What is Ripple?
On December 29, 2017, the price of Ripple (XRP) went up 56% and reached an all-time high for the digital currency, making it one of the biggest digital currencies by marketcap.
Side note: market cap of a currency is calculated by multiplying the total number of coins in circulation for the currency by the price of the currency coin. The significance of the market cap is that coins with a low market cap are easy to manipulate.
For example, if a coin has a market cap of just a few million dollars and a seller decides
to sell $100,000 worth of coins, the price of the coin can go down 20%, 30% or even more
because the $100,000 represents a significant percentage in terms of the total market
cap. A seller can also decide to withdraw coins from the market, making the price go up
significantly in a short period of time. Large changes in prices are also known as price
With coins that have large market caps, market manipulations are much more difficult,
which is why, if you are just starting to use cryptocurrencies, you should pay attention
to the market cap of a currency and choose coins with large market caps. To do so, you
can look at https://www.coingecko.com/en and sort coins by market cap. Some of the
coins that have large market caps are Bitcoin, Ethereum, Ripple and Litecoin.
One of the interesting things about Ripple is that it is not a true cryptocurrency. It is a
protocol that uses blockchain-technology. To understand what makes Ripple different
from Bitcoin and other popular cryptocurrencies, you first need to understand how
Benefits of Bitcoin
Satoshi Nakamoto created Bitcoin with a vision of Bitcoin becoming a peer-to-peer digital
currency. “Bitcoin: A Peer-to-Peer Electronic Cash System” was the title of the
whitepaper in which Nakamoto introduced Bitcoin to the world. You can download and
read Nakamoto’s whitepaper here: https://bitcoin.org/bitcoin.pdf Reading it will give
you a very detailed explanation about Bitcoin and the reasons for its introduction to the
world. You will also see how a whitepaper for a cryptocurrency should look like.
Side note: Whitepaper is a term for an official report. In the world of cryptocurrencies,
creators of a currency typically write a whitepaper and share it with a public before
introducing a currency to the world.
A whitepaper can have many versions. If the whitepaper has several versions, it will
have v.1., v.1.2., v.2., etc next to its title. When a whitepaper has a lot of versions, it is
a good sign because it shows that the team behind a cryptocurrency is constantly
working on improving the currency and did not just create the currency to quickly get
rich and abandon the project.
It is up to creators of the currency to write a whitepaper and choose how to structure
it. Some projects introduce new coins without writing a whitepaper, which is not a good
Some whitepapers describe the need for what they are doing and introduce the team in
detail. Others may choose not to write a lot about the team and focus on the technical
side of their project. Overall, a quality whitepaper should have all of the elements
mentioned above: a description of a problem, a description of a market, technical
explanations of how the solution works and an introduction to the team behind the
Some of the biggest benefits of Bitcoin as a currency are that Bitcoin is decentralized
and anonymous. Decentralization means that there is no bank that can suddenly decide
to print more money or to withdraw some of the money from circulation.
Why bailouts are impossible with Bitcoin
Nakamoto introduced Bitcoin to the world in 2009, right after the world financial crisis of
2008. One of the main reasons for the crisis was the subprime mortgage crisis in the
United States. The subprime crisis in the US occurred because big banks were giving
loans to people who couldn’t afford the loans based on the erroneous assumption that
the prices of real estate would always be going up. When real estate prices started going
down, banks started to lose money. The government has decided that the banks were too
big to fail and that letting them fail would bring too much destruction to the economy,
which is why the government decided to bail out the banks and insurance companies. For
example, it gave $67 billion dollars to insurance giant AIG, $45 billion to Bank of
America, $6.6 billion to Citigroup and so on. You can see the full list of bailout recipients
and how much money they have repaid at http://projects.propublica.org/bailout/list.
Here’s the essence of the bailout: several key players made a lot of money and a lot of
mistakes. When they made the money, they kept the money. When they made mistakes,
the government paid for it. It did so by printing money and giving it to the bailout
recipients. When the government printed money, it added this money to the national
debt. It will be regular people who will be paying the debt in the future by paying the
taxes. So, during the bailout regular people paid for the mistakes of the few with their
This is something that can’t happen with Bitcoin or other cryptocurrencies because no
one can choose to add more money than was originally planned. The Bitcoin network
adds coins at a certain rate by giving them as a reward to miners on the network for
creating new blocks of the Bitcoin blockchain.
Satoshi Nakamoto created Bitcoin in such a way that it adds a block to the blockchain
every 10 minutes or so. Depending on the activity on the network, sometimes miners
create blocks faster or slower. You can see all the information about Bitcoin blockchain
blocks by visiting Official Bitcoin Blockchain website at http://blockchain.info/
There can only be 21 million Bitcoins in circulation
The total number of Bitcoins in circulation will be 21 million by 2140. That’s how the
Bitcoin network was originally designed. Here’s how Bitcoin will reach this number: for
mining first 210,000 blocks of the Bitcoin blockchain, miners were receiving 50 Bitcoins
per block. For mining blocks 210,000 – 420,000 miners were getting 25 Bitcoins per block.
As of the writing of this article, miners are getting 12.5 Bitcoins when they successfully
mine a block. The next division of the reward is expected to occur in June of 2020, when
the reward will go down to 6.25 bitcoins. You can see the bitcoin reward clock in real
time here: http://www.bitcoinblockhalf.com/
Bitcoin network is also anonymous, meaning that anyone could become a user of the
network or a miner. If you have Bitcoins and you trade in Bitcoins directly with other
Bitcoin users, you can be anywhere and you can trade with anyone. Blockchain
technology of Bitcoin can also be beneficial to regular banks, but regular banks choose
not to use Bitcoin for a number of reasons, most of which have to do with compliance
and legal issues.
Why banks won’t use Bitcoin
On the Bitcoin network, anonymous miners compile transactions that occur on the
network into blocks of Bitcoin blockchain. A regular bank can’t be a part of this system
because dealing with anonymous entities means that the bank wouldn’t be able to hold
anyone accountable is something were to go wrong.
Transactions on the Bitcoin blockchain are irreversible. This means that once you send a
payment in bitcoins to someone, you can’t do anything about it if you change your mind.
There is no phone number to call, email address to email or support chat you can
contact. Once the money is gone, it is gone. This also doesn’t work for regular banks for
a number of reasons. First, a client of a bank may change the mind about a transaction.
Second, many of the regular banks deal not just with currencies, but also with assets,
such as cars and real estate. Banking industry is heavily regulated and to enter and stay
in the industry banks need to comply with a lot of regulations. They need to be
accountable themselves and be able to hold their partners accountable.
For these reasons, no bank would choose to perform a transaction with a high-priced
asset such as a home by putting it on an anonymous ledger created by miners from all
over the world, which is exactly how the Bitcoin network creates its blockchain.
These are the problems that Ripple protocol and Ripple currencies solve for the banks
and other financial institutions. Before we move further, it is important to note that the
word “Ripple” can mean three things. One is Ripple as a project, a company, an entity.
Another one is Ripple Protocol or Ripple Network, which is a technical implementation of
the idea. The third one is Ripple the coin or Ripple the currency of the Ripple Network.
History of Ripple
The creator the Ripple project is Ryan Fugger. In 2004, he has an idea for a technical
solution that would help regular banks send money faster and without using thirdparties,
which is what slows things down and increases costs. Fugger created such a
solution. He first registered the website called RipplePay.com in 2005 (Source: https://who.is/whois/ripplepay.com).
Independently of Fugger, in 2011 software engineer Jed McCaleb, who previously worked
for cryptocurrency exchange Mt. Gox and peer-to-peer file exchange system eDonkey,
decided to create a software solution in which verification of transactions would be
happening as a result of a consensus of users of a ledger instead of anonymous miners
adding transactions to the ledger the way in happens with Bitcoin blockchain. Such a
solution could work for banks because all the users could be verifiable and consensus
could be something that would fit into how banks operate within their regulatory
In 2012 McCaleb started working with Chris Larsen. Larsen is the co-founder of several
successful startups that include online loan solution e-Loan the first peer-to-peer online
market in the United States called Prosper Marketplace.
Also in 2012, McCaleb and Larsen approached Fugger and suggested to become partners.
Fugger agreed to work with them and this was the beginning of the OpenCoin
The goal of the company was to create a decentralized technology that would work for
big players in the financial world such as banks as money transfer services. OpenCoin
began to work on what later became Ripple protocol. The company released the first
version of the protocol in 2012. In 2013, the company attracted several investors and
raised capital from such well-known entities as Google Ventures, IDG Capital Partners
and the venture fund of Marc Andreessen (Andreessen is the creator of the Netscape
Browser, which one of the most popular Internet browsers in the 1990s. Andreessen took
Netscape public and in 1999 sold the company to AOL for $4.2 billion. As of the end of
2017, net worth of Andreessen was $1.07 billion).
In 2013, OpenCoin changed its name to Ripple Labs. In 2015, Ripple Labs changed its
name again and became Ripple. The company made all of its computer code open source
to the public in 2013 (parts of the code were open-source before that).
Side Note: When a company makes its computer code open source, it means that anyone
can download it, use it and study it. Most of the private software companies do not
make their code open source. When code is not open source, the software can’t really
be decentralized. True decentralization means that anyone can download, use and
inspect the code at any time. Bitcoin’s code is open source. Ethereum’s code is open
source. The majority of popular cryptocurrencies have made their computer code open
Ripple network in plain English
Ripple network treats money on the network as debt. This way, using the network is very
convenient not only to individuals but also to banks who are used to dealing with debits
and credits. When the money leaves the sender, it becomes a balance and then moves
through a sequence of virtual credit lines.
Here’s an example. Let’s say you have two friends, A and C, who decide to go to a
baseball game. They also agree that each of them would bring another friend. A brings B
and C brings D. Obviously, A knows B and C knows D. However, A doesn’t know D, C
doesn’t know B and B doesn’t know D. All and any of them may or may not meet again in
the future. B and D (B is a friend that A brought, D is a friend that C brought, B and D
have never met before) then go to get some hot dogs and soft drinks. D doesn’t have any
money. B agrees to pay $5 for D’s food and D agrees to pay B back some time after the
game. Since D and B haven’t met before, but B knows A and D knows C, here’s how the
transaction would work using Ripple Protocol: D pays the person that he or she knows,
which is C. C pays the person that he or she knows, which is A. A does the same and the
money finally gets to B.
Features of the Ripple network
On the Ripple network that transactions only happen between parties that know each
other and trust each other. This is what makes Ripple so different from Bitcoin and other
cryptocurrencies. This is also the reason why today major banks and financial services
firms use Ripple and this is how Ripple made blockchain technology usable by big banks.
For them, it is important to know exactly who the other party is and dealing with
anonymous entities on the other side of the globe is out of the question. With Ripple, big
banks and individuals can benefit from blockchain technology, its speed and lower fees,
yet still only deal with entities and individuals accountable for their actions.
The Ripple is similar to Bitcoin in that it is a decentralized network that allows parties on
the network to make payments very quickly. Also just like Bitcoin, Ripple keeps a record
of all the currencies in its blockchain that it calls Ripple Ledger. You can see information
about the ledger in real time at https://xrpcharts.ripple.com/#/
Ripple Coin or XRP is the currency of the Ripple network. However, users of the network
do not have to use XRP to make payments to each other. They can also send payments
using regular currencies, such as US Dollars. One of the benefits of the Ripple network is
that it can convert a payment in one regular currency into a different regular currency in
a matter of seconds.
Ripple coin can be divided up to six decimal points. Just like Bitcoin, Ripple coin has a
name for its smallest part. (The smallest part of Bitcoin is called Satoshi. One Satoshi is
one hundred millionth of a bitcoin or 0.00000001 BTC). The smallest part of Ripple is
called a Drop. There are one million Drops in 1 XRP.
Also just like with Bitcoin, transactions on the Ripple network are irreversible. Once you
send the money to someone, there is no way to cancel or reverse the transaction.
One of the differences between Ripple and Bitcoin is that Ripple network does not add
coins to circulation. Ripple network also doesn’t have miners. The founders of the Ripple
network have introduced all the funds that will ever exist on the network at the
inception of the network. The number of coins introduced was 100 billion. The coin is the
only digital asset allowed on the Ripple network. For security purposes, a Ripple account
needs to store 20XRP in it for a user to be able to use the account.
When members of the Ripple network participate in a transaction with funds in a
currency different from XRP, the network does change them a small fee for the
transaction. This is done so that attackers do not start creating fake accounts and do not
cripple the performance of the network. This is also the reason why XRP accounts need
to have a minimum balance in them. Transaction fees on the network start at 0.0001XRP.
The network doesn’t keep the fee. Instead, it destroys the fee, which means that the
number of Ripple coins in circulation is decreasing.
Ripple in Media
Over the years Ripple has received a lot of coverage and praise from the media and
financial experts. Experts agree that Ripple protocol can significantly increase the speed
of transactions in the financial industry. The New York Times, CNBC, Fox, Federal Bank of
Boston all talked positively about the opportunities that using Ripple gives to the banks.
One of the reasons why Bill Gates said in 2014 that he didn’t think Bitcoin would remain
the biggest digital currency in the long term was that he believed that protocols like
Ripple could move money just as effectively as Bitcoin but without Bitcoin’s limited
transaction capacity and anonymous miners.