R for 'Ripple'

This article gives a heads up on Ripple, What is it, How is it helping banks, How does it work and much more.

Happy Reading :)

Ripple Background:
Ripple is a cryptocurrency designed specifically for Banks.

Ripple is NOT a blockchain. Yes, its not. It doesn’t undergo any block formation or writing transactions on blocks. It can be thought of as a long ledger that contains all the transactions that has taken place up till now in the ripple ledger . Its a permissioned DLT . Though there is something called as “ledger version” which is equivalent to a block in blockchain . A ledger version contains the full current state of all balances in the ledger. Some server which wants to be a part of ripple network can hence synchronise with the network in few minutes and needs not to download the entire transaction history.

The diagram below shows the architecture of a ledger version :

Moving forward, coming to the term “Ripple”, which is used for three different entities, in general. First is Ripple Labs which is an organisation in US , second is the Ripple Transaction Protocol that is used by Ripple Labs and third is the XRPs which is the cryptoCurrency, that we also call as Ripple in general.

Ripple Use case:
Ripple by far has only one use case : Cross Border Remittance(flow of money among banks/organisations/individuals internationally). The intent of building it was to provide a secure, better and seamless way of transferring money or anything of value internationally.

What is Ripple trying to solve?
Ripple aims to solve two huge problems in current banking system :

Increasing speed of money/asset transfer between banks/institutions globally(4 to 5 sec).
Decreasing cost involved in the international money transfer process.
The current scenario(before Ripple protocol came into the market) involved majorly using of SWIFT Protocol to transfer money from a bank in one country to another bank in some other country. It involves problems like:Low Liquidity, High Cost involved in transfer, Low Speed of transfer resulting in making the process time consuming. Also this process involves a lot of intermediaries due to which all these problems come up.

Ripple is basically trying to achieve a seamless and easy way of transferring money or anything of monetary value across financial institutions/banks in different countries.It does so by eliminating the need of intermediary parties.

How does Ripple work?
There is something called as Gateways. Now the Gateways are businesses that moves the money in and out of Ripple network. Say, you are a part of ripple network and want to make a payment, you will propose a payment in the network system. In this, you will need to specify the source and destination address as well. After proposing a payment, you will get a quote by the system which is based on public offers . You will then specify a maximum amount that you can pay to make this payment and submit it. The payment succeeds, if the payment is possible within the amount you offered or less otherwise it fails and you need to try again.

XRP or the Ripple currency acts as a bridge between different currencies. Each currency on the ecosystem has its own gateway e.g. BTCbitstamp, USDsnapswap.

For eg : Lets say there is a deal between Ram, in India and Matthew, in USA. Now Ram wants to have Rupees in return of services rendered to Matthew.Matthew does not necessarily need to have Rupees. He can send the payment to his gateway in US dollars and Ram can further receive Rupees from his gateway.

There is no restriction to the number of gateways to be used in a Ripple network, multiple gateways can be a part of network, hence establishing a chain of trust rippling across the users.

Mining in Ripple :
There is no concept of mining in Ripple. All the XRPs for Ripple have already been minted. 100 billions XRPs are minted for Ripple.No more can be added , hence there is no such reward as in case of miners.

So a node in ripple network can act as a validating node and its totally upto the participating node if it wants to act as a validator or not. There is no reward for validating a transaction like mining rewards in other blockchains but the validating nodes get a stake in future decisions of Ripple Network.

Ripple Consensus:
There’s a big difference in the way XRP Ledger achieves its consensus. It makes use of a unique consensus algorithm that does not require the time and energy of “mining” like Bitcoin and Ethereum and other such systems .

Instead of making use of “PoW” or even “PoS”, its consensus algorithm uses a system where every server/node in network has a list of “ validators” which are trusted and these trusted validators makes an efficient agreement on what all transactions happen and in what order. A transaction in Ripple ledger uses very less and infact negligible amount of electricity, and takes only 4 to 5 seconds to be confirmed.

Ripple runs of a network of nodes or servers each of which holds a ledger which is same version in all nodes. It stores information about all accounts on Ripple network. The last and most recent transaction is known as ‘Last Closed Ledger’ which stores all the recent accounts on the ripple network up to that point. Any server can bring in a transaction to the network after it is validated and this transaction is broadcasted to all active nodes or servers on the network. At this point, the network reaches consensus. At a high level, just know that it is automatically achieved by nodes of the network.

Ripple/XRP as Investment
Below is a screenshot from coinmarketcap.com that shows the history of fluctuations in the price of Ripple.

XRP was the second largest coin by market capitalization as of September 2018.

Ripple has been adopted by many banks till date, some of which are named below:

Axis Bank
Yes Bank
SBI Remit
Cambridge Global Payments
Star One Credit Union
eZforex
and there are many more .

In the world of cryptos, Ripple is surely different from others. Being the first digital currency to be embraced by financial institutions, its picking up momentum. The value of XRP is gonna rise as more and more banks will adopt Ripple.

But, Why will banks need Ripple ?

Ripple is something that provides banks not only a faster way of transferring assets globally but cost related to each transaction/payment is also slashed down for banks. Hence they save an enormous amount of money and at the same time achieves their customer satisfaction as well.

Ripple had five rounds of funding and is backed by investments from tech giants like Google Ventures, IDG Capital Partners, Andreessen Horowitz, Lightspeed Venture Partners,Accenture, Seagate , etc that provide an additional layer of financial stability and a reason to invest in XRP .

To sum it up, Ripple certainly leverages the DLT and at the same time offers many feasible reasons for its use in the real world. Its a concept that is one of its kind in the crypto market.

Hope this blog gives you a high end knowledge of Ripple. You can find a more deeper dive into technical aspects of Ripple in my next blog.

Thanks !