1. What is Ripple?
Ripple is a real-time gross settlement protocol, currency exchange, and money transfer system. The protocol supports tokens representing fiat currencies, cryptocurrencies, commodities and/or other assets.
Ripple was created as an alternative settlement method for the banking system, not as an alternative to fiat money and the traditional banking system.
Ripple’s main customers are banks that use the xCurrent software solution to make cross-border payments with real-time transfer tracking. Regular users can also use Ripple’s digital currency for mutual payments.
2. Who created Ripple and when?
The immediate developers of Ripple are American programmer Jed McCaleb, cryptographer David Schwartz and coder Arthur Britto. The basic concept was written by Canadian programmer Ryan Fugger. In 2004, after seeing the work of the Vancouver branch of the Local Exchange Trading System, Fugger became interested in the idea of creating a decentralized payment system. In 2005, he launched the first iteration of such a system, RipplePay.com, which was not widely adopted.
In 2011, Fugger gave one of the top management positions in his company to Jed McCaleb. He brought on David Schwartz and hired Arthur Britto as development manager. In 2012, McCaleb created OpenCoin, with American entrepreneur Chris Larsen as CEO, while Fugger left the project. In 2013, the company changed its name to Ripple Labs, Inc. The company’s current CEO is economist and entrepreneur Brad Garlinghaus, who succeeded Chris Larsen.
3. What is XRP?
XRP is the digital currency of the Ripple network, which exists only in the Ripple system. 1 XRP is subdivided into a million units called “drops.”
The entire limited supply of XRP tokens (100 billion) has been pre-mined. Users can quasi-mining the coin: they can take part in scientific developments supported by Ripple Labs by performing calculations or other actions using computational algorithms and be rewarded with XRP tokens.Ripple company owns 65% of all tokens, the remaining 35% released to the market. Users of the Ripple network are not required to use XRP, but each Ripple account requires a reserve of 20 XRP.
XRP acts as a payment bridge, which is used when direct exchange of assets is not available – for example, in transactions involving two rarely traded assets.
On the Ripple network, XRP tokens are freely traded for fiat money or cryptocurrencies, but Ripple views the token primarily as a means of payment and a tool in exchange transactions rather than as an alternative digital currency.
4. What is Ripple’s consensus mechanism?
Ripple does not use blockchain technology. Transactions on the network are validated through a consensus process known as the Ripple Protocol Consensus Algorithm (RPCA).
As part of this process, most servers, also referred to as nodes, which are included in the Unique Node List, must agree that the transaction is valid and that the sender has sufficient funds in their account to make the transaction. RPCA is part of the Ripple Transaction Protocol (RTXP), a payment protocol developed in 2012 by OpenCoin.
In February 2018, Ripple published two new white papers describing the consensus algorithm that underpins the XRP token and how to achieve greater diversification of each node’s connections in the network.
The first white paper, titled Analysis of the XRP Ledger Consensus Protocol, provides evidence that the algorithm ensures the security and viability of the network, including the absence of forks, within the planned phases of further decentralization.
The second white paper provides insight into Cobalt, a brand new asynchronous consensus algorithm aimed at improving the existing XRP protocol by creating more flexibility in creating a unique list of nodes.
5. What are the key components of the Ripple ecosystem?
Ripple Labs’ three key products – xCurrent, xRapid and xVia – form an ecosystem managed by the RippleNet network of banks and financial institutions.
The xCurrent platform allows banks to make instant cross-border payments in highly liquid fiat pairs (USD/EUR, USD/JPY, etc.). xCurrent provides an automated process to ensure that all payments are tracked and accounted for. xCurrent consists of four components:
xCurrent messenger is an open API for two-way messaging that allows banks to communicate before a transaction is initiated and to exchange important information: customer and risk data, details on fees and payments, and estimated transfer times. If information is missing or erroneous, the parties can find out in advance.
– ILP Registry
The ILP (Interledger Protocol) Registry is a sub-registry of each bank which carries out a transaction. It is responsible for monitoring credits, debits and liquidity of the interacting banks, guaranteeing the feasibility of the transactions. ILP ensures system integrity – transactions are either instantaneous or not at all. This eliminates the risk of non-settlement because the payment is either processed in its entirety or cancelled in advance.
Validator validates successful or failed transactions using cryptographic methods, coordinates movement of funds in ILP registers and eliminates all the risks of non-settlement and minimizes delays in funds delivery. The validator provides transaction participants with a single source of reliable data, while preserving the confidentiality of information. The bank can use its own validator or rely on the validator of the counterparty to the transaction.
FX-ticker monitors the account, currency, and credentials of each protocol created, compares and validates quotes, accompanies transactions, and records transaction data in the recipient bank’s ILP log.
The xRapid payment platform solves the liquidity problem faced by international banks – they have to keep money in different local currencies to make money transfers. xRapid enables them to free up that capital by using XRP as an “intermediary.” The bank’s main currency is exchanged for XRP, and once the transaction is successfully processed, XRP is exchanged for the local currency.
A typical xRapid transaction takes approximately four seconds to process. There is a fee of 0.00001 XRP for each transaction. The commission is not assigned by anyone – the XRP debited is destroyed and the total number of coins is reduced. The commission increases if the user conducts transactions at a high rate (several thousand per minute), and decreases after a period of inactivity. This model is designed to protect the system from spamming transactions.
xVia is an API under development that links parts of the Ripple ecosystem together. With it, companies will be able to link to RippleNet and make instant payments across networks around the world. xVia needs no installation, functioning as a browser extension, and can be embedded in software already in use.
9. What is the architecture of Ripple?
Ripple’s architecture resembles that of the SWIFT global payment system, but instead of a central processor, Ripple uses RippleNet’s own global network.
A transaction in the Ripple network is a registry change suggested by any server and distributed across the entire network of active Ripple nodes (servers). Having received or generated a transaction, the servers automatically come to a consensus on which transactions should be added to the registry and which should be excluded from being added.
Other components of the Ripple network:
- Resource Exchange Participants.
- Validators are the nodes trusted by the majority of network participants. They control and verify transactions and each other, as well as guarantee the integrity of the public ledger with debt data. Network participants can choose the servers and validators
- External gateways used for internal exchange transfers in any type of currency. Typically, gateways are banks.