A Breakdown of Ripple Labs, The Ripple Protocol and XRP

6 years Ago

Reading time:

3 mins

It’s important to know the exact role each one plays in the Ripple ecosystem, in order to form better investment decisions.

The Ripple Protocol

An inter-bank settlement protocol, designed to provide faster cross-border payments across different currencies and asset classes.

How It Works

Traditional banking systems require one of two things for settlements between accounts from different banks:
- An “IOU” from one bank to another. The transaction will be recorded on each bank’s books and settled at a later date, so the recipient can have access to their funds immediately.
- Failing that, the first bank will need to have an account open with the second, so they can make an actual deposit to the second bank. Only then can the recipient access funds from their account.
The IOU system allows account holders to transfer between trusted banks almost instantly. However, if that trust does not exist (such as between banks in different countries), the process can take several days.
The Ripple Protocol acts as the middleman, allowing inter-bank transfers to be routed through a decentralized public ledger (the XRP ledger), so transactions can be made available almost instantly.
Using the XRP ledger, transactions can be made between different currencies, for example between USD and JPY (Japanese Yen). There are several ways it can do this:
- Bank A exchanges USD to the XRP cryptocurrency, sends XRP to Bank B, who exchanges XRP to JPY.
- The same process occurs, but with another digital currency agreed between the two sides, such as Bitcoin.
- The XRP ledger routes the transaction through one or more parties in order to facilitate a swap between USD and JPY, and a deposit to Bank B.
Transactions on the ledger are supported and confirmed by the Ripple consensus protocol, run by participating servers acting as network validator nodes.
Validator nodes hold a list of other trusted nodes. There must be an 80% consensus between different lists in order to confirm a transaction.

Ripple Labs

A California-based software company behind the development of the Ripple Protocol.
Founded as Opencoin in 2012 by Chris Larsen and Jedd McCaleb.
Renamed to Ripple Labs in 2015.
As of 2018, the company has raised $96 million in funding, from a list of investors that includes Accenture, Andreeson Horowitz, Google Ventures and Standard Chartered.
Ripple Labs operate a number of validator nodes on the Ripple network, allowing them significant control over the Ripple Protocol at this time.

The XRP Token

The native cryptocurrency of the Ripple network.
- While XRP is used for transaction fees, it is NOT necessary to use XRP for cross-border currency swaps. Settlements in the Ripple Protocol can be done in any asset, including USD, EUR or BTC.
There is a total supply of 100 billion XRP.
At this time, Ripple Labs hold around 50 billion XRP.
Ripple Labs’ tokens are held in escrow, with one billion XRP released every month for their use.
The XRP token is pre-mined, meaning no new tokens will be created.
XRP tokens used for network fees are burned (sent to an inaccessible wallet address). This means XRP is deflationary; the more the network is used, the higher the token’s scarcity.

XRP Price History

XRP price chart, via CoinMarketCap.com

As of November 2018, XRP’s all-time high was $3.84, achieved on January 4th, 2018.
XRP’s all-time highest market capitalization was $130.3 billion, on January 8th, 2018.
XRP traded at less than a cent up until April 2017. After trading at or below $0.05 for a month, it shot up to over $0.35 in the middle of May that year.
The next big jump for XRP’s price was in December 2017, moving from $0.24 to its ATH of $3.84 in less than a month.
XRP made another spike in September 2018, doubling in price over the space of two weeks to briefly overtake Ethereum as the #2 cryptocurrency by market cap.

Learn more about the Ripple Protocol, Ripple Labs, and XRP in Multicoin Capital’s in-depth analysis, here.

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