What is Ripple?
Ripple is the name for both a digital currency (XRP) and an open payment network within which that currency is transferred. It is a distributed, open-source payments system that’s still in beta. The goal of the ripple system, according to its website, is to enable people to break free of the “walled gardens” of financial networks – ie, credit cards, banks, PayPal and other institutions that restrict access with fees, charges for currency exchanges and processing delays.
According to OpenCoin, the company behind ripple, the currency addresses the need to keep money flowing freely. The goal of Ripple is to build on the decentralized digital currency approach set by Bitcoin and do “for money what the internet did for all other forms of information.”
Released in 2012, Ripple was created to enable "secure, instant and nearly free global financial transactions of any size with no chargebacks. At its core, Ripple is based on a shared, public database or ledger, which uses a consensus process that allows for payments, exchanges, and remittance in a distributed process.
The network is decentralized and can operate without Ripple enterprise, it cannot be shut down. Among validators are companies, internet service providers, and the Massachusetts Institute of Technology. Used by companies such as UniCredit, UBS, and Santander, Ripple has been increasingly adopted by banks and payment networks as settlement infrastructure technology because it is more secure.
In simple term, Ripple was supposed to be a payment system, currency exchange, and remittance network which later evolved to a cryptocurrency which a lot of people are using. Like Bitcoin, Ripple’s XRP unit is a digital form of currency based on mathematical formulae and has a limited number of units that can ultimately be mined. Both forms of currency can be transferred from the account to account without the need for any intervening third party. And both provide digital security to guard against the possibility of counterfeit coins.
What are the features of ripple?
Gateways
A gateway is any person or organization that enables users to put money into and take money out of Ripple's liquidity pool. A gateway accepts currency deposits from users and issues balances into Ripple's distributed ledger. Furthermore, gateways redeem ledger balances against the deposits they hold when currency is withdrawn. In practice, gateways are similar to banks, yet they share one global ledger known as the Ripple protocol. Depending on the type and degree of interaction a user has with a gateway, the gateway may have anti-money laundering or know your customer policies requiring verification of identification, address, nationality, etc. to prevent criminal activity. Popular gateways as of 2017 included Bitstamp, Gatehub, Ripple Fox, Tokyo JPY, Mr. Ripple, RippleChina and The Rock Trading.
Trustlines and rippling
Users must ‘extend trust’ to the Ripple gateway that holds their deposit. This manual creation of a trustline indicates to the Ripple network that the user is comfortable with the gateway’s counterparty risk. Furthermore, the user must put a quantitative limit on this trust and create a similar limit for each currency on deposit at that gateway. For example, if a user deposits US$50 and BTC2.00 at The Rock Trading, the user will have to grant trust of at least that much in both currencies to the gateway for the monies to be available in the Ripple network. When a user has allowed multiple gateways in the same currency, there is an advanced option to allow "rippling," which subjects the user’s balance of that currency to switch (or ripple) between gateways. Though their total balance doesn't alter, users earn a small transit fee for providing inter-gateway liquidity.
Creditworthiness
Similar to reasons during the Free Banking Era in the United States, the value of a currency can vary significantly depending on a gateway's creditworthiness. A non-profit trade association, the International Ripple Business Association (IRBA), provides unified procedures and disclosure standards for gateways. As of June 2015, fifteen businesses had met or exceeded the IRBA standards.
Consensus ledger
Ripple relies on a common shared ledger, which is a distributed database storing information about all Ripple accounts. The network is "managed by a network of independent validating servers that constantly compare their transaction records." Servers could belong to anyone, including banks or market makers. Though the Ripple protocol is freeware, Ripple Labs continues to develop and promote the Ripple protocol, which confirms financial transactions via a network of distributed servers. Ripple Labs is currently assisting banks in integrating with the Ripple network. A new ledger is created every few seconds, and the last closed ledger is a perfect record of all Ripple accounts as determined by the network of servers. A transaction is any proposed change to the ledger and can be introduced by any server to the network. The servers attempt to come to consensus about a set of transactions to apply to the ledger, creating a new ‘last closed ledger’.
The consensus process is distributed, and the goal of consensus is for each server to apply the same set of transactions to the current ledger. Servers continually receive transactions from other servers on the network, and the server determines which transactions to apply based on if a transaction came from a specified node in the ‘unique node list’ or UNL. Transactions that are agreed upon by a "supermajority" of peers are considered validated. If the supermajority isn't in consensus, "this implies that transaction volume was too high or network latency too great for the consensus process to produce consistent proposals," then the consensus process is again attempted by the nodes. Each round of consensus reduces disagreement, until the supermajority is reached. The intended outcome of this process is that disputed transactions are discarded from proposals while widely accepted transactions are included. While users may assemble their own UNL nodes and have full control over which nodes they trust, Ripple Labs acknowledges that most people will use the default UNL supplied by their client.
Ledger security
In early 2014, a rival company called the Stellar Foundation experienced a network crash. The company brought in David Mazieres, Stellar's chief scientist and head of Stanford University's secure computing group, to conduct a review of the Stellar consensus system, which was similar to Ripple's. Mazieres declared the Stellar system unlikely to be safe when operating with "more than one validating node, arguing that when consensus is not reached, a ledger fork occurs with parts of the network disagreeing over accepted transactions. The Stellar Foundation afterwards claimed that there was an "innate weaknesses" in the consensus process, a claim which according to Finance Magnates,"Ripple vehemently denied." Ripple Labs chief cryptographer David Schwartz disputed Mazieres' findings and declared that Stellar had incorrectly implemented the consensus system, as "the protocol provides safety and fault tolerance assuming the validators are configured correctly." The company further wrote that after examining Stellar's information, they had concluded "that there is no threat to the continued operation of the Ripple network."
Use as a payment/forex system[edit]
Ripple allows users or businesses to conduct cross-currency transactions in 3 to 5 seconds. All accounts and transactions are cryptographically secure and algorithmically verified. Payments can only be authorized by the account holder and all payments are processed automatically without any third parties or intermediaries. Ripple validates accounts and balances instantly for payment transmission and delivers payment notification with very little latency (within a few seconds). Payments are irreversible, and there are no chargebacks. XRP cannot be frozen or seized. While as of 2014 anyone could open an account on Ripple, by 2015 identity verification procedures had been implemented. Ripple's Path-finding Algorithm searches for the fastest, cheapest path between two currencies. In the case of a user who wants to send a payment from USD to EUR, this could be a "one-hop" path directly from USD to EUR, or it could be a multi-hop path, perhaps from USD to CAD to XRP to EUR. Path finding is designed to seek out the cheapest conversion cost for the user. As of May 14, 2014, Ripple's gateways allow deposits in a limited number of fiat currencies (USD, EUR, MXN, NZD, GBP, NOK, JPY, CAD, CHF, CNY, AUD), a handful of crypto currencies (BTC, XRP, LTC, NMC, NXT, PPC, XVN, SLL) and a few commodities (gold, silver, platinum).
The Bitcoin Bridge[edit]
The bitcoin bridge is a link between the Ripple and bitcoin ecosystems. The bridge makes it possible to pay any bitcoin user straight from a Ripple account without ever needing to hold any of the digital currency. Additionally, any merchant accepting bitcoins has the potential to accept any currency in the world. For example, a Ripple user may prefer to keep money in USD and not own bitcoins. A merchant, however, may desire payment in bitcoin. The bitcoin bridge allows any Ripple user to send bitcoins without having to use a central exchange such as BTC-e to acquire them. Bitstamp acts as a gateway for the Ripple payment protocol, among other exchanges.
Privacy
While transaction information on the ledger is public, payment information is not. It’s thus difficult for anyone to associate transaction information with any specific user or corporation.
Market makers
Any user on Ripple can act as a market maker by offering an arbitrage service such as providing market liquidity, intra-gateway currency conversion, rippling, etc. Market makers can also be hedge funds or currency trading desks. According to the Ripple website, "by holding balances in multiple currencies and connecting to multiple gateways, market makers facilitate payments between users where no direct trust exists, enabling exchanges across gateways." With a sufficient number of market makers, the path finding algorithm creates a near frictionless market and enables users to seamlessly pay each other via the network in different currencies, without assuming any undesired foreign exchange risk.
Many such services are offered through a traditional platform of offers to buy or sell one currency for another currency. Bids and asks are aggregated into order books, to create a decentralized exchange. Users can transact with market makers to trade or convert currencies. Ripple's path finding algorithm leverages this functionality to allow users to send money in one currency and the recipient to receive it in another currency. For example, a user can pay with USD and the recipient can choose to receive the money in another currency, including bitcoins and XRP.
Open API
Ripple Labs built the protocol to be friendly to the developer community, and resulting features include an API for its payment network, based on the popular REST API standard. One of the earliest extensions by third-party developers was a Ripple extension to e-commerce platform Magento, which enables Magento to read the Ripple public ledger and create an invoice. There has been a Ripple Wallet payment option developed for retail situations as well.
How much is a Ripple worth?
Ripple is valued at $0.22015800 .
How would the economy, business sector, and cryptocurrency users benefit from Ripple?
Of all the cryptocurrencies created, I would say that Bitcoin is on the top while Ripple is just on the rise. Just like how Bitcoin was valued when it started, Ripple is slowly but surely creeping up the cryptocurrency ladder. Using Ripple has a lot of advantages especially if we relate it to Bitcoin users.
Ripple positions itself as a complement to, rather than a competitor with, Bitcoin. The Ripple network is designed to allow the seamless transfer of any form of currency, whether dollars, euros, pounds, yen or bitcoins.
In addition to giving Bitcoin more ways to connect with those using other forms of currency, Ripple promises expedited transactions and increased stability. As a distributed network, Ripple does not depend on a single company to manage and secure the transaction database. Consequently, there is no waiting on block confirmations, and transaction confirmations can go through the network quickly. Another advantage of using peer-to-peer is the absence of a central target or point of failure in the system.
Ripple will have a big impact on the world economy and business sector because it has a dual purpose of being a cryptocurrency and very safe payment network. It will enhance how people will conduct their business transactions. Just a note, who knows in the future it will be able to surpass Bitcoin. In the end, it's a race for all cryptocurrencies a like.
Thank you