based on open source code and it can be traded peer-to-peer like bitcoin.

What differentiates XRP from cryptocurrencies is that it is not based on blockchain, it is not mined and it is heavily centralized. Ripple network is a suite of different applications by Ripple Labs. XRP, is the currency of Ripple network, which the apps use.

Ripple doesn’t use blockchain in the traditional sense to secure transactions. Instead all the transactions are confirmed and secured in a method known as HashTree, which is patented by Ripple Labs. In HashTree all the transactions and balances are combined to a single number, which servers compare to each other to reach consensus. This kind of system is faster than blockchain, but far more centralized.

XRP isn’t mined like typical cryptocurrencies. All 100 billion XRP coins have already been created. Ripple plans to release about half of them on to the markets while keeping the other half. Currently there are about 39% of XRP in the open markets, while 61% are kept by Ripple Labs.

When ever XRP are transfered in the Ripple network, $0.000001 worth of XRP is destroyed. This is meant to ensure that the network cannot be clogged down with spam transactions. It also helps to keep inflation of XRP at bay.

Invest in XRP now in Coinmotion.


The Centralization Can Be Both a Benefit and a Problem

The fact that Ripple is developed by a single company brings some risks that other cryptocurrencies don’t have to deal with. If the central organization, Ripple Labs, is compromised, it could affect the whole ecosystem. This could also happen by mistake. In a decentralized blockchain system this wouldn’t be a problem, since there are no single points of failure.

Ripple Labs has also the control on how and when to release new XRP on the markets. This is strackly in contrast to how decentralized cryptocurrencies work: with Bitcoin everybody knows and agrees on how new bitcoin are minted. With Ripple it is the monopoly of Ripple Labs to make the decisions.

Ripple is also aimed for bigger institutions, such as banks or credit companies, instead of individual users. As such it is probable that in the future development Ripple will go companies first instead of individuals first. Then again this might not be entirely bad thing. Even though Ripple is not a blockchain technology, it is a modern fintech solution. If the companies start to widely use Ripple, it could help them lower their costs and better their businesses.

As a centralized system it could also be easier to jump on than decentralized blockchain systems. Grand institutions such as large scale companies and banks are often quite conservative in adapting new systems. Centralized system might seem less intimidating than a decentralized one.

Ripple is a payment network and XRP its currency.

Ripple Isn’t Against Bitcoin

As Ripple and Bitcoin are quite different in both their ideology and technology, they aren’t really competing against each other. Where as Bitcoin is mainly intended to be an uncorruptable form of Internet money, Ripple is basically a network of applications for companies to use. Ripple could even help Bitcoin adaptation, as it could make Bitcoin and other cryptocurrencies more liquid.

Investing in XRP is more like buying a share on a company than investing in a cryptocurrency. It is entirely unsure how Ripple will develop or be adapted – even less so than with actual cryptocurrencies and blockchain. If You are interested in buying XRP, it is highly recommended to do further research on the topic.

Nonetheless since You, our dear customer, have asked for it, we have offered you the possibility to buy and sell XRP on Coinmotion.

Investing in XRP beside bitcoin diversifies investments into different kind of virtual currencies.
Writer Pessi Peura