XRP – the crypto standard for banks

The broad idea behind cryptocurrencies like Bitcoin (BTC) was to give ordinary people greater freedom from financial institutions—in effect, becoming “one’s own bank”. But that didn’t mean that the banks themselves couldn't see the advantages of integrating blockchain technology for improving their own services and making their transactions more efficient and secure.

This is the principle behind Ripple Payments, a payment network built on top of a blockchain ledger that uses its own cryptocurrency to facilitate money transfers from anywhere in the world. 

Ripple is a San Francisco-based company that envisioned its blockchain network to function similarly to the SWIFT system. SWIFT stands for “Society for Worldwide Interbank Financial Telecommunication” and is the primary network that the financial world heavily relies on for connecting banks worldwide. 

But with blockchain integration, Ripple is able to provide a number of significant advantages to the banks who use its payment solution, as well as address many concurrent issues with traditional bank transfers:

Faster and cheaper - Traditional international money wire transfers often take at least a few hours to a few days and can incur fees as funds usually go through more than one financial institution. XRPL transactions, on the other hand, take an average of three to five seconds to process and cost an average of $0.0002.

All-day access - Blockchain services are available 24 hours a day, seven days a week, as compared to traditional banking services, which follow regular business hours and are often not available on weekends or holidays. 

Better liquidity - The XRP token and the XRP Ledger were designed to be a “fiat bridge” and does not discriminate against any fiat currency. It can also pay out in the preferred currency of the parties involved in the transaction. In fact, this is the reason for its name–as the network allows for payments “to ripple” across multiple currencies.

Sending funds using XRP also has a number of advantages over other blockchain networks:

Scalability - Compared to legacy blockchains that experience frequent network congestion, XRPL operates at a much higher level, able to process around 3,400 transactions per second (TPS). 

Unique Consensus Protocol - The XRP Ledger does not use a Proof-of-Work (PoW) or Proof-of-Stake (PoS) consensus system as most other blockchains, relying instead on its own unique protocol with its own self-incentivized community of validators.

Sustainability - Because it is a “mining-free” blockchain, the XRP Ledger is claimed to be 61,000x more energy-efficient than PoW blockchains such as Bitcoin.

In lieu of a PoW or PoS consensus protocol which relies on incentivizing network validators with mining or staking rewards to maintain the system, XRPL’s network validators consist of organizations and entities that find value in the use of the network itself. In short, no network rewards are given for participating as a validator. 

Though this setup might not make much sense to a Bitcoin miner, being a validator and at the same time, building on the XRP network would be ideal for institutions or companies who themselves need the infrastructure to process all their outgoing transactions. At the same time, it is argued that an incentive-less network provides greater decentralization, since it avoids having network influence concentrated in the hands of large-scale mining operations, or in the hands of “whales” when it comes to PoS blockchains.  

To date, XRP network consists of over 100 validators across the globe, with more institutions waiting to be added.

Ripple and Stellar (XLM) are often compared as they are both cryptocurrency solutions that were designed for international cross-border transactions. Both networks in fact, share the same founder, Jed McCaleb. Ripple was founded in 2012, and Stellar in 2014. 

The main difference, however, is with the target users for each platform. Ripple was intended specifically for use by banks, and thus its protocol was kept closed-sourced for greater control and security. Accordingly, Ripple’s main vision is to improve the banking system–and not replace it entirely.  

Stellar, on the other hand, was designed more for the convenience of the average user, and its protocol was kept open-source to allow greater community participation in its implementation. 

XRP has a maximum supply of 100 billion tokens, all of which were already “pre-mined” upon launch. Its supply, however, is mostly held in reserve in escrow, and only 1 billion tokens are added to circulation each month. Furthermore, excess tokens are sent back into escrow at the end of the month to limit the supply and keep the token price more manageable and predictable. XRP is also burned with each transaction, making the supply deflationary.

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