What Is Ripple?

Last updated on 11/29/2018

Ripple is a real-time gross settlement system, currency exchange and remittance network.

How Does Ripple Work?

Ripple is based on a shared public database that makes use of a consensus process between those validating servers to ensure integrity. Those validating servers can belong to anyone, from individuals to banks.

The Ripple protocol (the underlying token for which is XRP) is meant to enable the near instant and direct transfer of money between two parties. Any type of currency can be exchanged, from fiat currency to gold to airline miles. The project claims to avoid the fees and wait times of traditional banking and cryptocurrency transactions through exchanges.

It is the validating servers and consensus mechanism that tends to lead people to assume that Ripple is a blockchain-based technology. While it is consensus oriented, Ripple is not a blockchain. Ripple uses a HashTree to summarize the data into a single value that is compared across its validating servers to provide consensus.

Ripple vs. Bitcoin

Using a common ledger that is managed by a network of independently validating servers that constantly compare transaction records, Ripple doesn't rely on the energy and computing intensive proof-of-work protocol used by Bitcoin.

XRP isn't mined like bitcoin, ether, litecoin and many other cryptocurrencies. Instead, it was issued at its inception, similar in fashion to the way a company issues stocks when it incorporates: It essentially just picked a number (100 billion) and issued that many XRP coins.

Why Is Ripple Useful?

Ripple appears to be one of the most popular decentralized solutions for banks and payment providers. It is built for enterprise use and, while it can be used person-to-person, that really isn't its primary focus. The main purpose of the Ripple platform is to move lots of money around the world as rapidly as possible.

The Ripple network’s ability to move assets around the world quickly is its primary value proposition. Banks are able to use the Ripple software to shift money between different foreign currencies.