What is the Difference Between Ripple and XRP?

One of the earliest altcoins on the marketplace, XRP, was launched in 2013 with quite different functions to cryptocurrencies like Bitcoin. The company is now known as Ripple Labs was formed in 2012, and its network publicly launched in January 2013 when the first transactions officially began taking place.

Confusion often exists about Ripple because, a bit like Bitcoin which has both a network and a coin with the same name, there is both a Ripple payments network and a native token or cryptocurrency (XRP), which people also refer to as Ripple. However, Ripple’s XRP ledger has key differences to a decentralized public blockchain like Bitcoin’s.

Origins of Ripple

The idea for Ripple goes back even earlier, and some argue it even predates Bitcoin. A developer called Ryan Fugger based in Vancouver, Canada initially created a way for people to extend credit to strangers through the people they already knew. Ryan built Ripplepay in 2005–06 with the goal of giving individuals the power to operate as their own banks, and with the ability to issue credit.

By 2012, the concept had grown into a fully-fledged business co-founded by Arthur Britto, Chris Larsen, and Jed McCaleb. Their software company, Ripple Labs, started by creating a network with the goal of disrupting financial services. The original aim was to speed up cross-border payments and make them cheaper and more secure, effectively getting rid of middlemen like SWIFT (the Society for Worldwide Interbank Financial Telecommunication). SWIFT’s services account for $5 trillion worth of transactions per day — so the stakes were high — yet today SWIFT maintains that Ripple’s impact is still limited. They argue that Ripple’s network is far too slow and can’t scale, as well as having other drawbacks which will confine it to only being suitable for intra-bank solutions.

Ripple the network and XRP the cryptocurrency

There is not necessarily a direct correlation between the value of Ripple as a business (or its proprietary payment network) and the price of XRP as a digital asset. Nevertheless, their fortunes are intertwined in many ways especially since Ripple Labs owns a large number of XRP tokens (they are estimated to be holding around 60% of the current tokens that are in circulation).

In December 2017, XRP briefly became the world’s second-largest cryptocurrency, with a market capitalization of US$86 billion. It surged over 50% in 24 hours even overtaking Ether, Ethereum’s cryptocurrency which had previously dominated the rankings in second place after Bitcoin.

However, after the high, XRP’s price fell and eventually crashed to a 3-year low a few months ago, from which it has failed to recover. A mixture of technical criticism, legal wrangles and large numbers of tokens being dumped on the market have all had a negative effect on XRP’s price.

Criticism of Ripple

Ripple tends to divide opinions in the cryptocurrency world. Some see its network as a practical solution to settlement challenges facing the financial institutions, yet many others criticize XRP for not being a ‘true’ decentralized cryptocurrency like Bitcoin or Ether because the network nodes are controlled by a central issuer. Since Ripple’s protocol is more centralized than ‘permissionless’ (open source) public blockchains, critics argue it is more prone to attacks. They are also worried that the relationship between Ripple Labs and XRP is not clear enough which could risk the value of the currency being manipulated by vested interests.

While Ripple has its critics in the cryptocurrency community, its XRP token nevertheless has qualities that make it attractive from an enterprise perspective including much faster transaction speeds than Bitcoin, Bitcoin Cash, Ether or Litecoin, giving it greater possibilities for enterprise use at scale. Transaction costs are also substantially lower and in the future, Ripple also has plans to introduce functionality to support stablecoins (tokens which remain fixed in value as they are tied to a real-world asset) which would provide a solution to any issues surrounding the price volatility of XRP.

Future for Ripple?

Ripple now has over 300 financial institutions that have joined its network — RippleNet — and has formed a strategic partnership with MoneyGram, in which Ripple has taken a stake in MoneyGram to the tune of just under 10% of its outstanding common stock while MoneyGram, in turn, is using Ripple’s X-Rapid service for settling cross-border payments.

Ripple previously also undertook trials with Western Union and has completed a successful trial with American Express and Santander. The collaboration between American Express’s FX International Payments division, Ripple and Santander allows for real-time movement of corporate funds within a few seconds. This market is ripe for disruption and other banks and credit card companies may be next to follow suit.

So, where will Ripple go in the future? In a tough and competitive marketplace for money transfer, is it going to eventually be the solution that disrupts the banking industry, or will it be replaced by a new generation of faster, more scalable, and more decentralized competitors?

The prospect of adding stablecoins and even the ability to seamlessly trade other digital assets that are pegged to real-world value, for example, a token which represents ownership of a fraction of a property, means that the potential for Ripple’s network to expand is probably still in its infancy.

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