XRP is the native token of the Ripple protocol developed since 2012 by the company of the same name and is one of the most capitalized cryptocurrencies in the crypto market.
The cryptocurrency's existence is tied to the open source Ripple protocol, which is intended to enable faster global transactions with virtually zero commission costs. However, the existence and operation of the network does not appear to be tied in any way to the company, which has repeatedly stated how Ripple can function properly without it. To date, XRP represents the most popular digital currency in terms of transaction convenience for transferring money from one wallet to another.
On a technical level, Ripple does not represent a blockchain, but rather a decentralized network protocol based on a distributed ledger. The transaction validation process is managed by a series of nodes also known as validation servers, operated by both individuals and institutional users. Therefore, the operation of the network does not use any consensus algorithm typical of other cryptocurrencies (e.g., PoS or PoW), and it is also not possible to mine new XRP because Ripple requires neither computational computing power nor much energy input to function. All this makes the supply of XRP determined, although to date only half of the total tokens have been made available on the market.
Because of the peculiarities that characterize the Ripple protocol, it is not properly correct to define XRP as a traditional cryptocurrency but rather as a digital currency. In fact, the only element that XRP shares with other cryptos in the market is the decentralization of validators, which is also one of the elements that differentiates the token from other (typically centralized, such as CBDCs) digital currencies. Moreover, the Ripple company never intended to create a blockchain that would be an alternative to traditional payment systems; rather, it has always sought to create a tool that would be able to innovate, implement existing payment methods, and in particular improve the SWIFT system, which to date is the main method used worldwide for interbank money transfer. For this reason, XRP can be seen (rather than as a store of value or a utility token) as a true means of payment, which can be exchanged in both traditional currency (fiat) and cryptocurrency, as well as in any other unit of value.
The Ripple protocol is based on three products developed by the company, namely xCurrent, xRapid and xVia, which have recently been merged into a single product, namely RippleNet.
XCurrent represents an interbank communication software that allows banks to instantly settle cross-border payments with end-to-end monitoring: this transaction confirmation system enables a secure encrypted payment flow characterized by the immutability of the recorded information, as it happens on blockchain.
XRapid, on the other hand, represents a software solution to provide liquidity to users by optimizing XRP exchange rates: the operation is the same as xCurrent, except that in this case transactions are completed in XRP to circumvent the time and cost of currency exchange, especially when banks are operating in emerging countries, where it is not always possible to obtain a favorable exchange rate.
Finally, xVia is a standard payment interface, which allows users to send money transparently.
These services allow Ripple to provide a unique crypto-banking experience that circumvents the main obstacles of traditional banking transactions: cost and time.
Ripple technology was conceived in 2004 by Ryan Fugger, a full five years before the birth of Bitcoin, effectively making XRP the first "cryptocurrency." However, the idea of basing the technology on validation through distributed consensus would only begin to take hold in 2011, a year before OpenCoin was founded in San Francisco, California, by some of Fugger's collaborators, Jed McCaleb and Chris Larsen. Starting in 2012, XRP took the form we know today and the company changed its name to Ripple Labs Inc. (from 2015 onward just Ripple). The company will be the fourth to obtain a Bit License from the New York State Department of Financial Services (NYSDFS), a license required to provide virtual currency financial services. Since then, the adoption of XRP and the Ripple protocol has had considerable success with both the community and real institutions: in 2018, the Santander banking group released a first mobile application for international payments based on Ripple technology, followed by other Japanese, Thai, and Indian banks. In addition, Ripple's investors include several multinationals active in the technology and digital sectors, such as Google Ventures, Seagate Technology, AME Cloud Ventures, and Accenture.
However, despite the boldness of the project, attention has often been diverted to Ripple by the numerous legal disputes the company has faced since its establishment. As far back as 2015, Ripple received an initial civil penalty of $700,000 from the U.S. Treasury for operating as a money services company despite being unregistered. More notorious, however, is the dispute that arose with the U.S. Securities and Exchange Commission (SEC) in 2020, where Ripple was accused of illegally providing investment services through a $1.3 billion offering of unregistered securities. The company defended itself by asserting how the sale of its XRP asset did not in fact constitute a sale of securities, but rather of digital assets, as the holding of XRP did not grant holders any benefits typical of a financial security (such as, for example, division of company profits or forms of participation in corporate life). The issue remains unresolved to this day and, once resolved, will go on to set an important precedent in the crypto sphere, determining once and for all the framing reserved for cryptocurrencies that are insufficiently decentralized.
Going forward, Ripple has announced several strategies to be pursued in the implementation of its protocol. The company's main goal remains to implement a global transaction network in close cooperation with banks, payment service providers and financial institutions, providing a flexible intermediary currency that can guarantee the exchange of any unit of value. To do this, the goal is to implement the number of transactions per second, increasing from the current approximately 1,500/s to 65,000/s, thus reaching Visa's performance. However, Ripple remains in search of new use cases to expand its business: this is the case with Ripple Xpring, an initiative of the company aimed at investing, incubating, acquiring or providing grants to new projects that could implement the use of XRP. Moreover, one of the most favorable elements for the project's scalability remains the system's low energy footprint, which is able to process its transactions with minimal energy input (only 7.9 W/h, equivalent to the consumption of a hair dryer).
Despite this, to date Ripple has several critical issues that may in some way hinder the development of its technology, first and foremost the centralization of the project: in fact, although the validator nodes are autonomous from the will of the company (which is still a for-profit entity), 50 percent of the tokens are held by Ripple. Although the company has a crypto escrow that releases its tokens in a phased manner, the risk of copious releases of tokens in the market is still a non-excludable eventuality that could generate a knock-on price collapse of up to 90 percent of the current value. Another critical issue related to centralization is then the number of validators. In fact, to allow current transaction times, the Ripple protocol has only 31 validators, a small number when compared to Bitcoin's more than 11,000. Also to be considered is the possibility that Ripple loses its lawsuit against the SEC. In the worst case scenario, in fact, XRP would be recognized for all intents and purposes as a security and consequently as a financial instrument, forcing crypto platforms operating in the United States to delist XRP lest they in turn incur penalties from the SEC. Again, the risk is that of a price collapse due to panic selling. In addition, another particularly controversial element that threatens to undermine mass adoption of XRP is inherent in the nature of the protocol itself: since it is an open source system, anyone can access Ripple's source code and propose improvements or new projects based on the same technology. The community, however, averts this possibility, since Ripple's strength would not lie in its source code but rather in the established position the company has achieved over the years. Finally, a final critical element is the increasing adoption by states of so-called centralized digital currencies (or CBDCs), which could undermine XRP from its target market. Indeed, the company itself, in order to avoid seeing its token replaced, is actively collaborating with private and public entities in the implementation of CBDCs and new stablecoins, in order to still maintain a leading position in the future of international transactions.
