If you've looked at the cryptocurrency market cap rankings in recent years, you'll notice that many newcomers break into the top ten, but very few manage to stay there consistently. XRP is one of those exceptions.
Most people's impression of XRP might be limited to "top three by market cap" and "cross-border payments," without truly understanding its background. Bitcoin has Satoshi Nakamoto, Ethereum has Vitalik Buterin, EOS has Dan Larimer (BM), and Litecoin has Charlie Lee. But when it comes to XRP's founders, many haven't even heard of them, and news coverage about Ripple is relatively scarce.
Why can such a "low-key" cryptocurrency, which even many industry insiders don't fully understand, consistently rank in the top ten? What problems does it actually solve? Let's dive in.
What Are Ripple and XRP?
Every cryptocurrency has its mission: Bitcoin aims to be a "peer-to-peer electronic cash system," replacing banks and trusted intermediaries; Ethereum strives to be a decentralized platform for running smart contracts; EOS targets high-performance, commercially scalable underlying public chains; and Litecoin focuses on being a tool for small payments.
The mission of XRP is to provide users with a smooth global payment experience.
When it comes to global payments, cross-border transactions often involve cumbersome procedures, slow transfer speeds, and high fees. The most commonly used system for cross-border payments is the SWIFT banking settlement system, introduced in 1974. The SWIFT system provides secure, reliable, fast, standardized, and automated communication services for traditional bank settlements, greatly improving settlement speed.
However, with the rapid development of the times, the 3–5 business day processing time, high fees, and the various documentation and lengthy审核 processes involved in cross-border payments have made the SWIFT system unable to meet the needs of modern businesses and individuals.
In 2012, Chris Larsen and Jed McCaleb co-founded OpenCoin and launched the Ripple project. They aimed to make XRP the "intermediate bridge currency" for financial institutions to solve global cross-border payments, thereby building a global payment network with faster transfers and lower costs.
To enable a faster payment experience, Ripple adopted a new consensus algorithm called the Ripple Consensus Algorithm, which can process over 1,500 transactions per second, with confirmation times as fast as 4 seconds. The fee per transaction is as low as 0.00001 XRP (one hundred-thousandth of an XRP, less than one cent, almost zero).
Unlike Bitcoin's Proof-of-Work (PoW) mining reward mechanism, the Ripple network has no miners, only validating nodes. All validating nodes must be approved by the company.
At launch, all 100 billion XRP were already produced. The founders retained 20 billion, while the remaining 80 billion were allocated to the company for operational sales. The company stated that retaining such a large amount of XRP was to maintain price stability and to allow for sales based on market conditions. The circulating supply mainly comes from sales by the founders and the company, which is one of the ways the company generates profit.
This is why many criticize XRP for being highly centralized, with the company controlling a significant portion of the supply.
Since Ripple's primary goal is to build a cross-border payment network rather than challenge the existing fiat currency system, many banks, financial institutions, and government agencies are willing to participate in the Ripple network to better address their cross-border payment needs.
As the world's first open payment network, Ripple has attracted significant attention and praise for its simplicity, fast transfers, and low fees. In 2014, OpenCoin was named one of the "50 Smartest Companies" by MIT Technology Review for "inventing its own digital currency to conduct cross-border transactions at lower costs, especially helping people in impoverished areas participate in global trade."
In 2015, OpenCoin officially changed its name to Ripple Labs to better operate and promote Ripple.
XRP and Ripple Labs
Due to the company's name change to Ripple Labs and the intentional or unintentional bundling of XRP with Ripple Labs during marketing, many people mistakenly believe that XRP is the most important product of Ripple Labs. However, this is not the case. XRP is only a very small part of the comprehensive payment products offered by Ripple Labs.
Ripple Labs primarily offers three products: xCurrent, xRapid, and xVia. Among these, xCurrent enables faster, more transparent, and more efficient messaging and settlement between banks; xRapid primarily provides liquidity, reducing fees through XRP as the "intermediate bridge currency"; and xVia is a payment interface designed to make the user experience of xCurrent and xRapid more intuitive. In simple terms, xCurrent makes cross-border transactions and settlements faster for traditional banks, while xRapid makes fees lower.
XRP is only a small part of the xRapid product within Ripple's three offerings. xCurrent and xVia do not use XRP. Through xCurrent, banks in two different countries can directly exchange and settle two different fiat currencies without needing xRapid or XRP as an intermediate bridge. Currently, most of Ripple's users (primarily banks and financial institutions) mainly use xCurrent rather than xRapid, meaning they don't need to use XRP.
According to the official website, xRapid is suitable for payment service providers and other financial institutions that want to improve the customer experience with the lowest liquidity costs. Since payments to emerging markets often require pre-funded local currency accounts, liquidity costs are usually high, and xRapid reduces the capital requirements for liquidity.
As we can see, XRP's use cases are relatively limited.
Another source of value for XRP comes from the burning of transaction fees. Using the Ripple network requires paying a certain fee (minimum 0.00001 XRP per transaction). These fees are not rewarded to the nodes validating the transactions or returned to the system account but are directly burned. Therefore, the more people using the Ripple network for transactions, the more XRP is burned. This deflationary model aims to increase the value of XRP.
In summary, XRP is only a very small part of the comprehensive payment products offered by Ripple Labs, with relatively limited use cases and value sources.
Competitors of XRP
Although XRP has consistently ranked in the top ten of the cryptocurrency market cap rankings in recent years, it does not mean it can rest easy. It faces competition from multiple fronts.
The first type of competitor for XRP comes from other cryptocurrency projects also focused on cross-border payments, including Stellar (XLM), founded by Ripple co-founder Jed McCaleb.
In 2014, due to disagreements over the development strategy of the Ripple project, co-founder Jed McCaleb left Ripple Labs and started his own blockchain project, Stellar.
Stellar is a decentralized gateway that facilitates transfers between digital currencies and fiat currencies, enabling fast, reliable, and almost cost-free cross-border fund transfers. In September 2018, Stellar partnered with tech giant IBM to launch the cross-border payment network World Wire, supporting over 40 currencies and providing near-real-time international settlements for dozens of banks.
The second type of competitor for XRP is SWIFT. Although the SWIFT banking settlement system, launched in 1974, is increasingly seen as "outdated," it has a massive user base. More importantly, SWIFT has already initiated a pilot for a new blockchain-based system aimed at solving payment delays caused by errors in the system. If SWIFT successfully develops its own blockchain system in the future, Ripple's market share could face serious challenges.
The third type of competitor for XRP is traditional financial institutions like JPMorgan Chase that issue encrypted stablecoins. In February 2019, JPMorgan Chase announced it would launch JPM Coin, designed for inter-enterprise fund flows, with early applications focusing on cross-border payments and securities transactions for large corporate clients.
With the promotion and adoption of blockchain technology, it is foreseeable that more traditional financial giants will issue cryptocurrencies, encroaching on Ripple's market share.
The fourth type of competitor for XRP is social media giants like Facebook that plan to issue cryptocurrencies. If Facebook's stablecoin Libra had successfully launched, it would have had the characteristics of a global currency, easily facilitating international transfers and cross-border payments.
Besides Facebook, social giants like Japan's Line and South Korea's Kakao have also joined the行列 of issuing cryptocurrencies to provide better payment solutions within their ecosystems. For Ripple, these social giants are a force that cannot be ignored.
Conclusion
Ripple is not a highly decentralized public chain project; its operational model is more like a consortium chain. XRP is only a very small part of the comprehensive cross-border payment products offered by Ripple Labs, with relatively limited use cases and value sources.
Although Ripple's product system is relatively mature and has been implemented on a small scale, and the long-term development space for cross-border payments and interbank settlements is large, it also faces competition from multiple fronts. Regardless of the outcome of this competition, for the entire blockchain industry, Ripple has at least made many beneficial attempts.
Frequently Asked Questions
What is the main purpose of XRP?
XRP is designed to facilitate fast and low-cost cross-border payments. It acts as a bridge currency for financial institutions, enabling seamless transactions between different fiat currencies.
How does Ripple differ from Bitcoin?
Unlike Bitcoin, which aims to be a decentralized digital currency, Ripple focuses on providing payment solutions for banks and financial institutions. XRP is pre-mined, and the network uses a consensus algorithm rather than proof-of-work.
Is XRP centralized?
Yes, XRP is often criticized for its centralized nature. Ripple Labs controls a significant portion of the XRP supply, and validating nodes require approval from the company.
What are the main products offered by Ripple Labs?
Ripple Labs offers three main products: xCurrent for bank messaging and settlement, xRapid for liquidity using XRP, and xVia for a unified payment interface.
Who are the main competitors of XRP?
XRP faces competition from other cross-border payment cryptocurrencies like Stellar, traditional systems like SWIFT, and stablecoins issued by financial institutions or tech giants.
Can XRP be used without Ripple Labs?
While XRP can be traded independently, its primary utility within the Ripple ecosystem is through xRapid. However, many of Ripple's clients use xCurrent, which does not require XRP.
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