First released in 2012 by its co-founders Chris Larsen and Jed McCaleb, Ripple is a prominent technology because it is both a digital payment network and a cryptocurrency. Ripple is a renowned payment settlement asset exchange and remittance system equivalent to the SWIFT system used by banks and financial institutions for international money and security transfers. But, if you are wondering how does Ripple work, you’ve come to the right place.
Let’s get on with some of the most important aspects of Ripple cryptocurrency.
Connecting your Ripple Address to ZenLedger For Your Crypto Tax Forms
- To import your Ripple transactions into ZenLedger for your crypto tax forms, all we need is your public address.
- Select the proper blockchain or wallet from the dropdown list.
- Paste your address into the address field in ZenLedger.
- Select if the wallet is based in the USA or not.
- Then hit ADD COIN button
How Does Ripple Work?
Ripple runs on an open-source, peer-to-peer decentralized platform. The network seamlessly transfers any currency whether it is dollars, euros, yen, or even cryptocurrencies. The Ripple network neither runs with a proof-of-work (PoW) system like Bitcoin nor with the proof-of-stake (PoS) system like Cardano. The transactions on the Ripple network are based on a consensus protocol to verify transactions and balances on the system. The consensus prevents double-spending and improves the integrity of the system.
Ripple’s infrastructure is designed for faster transactions, which is convenient for banks, and hence it is popular among large financial institutions.
- RippleNet, Ripple’s blockchain system offers numerous programs to businesses and financial institutions that facilitate cross-border payments. These programs include xCurrent, a payment clearing system ideal for banks.
- Another program is xRapid that minimizes the liquidity costs using XRP, Ripple’s digital asset as a link between one fiat currency to another. This program is ideal for financial institutions.
- The third program is xVia that uses RippleNet and is perfect for businesses to send payments.
If a Ripple user wants to send $100 using Ripple’s multiple gateways, their first transaction will be deleted. How? The individual distributed nodes will unanimously decide which transaction took place first and within five seconds, the user will get the confirmation. In the absence of a central authority to adjudicate node setup and confirm transactions, Ripple is truly a decentralized platform.
Ripple tracks all the IOUs (tokens on the Ripple network that can be stored on a Ripple wallet) in a specific currency for any gateway or user. Moreover, all the IOU transactions and credits that take place among Ripple wallets are available publicly on Ripple’s consensus leader. But there’s a caveat. Even though the financial transactions are publicly recorded and are not linked to an ID or an account of any business or individual, the information is susceptible to de-anonymization, also known as data re-identification.
Ripple has drastically improved on the transactions of traditional banks. Using the Ripple network, transactions are settled in seconds contrary to days and possibly weeks to finish a wire transfer. The transaction charges are also minimal on the Ripple network. A standard transaction usually costs around 0.00001 XRP whereas banks charge a large fee for cross-border payments.
Ripple As a Digital Hawala Network
To understand how does Ripple work as a digital hawala network, let’s consider an example. Two parties use the middlemen of their choice for money transfers. Here, Ripple will be used as a digital hawala service. A hawala service means an unofficial way of transferring money, without money moving physically and it is a usually cross-border transaction.
Say Richard needs to send $100 to Bruce, who resides in a different city. Richard gives the funds to Alfred, Richard’s local agent. However, for Bruce to receive the funds, he must provide the right password. This password is provided by Richard to Alfred. Now, Alfred informs Bruce’s agent, Ming, about details of the transaction such as funds to be reimbursed, the recipient, and the password. Only if Bruce provides the right password to Ming, she gives him the $100.
However, Ming pays this money from her account. This means that Alfred has to pay Ming $100. Alfred can either pay Ming or make a counter transaction balancing the debt. This is, however, oversimplifying the complexity of Ripple. But it shows the basics of how does Ripple work as a digital hawala system.
Ripple uses a gateway that acts as a link in the trust chain connecting two parties willing to make a transaction. The gateway becomes a credit intermediary that sends and receives currencies via public address over the network. Any individual or a business can use the network to open a gateway and after authorization, the registrant can become an intermediary for swapping currencies.
How To Buy Ripple (XRP)?
Even though XRP is available on many crypto exchanges such as Binance, Kraken, Bitstamp, and more, Coinbase has become the go-to place for investors to buy XRP. Crypto traders prefer Coinbase as it is highly secure. Here are the steps to buy XRP:
- Create an account with Coinbase or other crypto exchanges. The majority of exchanges are simple, fast, and secure.
- Finish your KYC with a government-issued ID.
- Deposit funds in your crypto exchange account using your debit or credit card.
- Buy XRP with those funds.
Ripple has revolutionized how banks transfer their funds and manage transactions. As a blockchain-based digital payment network, Ripple uses its cryptocurrency, XRP. However, Ripple cryptocurrency is not mineable as it utilizes a consensus mechanism through a group of bank-owned servers that validate the transactions. Lastly, Ripple is one of the most valuable blockchain-based tokens based on its market capitalization.