What is XRP? Beginner’s Guide to Ripple and XRP Ledger

Ripple can rightfully be called a poster child of the potential that cryptocurrencies have in transforming finance and economy. It is quite hard to believe that finance, one of the most essential stalwarts of daily life, is sorely lagging behind technological progress. Ripple’s mission is to assist the existing system with catching up to the times, and for that they’re using the power of cryptocurrencies. In this guide, ChangeHero will introduce Ripple and XRP and tell you all about the project in simple terms.

Key Takeaways

• Ripple is a financial company that has launched a decentralized network called XRP Ledger in 2012. They use it as a solution that helps with near-instant global frictionless transfers of money.
• Often confused, Ripple and XRP are not the same: Ripple is the name of a private company that initially developed XRPL and XRP. XRP is a decentralized digital asset, powering the XRP Ledger.
• Originally intended to be used as a source of liquidity for currency swaps and transfers, XRP and XRPL today serve many other purposes: NFTs, tokenization, programmable actions etc.

What are Ripple and XRP?

Ripple is a San-Francisco-based financial enterprise that includes Ripple Labs, the developers of the technology behind the Ripple Network. Ripple is also used as an umbrella term for this network that encompasses all solutions developed by the company.

XRP is the native currency of a decentralized network called XRP Ledger (XRPL). Its primary use case is being a currency-agnostic intermediary for on-demand liquidity (ODL) transactions. ODL’s main use case is cross-border payments and remittances, which otherwise take a few business days to be processed and have high fees associated with them. “Currency-agnostic” means that any local currency can be sent across the Ripple Network by being converted into XRP and then into the same or a different local currency at the destination. "XRP" is a registered trademark of the XRPL Foundation.

How did Ripple and XRP start?

The development of what would become Ripple started in 2004, even before Bitcoin. Ryan Fugger developed RipplePay, a predecessor to XRP Ledger. The idea behind this technology was a peer-to-peer global payments system to replace banks, based on tracking debt through independent network participants who would confirm the validity of a transaction. Evidently, at that time, it would not be blockchain-based.

In 2011 and 2012, the initial team of OpenCoin, which would later be renamed to Ripple Labs, came together. Among them were Jed McCaleb, Arthur Britto, David Schwartz, Chris Larsen, and Jessie Powell. McCaleb would later move on to MtGox and Stellar, Powell would go on to found Kraken, but at the time all of them started to build a more scalable and efficient alternative to Bitcoin using what Fugger had developed.

XRP Ledger’s release happened in 2012. The currency was pre-mined and would never see addition to the 100 billion total supply of XRP. 20 billion XRP were retained by the creator team, the rest was gifted to OpenCoin. By contemporary standards, OpenCoin scored relatively moderate funding to launch, so to sustain long-term support of XRP Ledger and the company, this decision was made.

Later, Ripple Labs would employ an escrow account, regulated by a smart contract which controls the release of XRP, to prevent any artificial manipulations on the market. Out of 55 billion XRP placed there, 1 billion was released monthly. In the meantime, the XRPL Foundation was established, to oversee the development of the ecosystem independently from Ripple.

What is RippleNet?

For institutions, Ripple offers a network which gives them access to the features developed by the company, called RippleNet. RippleNet consists of network users, such as SMEs or small banks, that only send the funds across the network, and network participants that provide liquidity and sustain validators. RippleNet provides real-time settlement, instant messaging, on-demand liquidity, and secure and transparent value transfers.

For banks, being a part of RippleNet means the opportunity to provide real-time cross-border payments and remittances. Other partners on the finance transfer market include American Express and MoneyGram. Online platforms like goLance get improved international payments for their global talent marketplace.

What is XRP Ledger?

XRP Ledger, or XRPL, is the decentralized network on which the Ripple solutions are implemented, including ODL. It is a public blockchain that tracks sets of transactions called ledgers instead of blocks. Validators propose ledgers (blocks) by compiling valid transactions into a list and once it is ready, broadcast it to other validators for confirmation.

XRPL has no incentives to run a validator node, even a trusted one. Participating in the network as a trusted validator from Unique Node List, or UNL, comes with the participation in RippleNet, which is supposed to be a reward on its own. Hence, native XRP staking or mining are not possible.

Ripple controls some of the nodes that participate in the consensus process, though they claim to deactivate some of them with inclusion of new independent trusted nodes as a part of their decentralization strategy.

Ripple uses XRPL mainly as an enterprise-focused solution but XRP Ledger can be put to use in other industries. Ripple and the community of builders designed the tools to build applications for XRPL that can be put to use in online shopping, gaming and media monetization.

How does Ripple and XRP work?

Ripple is geared toward use by financial institutions, such as banks, therefore instead of a trustless approach they build their entire network on trust. The list of trusted validator nodes which can participate in consensus voting is maintained by the community: contributors to XRP Ledger and Ripple Labs.

A standard remittance takes 3 to 5 business days and needs pre-funded accounts on both sides. In case a transfer involves currency conversion, banks and transfer providers can apply retail conversion rates, which are designed to yield profit to the bank at the expense of a customer. Even worse, when the receiving bank or provider does not own liquidity in the destination currency, they might involve an intermediary to convert it, which also applies their own fees, making the transfer even more costly.

How does XRP help process transactions faster and cheaper? By transferring value through a decentralized network that is available 24/7, the need for operating within business hours or time zone difference is alleviated.

A transaction is cleared within seconds thanks to the unique consensus protocol: XRP Ledger Consensus Protocol, which sends the information about a transaction to trusted operators to confirm, which then additionally refers to other validators like ripples across water, hence the name of the technology. Also called RPCA, it is a specification of Byzantine-fault-tolerant (BFT) consensus algorithm with federated consensus.

Sending a transaction can be done with a negligible fee that exists solely to prevent spam in the network. XRP is supposed to be the currency-agnostic liquidity source for the receiving side, so it wouldn’t need a prepaid account in the destination currency.

What makes XRP stand out?

As it was already mentioned, XRP is the native currency on XRP Ledger. To sum it up briefly, XRP is:

• Pre-mined and released by a smart contract — cannot be mined or staked;
• Deflationary — transaction fees are burned away. The actual current supply is already at 99,985,774,127 XRP. Decreasing supply is supposed to create a scenario in which consistent or rising demand would drive the value of XRP up over time.
• Instant — the ledger close interval (the closest analogy to a block time) on average is 3 to 4 seconds, and a transaction is irrevocably broadcast to the rest of the network.

To be able to submit transactions to the network, a reserve is required. The base reserve at the moment is 20 XRP, and in some cases, for instance, to use additional services, an owner reserve of 5 XRP is required on top of that.

XRP is one of the most prominent examples of a green coin, or an environmentally-friendly cryptocurrency (relative to Bitcoin, that is). Unlike Proof-of-Work cryptocurrencies like BTC, Ripple does not require intensive computation to secure the network. As a practical result, its environmental impact is not higher than online banking or a Web server, a strong bonus for environmentally-conscious users or ESG-mandated businesses. This trait of the network is not a coincidence but a conscious strategy.

How Does XRP Compare to Competition?

When it comes to comparing XRP to cryptocurrencies fashioned after Bitcoin, they could not be more different by design. However, as payment rails, Ripple works with some serious competition.

Addressing the elephant in the room, Stellar (XLM) is a project that directly competes with XRP. They share the same niche of payment services, although Stellar has more of a focus on on-chain real-world assets (RWA). Neither does Stellar lag behind Ripple with Moneygram International, Franklin Templeton, WisdomTree, PayPal and United Nations High Commissioner for Refugees (UNHCR) as its strategic partners.

However, both of them have traditional payment networks and Ethereum with its Layer-2 ecosystem to go against. SWIFT's foray into blockchain-based solutions uses the Linea Layer-2 for the Ethereum blockchain. Linea combines the best traits of Ethereum with increased throughput and lower latency. As a project of Consensys, one of the major contributors to the Ethereum ecosystem, it secured other partnerships with payment giants: Visa, Mastercard, and JPMorgan.

What are the downsides to Ripple and XRP?

Ripple and XRP receive a lot of criticism to this day, mainly for the dubious approach to distinguishing the relationship between the enterprise and technology. For instance, back in 2017 journalist and XRP apologist Cory Johnson comparing the relationship between Ripple and XRP with Chevron and oil, referring to them never making it but rather finding an application to it, had left the users scratching their heads, to put it lightly.

Incidentally, XRP has often received criticism for being centralized, and frequent confusion with Ripple is not the only implication. An estimated share of the XRP supply controlled by Ripple Labs is currently about 35% of the circulation. Adding to that, the full validator set sits at 188 nodes worldwide, which is not considered a lot by crypto network standards. The "full" is opposed to the UNL, which currently has just 34 participants.

So, what if the network is centralized? For one, a practical implication of this is that Ripple's actions can significantly influence XRP's price, as could be observed during the SEC vs. Ripple case:

This is not to say that this critical point spells doom for XRP or goes unaddressed. A common tradeoff of decentralization is lower operational efficiency, such as slower response times during an emergency. If a project caters to institutional clients or global financial service providers, this tradeoff should be mitigated as much as not to sacrifice decentralization completely, and this is the strategy Ripple went with when establishing XRPL. Moreover, Ripple Labs continuously reduces their involvement and influence over the network to eventually reach parity with other network participants.

Ripple’s business model and XRPL’s network architecture also received criticism in the past. However, the fact that this project still goes strong for over a decade already casts a shadow over the allegations of unsustainability of both structures.

Challenges and Future of XRP

Security and Decentralization

With more than a decade of history, Ripple and XRPL backers had ample time to make significant progress toward decentralization, even if the starting point had them closer to the opposite part of the spectrum. However, as outlined in the sections above, it remains an area of concern.

The number of validators securing the network is important but not the sole factor determining the quality of decentralization. Validator collusion, potentially leading to network exploits, is possible even if there are a lot of them but their coverage overlaps geographically or by industry. How does XRP Ledger fare on that front? The majority of nodes are concentrated in Europe and America, and the validator list domain roughly corresponds with the geography. Of course, there are notable and significant exceptions but the variety of network participants could use some work.

As we've already mentioned, a centralized network would achieve XRP's goals more effectively than a truly distributed one, so this balance is a fine line XRPL contributors have to navigate. And speaking of them, Ripple remains the one that exerts the most influence, despite their efforts to reduce it. Thus, they also are in the best position to propose measures that will ensure this balance.

To highlight the difference between Ripple's solutions and XRP Ledger as an independent network, from the very start XRPL has been open-source, publicly verifiable and transparent. XRP itself (though not the tokens) has also been designed to be permissionless, as is standard for cryptocurrencies, even if the whole network is built on reputation and trust.

Regulatory Status and Clarity

In 2020 through 2025, Ripple was locked in a legal battle with the U. S. Securities and Exchange Commission (SEC) that alleged the presale of XRP constituted sales of unregistered securities. The chart above provides a picture of how this informed price action of XRP but leaves out other crucial details: for one, XRP was temporarily delisted on U. S.-based exchanges, reducing its liquidity and market reach.

The case saw only partial clarity reached regarding the legal status of XRP and other cryptocurrencies: the underlying digital assets were not investment contracts, although depending on to whom or where they were sold, the deal could be seen as one. Even though the case concerned strictly adherence to the U.S. laws, the impact on the markets was certainly global.

Can a policy change affect the ruling and jeopardize the regulatory status of XRP once again? For sure, and not in the United States alone. The majority of stakeholders in the XRP ecosystem are based there though, so its policy is the most likely to have the most impact on the future of XRP. That can also be a factor that can weigh into the legal status of XRP in certain countries, bringing into question the borderless and global nature of its payment rails.

How to use XRP?

Where to store XRP

Just like any other cryptocurrency, XRP is stored on-chain but can be managed and accessed with a cryptocurrency wallet. Being a top-5 cryptocurrency, XRP is supported by most of the multi-currency wallets.

There are a few types of wallets, available on different platforms:

• Cold (offline) storage wallets. Trezor is accessible by connecting the device to a desktop computer and CoolWallet S is a mobile-compatible hardware wallet.
• Hot (online) wallets. These include Exodus and Edge, for example. You can install Exodus applications for your desktop computer and on your mobile device. Edge is a smartphone app to store XRP along with hundreds of other coins and tokens.

In all of these you can use an in-app exchange function provided by the ChangeHero integration.

Where to spend XRP

Technically, XRP was never designed to be a means for purchasing goods and services. Regardless, it is integrated into some crypto payment gateways like Coinpayments, Bidali and CoinGate, and some merchants accept it without any intermediaries.

If you would like to put some XRP to use and only need to get it, ChangeHero is here to help to provide you with the best rates and user experience for your exchange to XRP or a purchase. Give it a try now—you won’t even need an account.

Conclusion

Ripple's XRP, supposedly independent from its creators, is one of the most intriguing projects in the cryptocurrency space. Will it succeed in connecting the world's economies? Would it become anything XRP holders hope it to be? The answer is nowhere on the horizon yet but that arguably makes it so exciting.

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