All about Ripple (XRP)
Many crypto projects aim to create an alternative to banks and other centralized financial institutions. However, one project stands out sharply against the background of almost all blockchains: its creators have developed a banking-centric protocol.
History of Ripple
The history of Ripple (XPR) dates back to 2005 when Ryan Fugger launched OpenCoin, a financial service providing secure online payment methods via the global network. In 2011, current Ripple CTO Jack McCaleb began developing his digital currency based on the Ripple Protocol Consensus Algorithm (RCPA), which uses a network of validator nodes instead of miners, along with most blockchains based on the Proof-of-Stake algorithm.
Ripple's payment protocol based on the XRP Ledger blockchain was launched in 2012, and in 2013, they released the XRP token and renamed the company Ripple Labs. XRP Ledger was the first protocol to introduce decentralized exchange (DEX) functionality.
In 2013, the company closed a private funding round and announced interest from banks in cooperating with Ripple. In 2015, Ripple Labs attracted the attention of US regulators: the US Department of the Treasury (FinCEN) fined the company $700,000 for "willful violation of the Bank Secrecy Act" because it provided financial services to customers without registration. That same year, the company was renamed Ripple.
In June 2016, Ripple became the fourth company to receive a BitLicense digital currency licence from the New York State Department of Financial Services.
In 2018, more than 100 commercial banks have interacted with Ripple in one way or another, but most only used the XCurrent messaging system. Many companies did not risk using the XRP token because of its high volatility.
Between 2013 and 2019, Ripple raised over $290 million in various funding rounds. Ripple's investors include well-known funds such as A16z, Standard Chartered, Pantera Capital, Google Ventures, SBI Holdings, CME Group, and dozens others.
In the second quarter of 2023, the company unveiled its platform for issuing and managing digital currencies and stablecoins called Ripple CBDC, based on its proprietary XRP Ledger technology.
Ripple and the SEC
Obtaining a BitLicense licence did not save Ripple from litigation. Since 2020, Ripple has been in litigation with the US Securities and Exchange Commission (SEC), which accused the company and two executives of violating investor protection laws.
According to the SEC, the company illegally raised more than $1.3bn by selling unregistered securities, which the regulator recognised as XRP tokens. As a result, significant exchanges Coinbase, Crypto.com and Binance US, which provide services to US customers, delisted XRP.
In 2023, the US District Court for the Southern District of New York ruled in SEC v Ripple, recognising that the XRP token was not a security. However, proceedings over unregistered token sales are still ongoing.
Features of Ripple
The Ripple team developed its own RCPA consensus to address network scalability issues relevant to older-generation blockchains like Bitcoin and Ethereum, which could only handle up to 7 and 15 transactions per second, respectively.
Ripple's protocol processes over 1,500 transactions per second, which is still relatively small compared to payment giants such as Visa and Mastercard. Despite strong interest from banks, they note that Ripple is currently "unable to accommodate the entire banking system." In particular, SWIFT representatives noted that Ripple's scalability issues remain unresolved.
The Ripple protocol differs from most blockchains in its high degree of centralisation. XRP Ledger gives network validators the ability to freeze wallet balances. This and other controversial features of the protocol have led to criticism of Ripple, and many members of the crypto community do not recognise XRP as a cryptocurrency at all, as its value system differs from the ideology of decentralized systems.
Advantages and disadvantages of XRP
The pros of XRP include the following:
- High speed and low transaction costs. Transfers in Ripple are much faster compared to Bitcoin or Ethereum, and the transaction fee is less than one cent;
- Integration with banks, which allows for secure and cheap international transfers using the Ripple protocol;
- XRP is highly liquid and one of the top five cryptocurrencies by capitalization.
Ripple's cons:
- The high degree of centralisation can result in individual transactions being blocked. Although the network consists of 150 validators, their recruitment is controlled by Ripple itself;
- A closed ecosystem. For example, identical Bitcoin using wrapped tokens like WBTC can be used in dozens of networks based on smart contracts. XRP cryptocurrency, on the other hand, is only available in BNB Chain and Klaytn networks, in addition to the Ripple protocol. This restricts XRP holders from accessing the liquidity of the DeFi sector.
- A fee of 20 XRP is required to create a Ripple account;
- No mining or other reward system for ecosystem members;
- Despite Ripple's large capitalization and popularity, the XRP cryptocurrency never reached the all-time high of $3.84 in January 2018. In May 2021, during a bull rally in the crypto market, the price of XRP could only earn $1.59. This could be due to a drop in demand and the issuance of additional XRP units that the company controls.
