In 2017, Bitcoins emerged as the frontrunner in the cryptocurrency race, turning early investors into crypto millionaires. But in the last week of December, another cryptocurrency, Ripple, dazzled investors with its meteoric rise and growth.
Ripple is touted to become the hottest cryptocurrency of 2018 with its price doubling from $1 to $ 2.2 in just one month and total annual rise of an astonishing 36,000 per cent.
All There’s to Know About Ripple
While Bitcoins are a digital currency, Ripple is a payment protocol as well as a cryptocurrency called XRP. Just like Bitcoin, it too runs on the secure online transaction records system, blockchain. But this is essentially where the similarities between the two virtual currencies, end.
Ripple is not meant to be used as a primary cryptocurrency. Its network is a means to verify all kinds of transactions involving different assets, including its own XRP currency.
Bitcoin is a completely decentralized system with users dedicating their computer powers for mining new Bitcoins. Its competitor released 99 billion XRP coins that can be sold, transacted or traded between different networks to limit transaction fees and processing times.
Though Ripple has many enthusiasts, few REALLY understand it. Let’s try to unearth this mysterious system. It is a universal Real-Time Gross Settlement (RTGS) payment protocol to facilitate fast and cheap peer-to-peer exchange of any type of digital asset, internationally.
Say, Tania from USA wants to send money to Anita in New Zealand. This is how XRP’s consensus or “trust” algorithm will work:
How Ripple Protocol Works
- Tania’s and Anita’s banks use a third bank that has a trust relationship with their banks.
- Ripple’s translation layer receives the request, collects information and starts the transfer process.
- Pre-transaction validation of both accounts is done.
- The Interledger Protocol (ILP) is used to verify the accounts and payment request.
- Ripple holds the funds in an escrow account across the three ledgers.
- Cryptographic signatures are taken for privacy and security reasons.
- When all servers in the network arrive at consensus, the funds are released.
This whole process takes seconds to complete as the algorithm is designed to identify the shortest path of trust for each transaction! Not only cash, any type of asset can be transferred by converting its value into XRP coins. Every transaction step consumes a few XRPs and there are bodies called market makers who provide prices for trading between different goods (cash for gold, gold for XRP, etc.)
XRP, as a currency, settles almost immediately unlike IOUs that need redemption from a gateway. So, it’s a great “bridging currency”.
How Ripple Protocol Scores over Traditional IOUs and Rival Currencies
Ripple XRP- Faster, Cheaper than Bitcoins?
Ripple developer, DavidSchwartz and his team, claims it has many advantages over Bitcoin as a global payment gateway. For one, its processing speed is lightning quick, just about 3 seconds. Moreover, its processing fee is minimal, just one millionth of an XRP coin.
Bitcoins, on the other hand, are expensive to trade and slow to transact. From the diagram below, you can see fewer intermediaries in a Ripple chain than in Bitcoin or traditional digital transfers. This results in lesser processing charges at each step.
Transfer Process Comparison
The higher processing speed of Ripple transactions is because it uses a Consensus algorithm for validating transactions and not a centralized proof of work mining pool like Bitcoins and Ethereum. This not only speeds up transactions but also saves electrical energy- a real boon for sustainable living!
Settlement Speed Comparison
Why is Ripple’s Price Rising?
Ripple was priced at just 25 cents at the beginning of December, 2017. Now, it’s valued at $2.2 on online exchanges. There are multiple reasons behind this stupendous hike.
Firstly, many investors have cashed in their Bitcoins for purchasing rival cryptocurrencies. So, while Bitcoin prices are falling sharply, Ripple is witnessing an almost proportionate upswing.
Secondly, investors mesmerized by Bitcoin’s potential are now exposed to other virtual currencies that promise to make up for Bitcoin’s shortcomings.
Contrarily, unit value of each XRP is significantly lower than of a unit BTC. This is mainly due to its higher level of supply (38 billion XRPs in circulation compared to 16.7 million Bitcoins). Still, its total valuation has crossed $ 90 million, second only to Bitcoins.
Cryptocurrency War- Who is the Winner?
Clichéd it may sound, but only time will tell. With such a large quantity available and other rivals (Litecoin, Ethereum, etc.) fast catching up, wait and watch might be the best strategy for investors.