What Is XRP and How Does It Work?

Everyone seems to have heard of Bitcoin these days. What a lot of people don’t realize is that Bitcoin is just one of several digital currencies, which together, are called cryptocurrencies.

Bitcoin is the biggest and best known but there are actually around 2 thousand different digital currencies. 

Some of these other currencies were able to grow and develop off of Bitcoin’s fame and growing reputation, but with better technology. This means they might be more usable in the future than Bitcoin. Examples of this include Ethereum, Litecoin, and Ripple or XRP.

In this article, you’ll find out more about what Ripple is, why it’s useful, and how you can start investing in cryptocurrencies too.

What Are Cryptocurrencies?

Cryptocurrencies are a form of digital currency, where every transaction is validated by a dispersed network. In most cases, this makes cryptocurrency more secure and less prone to fraud than transactions completed with mainstream currency.

Each computer on the network verifies and stores a record of every transaction, which is why it becomes much harder to manipulate transactions. Any discrepancies would get flagged and any attempt at manipulating transactions would mean needing to change the ledger on every computer.

You can trade between your local currency and cryptocurrency. You can also trade between different cryptocurrencies as you would trade on foreign exchange rates.

What Are Ripple and XRP?

A lot of people use the terms ‘Ripple’ and ‘XRP’ to mean the same thing but they’re not quite the same.

The actual currency itself is open-source and it’s called XRP. Ripple is the network it’s traded on and Ripple Inc. is the company that partially manages the currency’s network.

XRP, the currency, first started trading in 2012 and was created by Ripple to help make cross-border payments more convenient. 

As Bitcoin grew in popularity, the network it operates on became slower and transaction fees increased.

Ripple created XRP in response to this and makes use of its own network. This has allowed it to make transactions quicker and cheaper than Bitcoin.

What Makes XRP Different to Bitcoin?

Bitcoin runs on what’s called a decentralized network. This is where separate computers verify transactions and store records of them. Transactions are only completed once every computer on the network has verified it.

The computers that validate transactions are in-turn rewarded with Bitcoin. This is called mining for Bitcoin.

What makes XRP quicker and cheaper is that Ripple manages their network themselves. This means that there is less need to share information across computers and transactions get verified more quickly.

Ripple’s network can process 1,500 transactions per second according to some sources. Bitcoin’s network processes 4.6 transactions per second.

For comparison, both Visa’s and Mastercard’s networks can each process over 5,000 transactions per second. However, their transaction fees are at least 1 percent of the transaction value, which is much more expensive than Ripple’s network. 

Unlike Bitcoin, XRP cannot be mined. The coins are released by Ripple from an escrow when needed.

Uses of XRP

Many major international banks have started using Ripple’s network in recent years and the transaction cost is as low as $0.00001. 

Due to the low transaction fees, it can also be used as a normal day-to-day currency. Very few businesses currently accept XRP or any other cryptocurrency as means of payment, but the potential is there.

While Ripple did create XRP as their own currency, their network can be used for the transfer of other currencies too. They created a separate network called RippleNet for this.

As with all cryptocurrencies, you can also hold on to XRP as a digital asset or trading commodity.

How to Get Started Buying XRP

You can buy ripple cryptocurrency or any cryptocurrency on a digital exchange. Not all of them will allow you to directly buy coins with your local currency, and not all of them will offer all the cryptocurrencies available.

You may need to find a site that will allow you to buy in your own currency first, and you may only be able to buy a few of the best-known coins directly. Some sites limit this to Bitcoin, Ethereum, and Litecoin.

Once you have bought some cryptocurrency though, you can transfer it to another exchange that allows you to trade it for XRP or any other coins you’re looking at.

Be careful with transfers though. You need to make sure that you get the address you are planning on transferring cryptocurrency to exactly right. You could lose your coins with no way of recovering them if you get this step wrong.

Be Careful

All investments have some risk, and XRP or other cryptocurrencies are no exception. 

With digital coins, you might be comparing XRP’s price to Bitcoin, other coins, or to local currency.

There may be times where the cash value of your XRP holding has increased. But if Bitcoin’s price has increased by more, your XRP could actually decrease in value.

It’s also worth noting that the day-to-day changes in cryptocurrency markets can be dramatic. Bitcoin, for example, has seen over 40% increases in value in a single day on at least three occasions.

So while it can be tempting to get drawn in by seeing big daily increases in value, remember that the drops in value can be just as much.

A Valuable Digital Asset

Most digital currencies only have value because the people who hold them put a value on them. Quite a few don’t have any real use in everyday life.

This makes XRP stand out. It has a specific purpose and is already being used for that. This means Ripple and XRP are much less likely to drop in value in the longer-term.

If anything, as the popularity of cryptocurrencies, continues to grow, XRP is much more likely to hold on to its value or see a steady increase.

When looking at any financial matters, always remember to speak to a professional to protect yourself from the risk of losing your investment.

If you’d like to find out more ways to manage your finances, keep reading the rest of our blog.

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