What is XRP

Why bother?

This is a long document, so before we get on with what XRP is, how it works, how it differs from bitcoin, and who uses it, I’d better start by talking a bit about why we think you should continue reading. In case you were given this article by a friend of yours, while they sounded crazy talking about magic internet money, let me tell you that while nobody can predict the future your friend might not be as crazy as they appear to be.

Imagine it’s the late 19th century. You are standing in front of a car engine, although you are not sure what sorcery it is because you’ve never seen one. All you see is your friend asking you to think about how the world could be if we put wheels on this engine and built roads. “Maybe one day, we won’t even need horses!” they say. They really do sound crazy. You ask: if it works then why hasn’t anyone else done it so far? How are we going to find so much gas for everyone? Why isn’t the horse industry jumping into this and will they allow it?

There is however one person that takes your friend seriously: Henry Ford.


old car

There are two main reasons why I think you should continue reading:

  1. The technology and concept behind XRP is as revolutionary to financial technology as the invention of the car was to transportation. So, whether you invest or not, it is certainly very interesting to know the potential that exists and where we see the world heading.
  2. XRP has already started being used as a core component in some parts of the financial sector, and if it continues gaining traction the assumption is that its price will rise. As you are reading this, the remittances giant Moneygram is using XRP in large and growing. So, who knows? Maybe by the end of the document, you will have realized a way to make something out of it, or at least be intrigued to research further.
The Internet

Before I start talking about what XRP is and how it works, let’s talk about the Internet a bit. Did you know that in 1998, economist and 2008 Nobel prize winner Paul Krugman said that the Internet’s impact on the economy will be no greater than that of the fax machine? It’s true, google it. I’m not here to bash on Krugman. I can see why he made that forecast. At the end of the day, the Internet is a communication tool, and it was perhaps easy back then to see how fax and postal mail would be replaced by email. Well, as long as you are not sending physical packages right?

Over the last couple of months, I’ve met a translator who completely disregarded the impact of technology on their work and an 18-year old who will soon begin studies in accounting. Truth be told, predicting the future is hard, and sometimes 18-year olds will go study accounting even if we know that the mundane and repetitive tasks that accountants perform will be automated, reducing the market need for accountants and leaving room in the workforce only for high-end accounting consultants.

Seeing just what is in front of you is absolutely normal. However, some people did see some of the possibilities the Internet would bring. Perhaps Jeff Bezos didn’t think in 1994 that one day he would be the richest man in the world, owning a company that would be delivering stuff with drones that don’t need pilots, or that his company would own stores that don’t need cashiers, but he did realize that starting an online shop was a good idea. On the other hand, in September 2000 the movie rental giant Blockbuster turned down an offer to buy Netflix for $50m, thinking streaming movies over the Internet was a joke. Where is Blockbuster now?

Looking at the crypto bubble of 2017 I see a lot of similarities with the dot-com bubble. Was the dot-com bubble expected to burst? Definitely. There was so much excitement about the internet. People threw money into literally everything remotely related to the internet. While a lot of those companies failed, some of them prevailed to become giants. Amazon is one of them.

Now, look at cryptocurrencies. At the time of writing this, according to CoinMarketCap, there are over 5000 cryptocurrencies out there being traded. A lot of them existed in 2017 and grew in price along with everything else before they burst. Most of them will never recover, and will probably start being delisted from exchanges until you can’t trade them anymore and they fade away. Question is: Will everything fade or will some cryptocurrencies turn out to be the giants of this industry?


From information to value

While in the last two decades the Internet grew far beyond what anyone in the dot-com bubble could have predicted, there is still one thing that it is bad at: transferring money.

Fun fact: You probably know and have seen the HTTP status code 404 (Not found) when you clicked on something that doesn’t exist, or perhaps the code 500 when Youtube breaks and Google dispatches its team of highly trained monkeys to fix the issue. They are good engineers but not good comedians I guess. Have you ever seen HTTP status code 402? You probably haven’t. It was actually created to be thrown when a payment is required, but it’s not being used that often. Because how would web developers use it? Users don’t pay websites directly. They can’t. Payments go through third-party payment providers like Paypal or Stripe who take a big chunk of the money and then reply back to the website whether you paid or not.

Why do you think this happens? The Internet is pretty good at transferring information, however, this information is duplicated every time it needs to be transmitted. When you send a Word document to your friend it doesn’t disappear from your PC. When you post something on Facebook it is stored on Facebook’s servers and a copy of it is sent whenever it appears on someone’s feed. This is brilliant. It enables us to do so much, but there is one thing that it doesn’t let us do: send money. Money is one of those things that you can’t duplicate. When you send $1 to someone, the world needs to know that you no longer have that $1. While this is an inherent feature of cash, it turns out it is tough to do when money is digital.

Before bitcoin appeared, digital money could only be held at financial institutions that are regulated and audited to make sure they keep their balances legit. Oversimplified, when you as a user deposit your money in a bank, and then later want to send some of that money to another user in the same bank, what really happens is that the bank just modifies the accounts to reflect this transaction. This is money nowadays: numbers in computers that change automatically, a natural evolution of financial technology, and one more thing that people would have considered crazy before we invented computers.

Things start getting more complicated when you want to spend money elsewhere. When you send money to someone in another bank in the same country your country’s central bank probably controls some local rails to make sure that the money has been withdrawn from the account in bank A and deposited in bank B. The two local banks probably don’t trust each other, but thankfully we have the central bank to guarantee trust.

Should we talk about sending money cross-border? Things get really complicated here. Take EU-based transactions for example. Sender and receiver currency is euro (phew, no FX needed), but there are so many banks it’s impossible for everyone to trust everyone. What has happened is that the European Union created EU payment rails to accommodate these transfers, called SEPA.

What if you try to send money to another country with no direct relationship and different currency? We have a system. It’s called SWIFT. It will take a lot more than a paragraph to describe how it works, so what you should know is that SWIFT was founded in 1973, and now almost 50 years later it is a network that uses obsolete technology and forces banks to hold foreign currency accounts in other banks that they wish to have a direct relationship with to accommodate payments. The accounts are called Nostro/Vostro, and if you stick around to research XRP you will be hearing about them often, because it is a burden on small banks (and perhaps start-ups that want to get involved in payments), and a major problem that a company named Ripple tries to solve using XRP. Remember how earlier we said that Moneygram is a heavy user of XRP? That’s because they are a customer of Ripple, using their technology. SWIFT transactions typically take 3 or more days to complete, a far cry from the instant transfer of information of the Internet.


correspondent banking model

Right now you might be a little bit confused. We were talking about the Internet, and all of a sudden the discussion went to SEPA and SWIFT. Maybe you don’t understand why SWIFT payments take days because when you buy something online the payment is instant right? Well, yes, and no. The payment is instant but that payment may take days to settle. That is partly why accepting card payments over the internet costs so much to the merchant because your card company and the payment provider manage the risk of settlement. The customer may not realize it, but there is a cost, and that cost is of course added to the price of your purchase.

Enter W3C Web Payments, specifically the Web Payments Working Group and the Interledger community group. Interledger is a protocol designed to connect payment networks and ledgers, the way IP connects local networks to become the Internet. The world now is trying to standardize payments, and the people at Ripple are at the heart of this effort. Ripple’s efforts are the exact opposite of the early bitcoin maximalists and anarchists. Where they thought that Bitcoin would be replacing the entire financial system, Ripple understood that governments and banks are here to stay, and they brought the technology behind bitcoin to help the financial system evolve.


A brief talk on digital assets

Imagine if we didn’t need trusted intermediaries to verify our transactions and make sure that money moves as we expect it to move. This is what the bitcoin inventor Satoshi Nakamoto solved in 2008. For the first time ever, we had a public, open, decentralized network of money where anyone could join and transact without the need for banks of governments. No wonder that when it spread out of the cryptographers and computer scientists who created and studied it, it was caught by extreme libertarians and anarcho-capitalists some of who thought that bitcoin would make banks and governments disappear.

The world of cryptocurrencies would probably have taken a different path had bitcoin not been naively championed as the death of governments. Nobody ever took them seriously. When the G20 or the G7 met to discuss cryptocurrencies the discussion revolved around whether the $200-$800 billion cryptocurrencies market was a threat to financial stability, and the decision was always no. There were some conspiracy theories running around from early bitcoin adopters about how they said “no” and that there was nothing they could do to stop bitcoin so they are just diminishing it while they buy it, but was that really ever true? The main point was that instead of discussing how blockchain technology could revolutionize fintech the discussion was about if bitcoin can actually hurt the financial world. It wasn’t until 2019 that we started noticing the regulatory climate shifting towards the good other digital assets can do.

The world is not that simple, and you can’t make entire governments and the financial sector disappear overnight because you published some piece of open source software, no matter how revolutionary that software is (and in the case of bitcoin, it really is). Even if the political will existed, soon we realized that bitcoin also suffered from technological problems that made it unusable. Besides the environmental disaster that bitcoin is, the entire world cannot run on 6 transactions per second that take an hour to confirm.


Bitcoin Power Usage

Yet bitcoin was the first open, public, decentralized network for digital assets, a true innovation that did away with the need for central authorities to maintain our balances and enable our transactions.

  • Open: Anyone can join and leave the network without the need for permission. Nobody has the authority to grant or revoke permission to join by running a node.
  • Public: The network runs on the Internet, so anyone with Internet access can view the transaction history, have their own wallets, and send transactions.
  • Decentralized: The network consists of a number of nodes that are geopolitically distributed.

Such peer-to-peer networks existed before Bitcoin for other use cases like file sharing. When thinking about digital assets the innovation is not the peer-to-peer part, or the digitization of assets since it’s exactly what central parties do, but the artificial creation of scarcity through code. The true innovation was solving the double-spend problem, mathematically ensuring that Alice’s $1 can only be spent once.

In order to use bitcoin (or any digital asset) what you need is to generate an address/wallet. In asymmetric cryptography, you can create a private/public pair of keys. Anything encrypted with the private key can only be decrypted using the public key. You share your public key with the world and keep your private key to yourself. This way, if something can be decrypted with the public key the world knows that it came from you. Digital assets use this concept, in the sense that a wallet address is basically your public key, and you use your private key to sign transactions. When someone else wants to send you bitcoins, they send it to your address / public key.

Address/key pairs are generated programmatically for you, usually by the wallet tool you are using. There are plenty of wallet apps out there for all digital assets. Fun fact: Some people worry and ask, what if someone generates the same address as you? Bitcoin uses 160-bit addresses, which means a total number of 2 to the power of 160 (2^160), or approximately 1.4 * 10^48. It is estimated that all of earth’s beaches have 5.6 * 10^21 grains of sand, so if you pick a single grain of sand on earth it is highly more probable that another person will pick the same one, rather than you two generating the same wallet address.


Bitcoin and the double-spend problem

So how did bitcoin manage to solve the double-spend problem, creating digital scarcity through source code in a trustless decentralized way without intermediaries? This section is going to get a little bit technical, so if you feel like you want to take the properties of these networks at face value and just skip this section nobody is going to blame you.

Still here? Good. Let’s backtrack and talk about passwords! Have you ever noticed that when you click “Forgot password” on a website, you are typically emailed a link to a form to set a new password, instead of being emailed your actual password? If any website actually emailed you your password then they really messed up. That’s because normally they don’t actually have the password, but a hashed version of it.

Hashing is the process of transforming one piece of text into another (called a hash), in a deterministic way such that the same text will always be transformed to the same hash, but you cannot reverse this transformation. Moreover, any change in the original text will generate a completely new hash such that you can’t really know how much the two pieces of text actually vary.

SHA-256 is a commonly used hash function. Here’s the sha256 of a few pieces of text to help you understand:

  • Bitcoin: b4056df6691f8dc72e56302ddad345d65fead3ead9299609a826e2344eb63aa4
  • bitcoin: 6b88c087247aa2f07ee1c5956b8e1a9f4c7f892a70e324f1bb3d161e05ca107b
  • XRP: 631ff8768671f3eae0117246886ac4978e351ef21aa92299217cd071b54cc8d7

Try it out yourself. Find a SHA-256 tool online, or use any programming language running on any operating system and any computer. The result of the hash function will always be the same.

You might think that it makes no sense that a transformation can be one way. Yet it does, and let me show you why. What’s the square root of 25? Did you think 5? You are partly right. It could be 5, but it could also be -5. You don’t know. You know for certain that 5 squared and -5 squared both give out 25, but if you are looking for the square root of 25 you don’t actually know which one it is. This makes the square function somewhat irreversible. I’m not saying of course that hashing is about squaring numbers. This was just a simple example of a one-way function to help you understand. Other functions can actually be reversed by they are computationally more expensive. Multiplication of prime numbers is an example of this and at the very core of encryption. Multiplying two prime numbers is easy, but if all you have is their product then it’s hard to know which two numbers you actually multiplied to get there. If you want to continue reading about this there is a pretty good answer on StackExchange.

Web-sites store your password hashed, and when you try to log in the password you provide is hashed and compared to the hash stored. This way, nobody with access to your information can see your password when it is just sitting there in a database. For someone with the hash to find your original password they need to brute force, i.e. hash all possible passwords until they find what is called a collision, a password that when hashed matches the hash already stored. Simple passwords can be cracked this way in minutes, while complex ones can take thousands of years.

Why am I telling you this? Because hashing is a very important aspect of bitcoin’s blockchain. A blockchain is as its name says a chain of blocks. Each block contains a number of transactions and is chained to the previous block using the previous block’s hash. Because every block contains the hash of the previous block, this means that the previous block cannot be changed otherwise the hashes won’t match and you know something has been tampered with. This is what makes blockchain immutable.

Additionally, a bitcoin block contains some text such that the hash of the block concatenated with this text starts with a certain number of zeros. This is similar to brute-forcing a password as described earlier, because you need to find this text, and it’s called Proof of Work (PoW). Depending on the hashing power on the network the number of zeros in the hash required changes every two weeks to maintain a constant flow of blocks, approximately one every ten minutes. So the miners compete trying to solve this “puzzle”, and the one who does dictates what the next block will be. They add the transactions they want in the block and get the transaction feeds and some inherent block reward (currently 12.5 BTC, but halves every few years, with the next halving this May 2020). Therefore, even if Alice sends her bitcoins to both Bob and Charlie, only one of those transactions will be written in the block. Voila, double-spend solved.


The problems with Bitcoin

Warning: like all things in life there is a group of people called maximalists that are very dedicated to bitcoin and see no problems with it. They typically don’t take kindly on arguments such as the ones that will be presented in the section. They will try to dismiss the arguments as FUD (fear, uncertainty, and doubt) as if the future of bitcoin is set in stone and any debate is just an evil attempt to stop you from buying bitcoin and profiting from it. You have to buy of course at a higher price than the people selling you bought for, so they can make a profit, and selling later at a higher price to someone else who in turn will hope for someone to buy from them higher. A Ponzi scheme? Personally, I agree with Bill Gates, bitcoin is a greater fool’s investment because the only reason you are buying it is in hopes that someone else will buy it from you later at a higher price. It has no other utility. It’s a gamble that a greater fool will show up. I’m not obviously saying you can’t make a profit from it. I don’t underestimate the foolishness out there, but is it really this kind of investment you wish to be making? It is up to you as the reader to listen to both sides and make up your own mind.

In the 2008 Bitcoin whitepaper, Satoshi Nakamoto called their invention a peer-to-peer electronic cash system. That’s a promise bitcoin failed to deliver on, regardless of how innovative it is. Each bitcoin block is 1MB in size, which means that at an average of 570 bytes per transaction a block can store around 3500 transactions. Considering that a block is generated every 10 minutes, this comes around to 6 tx/s (transactions per second), which of course makes it ridiculous considering that maximalists thought they’d be replacing banks and governments with bitcoin. Take this in contrast to just one global payments network, VISA, which can handle 1700 tx/s. Some people realized this and forked (copied and modified) Bitcoin into what’s called Bitcoin Cash, increasing the block size to 8MB, and although this, of course, increases the transaction bandwidth to 100+ tx/s it’s still not merely enough to be used seriously on a global scale. Some people claim to have layer-2 solutions, that sit on top of bitcoin, specifically the Lightning Network, but I’ll cover this in a bit.

Transaction bandwidth is not the only limitation caused by bitcoin’s PoW. Remember earlier when I explained how miners add transactions to a block they publish? What happens if there are more pending transactions than what can fit in a block? That’s easy: the miner chooses the ones that pay the highest fees. During the bull run in 2017, there were so many pending transactions on the bitcoin blockchain, that to get your transaction in a block some people paid fees of more than $20 per transaction. So much for buying your coffee using bitcoin.


Bitcoin Transaction Cost History

Still, the capacity of the network is nothing compared to the bitcoin horrors of PoW. At the end of the day, it really doesn’t matter if bitcoin doesn’t work. We were fine without it before and we’ll be even better with bitcoin-inspired solutions that are actually usable. The real horror is the environmental catastrophe that bitcoin causes. As explained earlier PoW is all about brute-forcing a hash, which may be useful when trying to crack a password, but in the case of bitcoin it’s what you’ll often hear as “solving a useless math problem”; a very appropriate definition considering we now have much better solutions to the double-spend problem. How much electricity does bitcoin mining use? Sit down before you read on. It’s currently more than the entire country of Switzerland. Yes, when some people are trying to save the environment by banning plastic straws, others think it’s appropriate to use this much electricity for a payment network that doesn’t work.

The fact that bitcoin requires so much energy for mining might also be an indication that the network is unsustainable. Miners need to sell their block rewards because they need the fiat to pay their electricity bills. This means that there should be a constant demand for bitcoin because a lot of the money that comes into the bitcoin ecosystem immediately goes out the other side. What will happen if there is no such demand? We are a few months away from the next bitcoin halving, which means that the price of bitcoin must double for the miners to sustain equal profits. Good miners probably realize this and have a good amount of bitcoins available in the bag to sustain for a while if the price doesn’t increase, but sooner or later they will run out. So in the near future (possibly before the end of 2020) either the price of bitcoin has to increase or some miners will have to shut down until the hashing power of the network causes a level of difficulty that makes it profitable for the rest of them.

Are you done with this section or should I continue? Nobody should really need more after reading all of that above, but for the sake of entertaining thoroughness let’s continue.

Satoshi’s vision (no pun intended for another bitcoin fork called Bitcoin Satoshi Vision) was that Bitcoin would be open and decentralized. What they ignored was economies of scale. In short, people mining bitcoin found it more efficient to merge their mining power into mining pools and split the block rewards and transaction fees. This way miners guaranteed a more uniform income stream, instead of praying for being the one to solve a block. Mining pools physically consolidated where there is cheap electricity. The end result is that 4 mining pools all physically running in China own about 60% of the bitcoin hash rate. If that’s not ironic enough, they mostly run hardware from a single manufacturer of specialized mining hardware (ASIC), called Bitmain. With mining being centralized is bitcoin the government-free censorship-resistant network that early adopters thought it would be? Can, for example, these 4 mining pools collude to exclude transactions based on their own criteria other than fees? Can these pools perform a 51% attack on the network? Some critics say that it’s too expensive, and not in their interest to do so. Others think that bitcoin is so small that plenty of governments could bring it down if they wanted, especially when they can short bitcoin in the process to cover some of the costs. It’s certainly been done in the past with other PoW chains like Verge, Bitcoin Gold, and Ethereum Classic. With most Bitcoin mining consolidated in China, who knows what will happen?


Bitcoin Mining Pools Chart

What about the actual distribution of the coins? Is it at least decentralized this way? There’s more irony to be found here. Bitcoin was released in 2008 as a “revolution” caused by the financial crisis. The very first bitcoin block mined by Satoshi (genesis block) contained the memo “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks”. Now, don’t get me wrong, I’m not at all fond of what happened with the financial crisis, and how the average joe paid the price of the bankers’ greed. Yet one could argue that the crisis was the cause of not enough regulation (something that the world has been working on), so retaliating by trying to create a system that actually bypasses all regulation seems unwise. Some people will disagree of course, but consider this: what if bitcoin actually became the global currency of choice, worth $1million each, how would the wealth distribution look like? According to a survey by Kaspersky Lab, 19% of the world population own cryptocurrency (not even specifically bitcoin). As for bitcoin distribution itself, at the time of writing 2.69% of bitcoin addresses own 95.35% of all bitcoin. Do the math: 0.5% of the world’s population own 95%+ of all bitcoin. That’s assuming 1 address per person, but of course, individuals may have multiple addresses, making distribution even worse. The actual wallet that Satoshi used when they launched the network contains 1 million bitcoins, out of a total of 21 million that will ever exist. So much for the war on the 1%.

What about immutability? Remember earlier when explaining how bitcoin works I talked about a chain of blocks, each block linked to the previous one using its hash, and how that makes the chain immutable? That’s only partly true. If you ever send bitcoin to an exchange you will notice that they require a number of confirmations before they let you use that bitcoin. For example, the popular exchange Coinbase requires 6 confirmations. Confirmation is the number of blocks mined ahead of the block that contains your transaction. At 1 block every 10 minutes Coinbase requires approximately 1 hour of blocks after your transaction is recorded before they let you use your bitcoins. They do this because bitcoin is not that immutable after all! There is a feature in bitcoin which says that the longer chain offered always prevails. If a mined block contains your transaction and someone comes up with two blocks that don’t contain it then your transaction is basically reversed. The assumption here is that the more you go back the more computationally expensive it is to mine all those blocks. Coinbase finds 6 blocks to be safe enough, but there was an incident recently where one of the world’s largest exchanges, Binance, had bitcoins stolen, and its CEO met with the miners to discuss a rollback of up to 3 days. Rest assured though, they didn’t proceed with the rollback because they thought it would cause a PR crisis in bitcoin. How do you do that in a decentralized system, and what exactly does “a PR crisis in bitcoin” mean? In my mind, it seems like they understand that a lot of people falsely believe that bitcoin is immutable and they don’t want to shatter this idea.

The time has come to cover the lightning network. Maximalists like to throw it out there as the solution to the problems bitcoin is facing with transaction speed and throughput. While of course bitcoin needs LN the most, it’s actually a layer 2 solution that can work on any blockchain (LN is not bitcoin exclusive). We call it a layer 2 solution because it enables fast and cheap peer-to-peer transactions that don’t actually settle in bitcoin in real-time and are settled later in bulk. What’s the catch, other of course that it’s not ready yet and won’t be ready in the foreseeable future? The catch is, that for two nodes to open a payment channel between them they actually need to lock an equal amount of bitcoins as the size of their channel. Does that ring a bell? Let me help you out: LN nodes are banks on bitcoin. They will act as custodial for your bitcoin to enable you to send fast and cheap transactions. In this hypothetical future scenario how long before LN nodes start lending out bitcoins and the entire network becomes identical to fractional reserve banking?

Now, let’s talk about anonymity. I’ve seen bitcoin maximalists who thought that bitcoin was actually anonymous, and once again I was amazed by the human potential to passionately believe something without understanding even the basics of it. Bitcoin is not anonymous but pseudonymous. All transactions are recorded and remain visible in the blockchain, but of course, it is done not using real names but bitcoin addresses. Therefore, bitcoin is anonymous as long as you cannot match the addresses to physical people. Considering that most trading happens on exchanges or OTC desks that require KYC and that most new bitcoins are mined at centralized miners how likely is it that tax bodies are unable to “follow the money”?

Lastly, let’s talk about the store-of-value concept. Some bitcoin maximalists seeing that bitcoin failed to become a payment network started putting out the narrative that bitcoin is a store of value akin to digital gold. Yet people who buy bitcoin buy it as a speculative investment, and not because they need a place to actually “store their value”. In fact, if storing value is what you need then bitcoin is far worse than a huge array of alternatives because of its extremely volatile nature. I reckon even banks with negative interest rates holding your inflationary fiat currency is a better store of value than bitcoin. People who bought the top of $20,000 per bitcoin in 2017 certainly don’t think they have had their money stored. People who bought lower than the current value of $10,000 (at the time of writing) may not complain since they turned out a profit, but that’s still gambling and not a store of value.

XRP – The better digital asset

In the face of all the problems with Bitcoin, some people started thinking of better alternatives to PoW. One such idea came from Jed McCaleb in May 2011 on the bitcointalk forum. This post is Jed’s initial concept, out of which the XRP Ledger was born. The initial architects of the XRP Ledger were Jed McCaleb, Arthur Britto, and David Schwartz. A few iterations in they approached Chris Larsen to handle the business side of things. Chris Larsen and Jed McCaleb formed Ripple the company in 2012, originally called OpenCoin. Out of the 100 billion XRP that were created at the XRP genesis block 20 billion went to the founders of XRP and the rest were given to Ripple to manage. At the time of writing, Jed has 4.5 billion left that he is selling at a controlled pace by order of the court, while we are not sure how many Chris and Arthur have. David forgo XRP and got a 2% stake in Ripple the company, although he later bought some on the open market and has been known to trade.


Unlike bitcoin which offers a block reward to whoever mines the block, the XRP ledger offers no incentives. At the same time, because it’s consensus-based and not PoW there is no significant cost in running a validator. The hypothesis was that the cost would be so low that the well-being of the network is incentive enough. So far, this hypothesis has turned out to be true, as there are hundreds of validators running by parties interested in the XRP ecosystem. Here at XRParcade, we are happy to also run a validator of our own.

Let’s take a few moments to explain consensus and the role of validators. The double-spend problem exists because transactions are distributed to all the nodes in the network so there is no guarantee that all nodes will receive all transactions in the same order. Had this been the case then there would be no double-spend problem. If Alice tried to send money to Bob and Charlie everyone would know if she has enough to accommodate both transactions. In essence, what PoW and consensus do is to order the transactions so that everyone knows which ones are valid. PoW does it by assigning a node every 10 minutes to write a block. Whoever solves the hash for that block gets to dictate which transactions are valid.

Jed realized that there is a better way to order transactions. Instead of 1 block every 10 minutes, the XRP ledger writes 1 ledger about every 4 seconds. A ledger is very similar to a block, in a sense that it contains transactions and is linked to the previous ledger using its hash. However, unlike bitcoin, XRP doesn’t have the concept longest chain, which makes it truly immutable. Once a transaction finds itself in a ledger it is there forever. There is no need to wait for additional confirmations as you do with bitcoin.

The XRP ledger takes a completely opposite approach from bitcoin. XRP validators understand that for a transaction to be valid but possibly in conflict with another transaction then it probably came just before a ledger closes, so you don’t know if everyone has seen it. Instead of assigning someone to dictate validity, the XRP validators vote on these questionable transactions so that together they reach a consensus. Voting on transactions is nothing like brute-forcing hashes as it requires negligible amounts of energy and it provides much higher throughput and transaction speed.

To summarize, the effect of using consensus instead of PoW: XRP is 1000 times faster than BTC and 1000 times cheaper to use.


XRP – Network Security

Bitcoin then secures its network by increasing hashing power when more people or better hardware join, assuming that the more power there is the more secure the network. How does the XRP Ledger then secure the network?

From DoS (denial of service) attacks: in a manner similar to bitcoin all transactions on the XRP ledger require a fee paid in XRP. Since there are no miners, this fee is burned instead of given to anyone. Since the XRP ledger can at the time of writing support around 1500 t/xs, anyone spamming transactions just to stress the system will have to pay a lot of cumulative fees, and all they will accomplish in the process is to slightly increase the transaction cost of anyone that wants to send a legitimate transaction. The basic transaction fee is 10 drops (0.00001 XRP), which at the time of writing comes to $0.0000024, so you see there is a lot of room here for increased fees. If anyone spams the network at a maximum rate paying 10 drops per transaction, all you have to do for your legitimate transaction to go through is pay 11 drops as a fee.

From Sybil attacks: by allowing each validator to set a trusted list of other validators they listen to. Since running an XRP ledger validator is so cheap it would be easy for a malicious someone to spawn hundreds or thousands of them and have them vote on transactions maliciously. Thankfully, unless other validators specifically whitelist you all your voting will be in vain. Each validator needs to set a list of trusted validators (UNL) they listen to, and generally, there needs to be some overlap between nodes to maintain consistency. You are free to deviate and listen to a completely different set of validators but of course, you risk making forward progress in a different direction. Ripple, as one of the main players in the XRP ecosystem and the biggest contributor for the open-source XRP ledger validator software, provides a default UNL (dUNL), but there are other community-supported lists out there for you to choose from if you decide to run a validator. You can even create your own list if you want. Check out the XRP validator registry.

From double spending: by halting forward progress in case consensus can’t be reached. Unlike bitcoin, the XRP ledger doesn’t have the longest chain feature. Validators voting on transactions need to reach a consensus of 80%. While the XRP ledger has been running for years without halting if at any moment consensus cannot be reached then the network will stop making forward progress entirely and basically halt. Validator operators will then have to manually intervene, to see who the bad actors in their UNLs are and remove them.

From centralization: by using consensus with no incentives instead of PoW. We saw earlier that because mining is very demanding in terms of electricity and a high gamble, miners (a) tend to centralize in pools so they can split rewards, (b) operate together in geographic locations with cheap electricity. This inherently leads to the centralization of the network which makes bitcoin vulnerable to government intervention. The XRP ledger, however, is composed of its validators, which are very cheap to operate and have no concept of pools. Therefore entities that run the network are more geographically distributed. Operators that find themselves in regimes where they cannot operate independently can move their validator easily since no specialized hardware is required.


XRPL – Advanced features

On top of the high transaction speed, throughput and low cost offered by XRPL (XRP Ledger), the ledger has a lot more to offer.

Decentralized exchange: While most digital assets trading happens on exchanges, the XRPL offers a native decentralized exchange. There is a wide variety of transaction types besides payment, and these include creating and canceling offers. When two offers match the trade happens automatically.

Currency issuance: The XRP ledger allows anyone to issue their own currency in the form of IOUs. These are denoted on the XRP ledger in account balances as the 3 letter currency followed by the issuer. For example, the exchange Bitstamp has issued USD IOUs. These can be traded freely on the XRPL either on the decentralized exchange it offers or they can be sent as payments between accounts. They are redeemable at Bitstamp for USD, but they are IOUs because whether or not they are actually redeemed for anything depends on the issuer.

Escrows: The XRP ledger enables you to lock any currency in cryptographic escrows, using time-based locks or other crypto conditions. Once the currency is locked it cannot be released unless the condition is met. For example to ensure that Ripple is unable to “dump” XRP on the open market and maintain predictable distribution they escrowed 55 billion XRP into 55 escrows worth 1 billion each, which are released one escrow per month over the next few years.

Signature rotation: An account can rotate its current keys for new ones. This is important because it enables you to secure your account from individuals that used to have access but should no longer have. If for example you are using bitcoin and you give your private key to your accountant to manage your funds and if you ever change accountant you need to generate a new wallet, send all your bitcoins there and inform everybody that they should be sending you bitcoin to your new address. With XRP you just rotate keys.

Multi-sig: An account on the XRP ledger can be managed by multiple users each with their own pair of keys. The account can be set up so transactions can be approved by any different combination because each pair gets a weight. For example, an account can be managed by Alice, Bob, and Charlie, where Alice’s keys have a weight of 2 and Bob and Charlie have a weight of 1. The account is then configured for transactions to be sent only if they are signed by keys with a weighted sum of 2. This means Alice can send transactions on her own, but Bob and Charlie can’t.

Good governance: Voting on new features IS a feature. When new features are added to the XRPL or existing ones are changed the source code is first created and released as an amendment, but it is not operational unless the validators vote on it. Validators are given two weeks to vote on amendments, and if 80% is reached the amendment is enabled. Take a look at the list of known amendments.

If you want to know more about the advanced features of the XPRL ledger then xrpl.org is a good place to start.


The XRP ecosystem

After the perhaps confusing rant above about the tech behind digital assets, let’s get back to commercials. After all, no matter how good technology is, the benefits it offers depend on who uses it. The XRP ecosystem is big, with many actors in it, and it would be good to mention some here to help you understand the scope of everything.



The biggest company involved in the XRP ecosystem is Ripple. It recently went through its series C funding at a valuation of $10billion, while its CEO Brad Garlinghouse hinted at a possible IPO in 2020.

Ripple has set out to replace SWIFT and modernize cross-border payments. They created RippleNet, a network of banks and SMEs with over 300 entities on it, ranging from big banks like Santander to SBI, to Moneygram. RippleNet allows the organizations on it to manage their relationships, to create a correspondence network similar to SWIFT. Unlike SWIFT, the technology is state-of-the-art, messaging for payments is instant and bidirectional and the costs are low.

RippleNet also provides its members with the ability to source on-demand liquidity (ODL). Instead of holding foreign currency accounts in foreign accounts, RippleNet members are able to add XRP in their payment flows, by automatically buying XRP using their local currency at an exchange, transfer that XRP to another exchange and sell it out to foreign currency. This is Ripple’s flagship product used by MoneyGram and Azimo. Recently Moneygram CEO Alex Jones announced that 10% of their remittances from the United States to Mexico go through ODL, and they plan to expand rapidly.


Coil is a company started by former Ripple CTO Stefan Thomas, with a mission to enable web monetization for content creators. The world is becoming increasingly sensitive to privacy concerns, and how our private data is used maliciously. Unfortunately due to the lack of ability to send fast, cheap, and transparent payments on the web, it grew in the direction of advertising. Blockchain technology allows us to do better now, and Coil set out to enable micro-transactions through the web.

The idea here is that your browser already manages resources, like your computer CPU and memory. Even though countless memes have been created about Chrome’s memory management, it could also help you manage some money for the web. Instead of subscriptions and paywalls, the future will enable us to pay authors directly per article or pay video on demand for every second you are watching by sending a large stream of microtransactions while watching. This goes hand in hand with the work the W3C is doing for standardizing payments on the web.


Forte is another company building on XRPL, with a mission to create a marketplace for gamers. If you are a gamer you probably understand how each game has its own independent database of who owns what. Some platforms like STEAM provide APIs for game developers to manage game assets through STEAM, and then users can trade those assets between them. Others do not. Such people also run third party web-sites to create markets and facilitate trades between them, in essence acting as trusted third-parties. For example, if you played MMORPGs you probably know that web-sites exist to buy and sell game items and currency.

Forte is building a decentralized marketplace where game developers can plug their games in to enable users to trade assets between games. Imagine getting a skin or a dance in Fortnite and having the ability to trade it for something in Apex. That’s what Forte is creating.


The future of XRP

I was a bit hesitant to write this section because I truly believe that the XRP community (and the crypto community at large) have been suffocating from conspiracy theorists, dot connectors, hopium sellers and internet bears that know what the Illuminati are doing. If you haven’t got any of this, good for you. I’ve intentionally skipped the references because I really don’t want to link to such content.

At XRParcade we think the future of XRP is bright, but that doesn’t mean that everything is milk and honey. So before I talk about why we are optimistic let’s talk a bit about the skeletons in our closet.

The distribution of XRP is even worse than that of bitcoin. Since XRP has no mining, 100 billion were created at genesis. 80 billion were given to Ripple and 20 billion to Jed McCaleb, Arthur Britto, and Chris Larsen. During the 2017 bull run, Chris was one of the richest people in America on paper. We hope and believe that Chris will act responsibly with his share. He already pledged a lot of it to charity, but the whole situation is a bit vague. Jed, on the other hand, had a fallout with Ripple and left to start Stellar. To avoid dumping his 9 billion XRP in the open market and crashing the price of XRP Ripple now manages Jed’s XRP by order of the court and allows him to sell at an agreed rate.


Jed McCaleb and Chris Larsen

Out of 80 billion XRPs that were given to Ripple 65.3b still remain in their hands (at the time of writing). Even if they have secured their inability to dump by escrowing most of it, the future of XRP still heavily relies on them. Some say that Ripple having this XRP is both a blessing and a curse. Unlike Bitcoin where miners need to sell their coins to finance their mining operations, Ripple can use their XRP supply to invest in the ecosystem. In fact, this is what they claim they have been doing, strategically selling XRP to parties interested in the well-being of the XRP ecosystem. They also launched Xpring, which is their VC arm for funding start-ups and companies related to crypto. It seems, however, that to some extent the market is still reluctant to trust Ripple with its vast holdings.

There is a serious on-going class-action lawsuit against Ripple claiming that XRP is unregistered security that Ripple has been selling. Ripple has been publicly claiming that XRP is not a security, that it was created prior to Ripple the company and was gifted to them, and that it will exist and continue to be traded even if Ripple closed down. However, that’s the official stance and the fact that the Ripple investors seem to have been instructed to avoid talking about XRP so as to not risk promoting it doesn’t inspire confidence. The SEC has also been trying to avoid talking about XRP. One could assume that they are ready to enforce all necessary actions, but they prefer leaving the court to decide if XRP is a security or not. They have been hinting at how a digital asset can start as a security but over time lose its security status given enough decentralization, and it’s possibly the main reason Ripple has been adding third-party validators to their default UNL over the last couple of years, stopped selling XRP right when the XRP escrowed went just below half of all XRP and funded other companies to work on XRP. Anything for decentralization. It seems unlikely that an asset used on a global scale to facilitate cross-border payments will be deemed a security of a USA company by the SEC in the USA, but if it does it will open a whole new can of worms.

Based on the above, and more, I want to make it clear that we find it absolutely reasonable that XRP is trading at the price it is currently trading. There is no conspiracy theory, no hidden agenda by Ripple or any government to suppress the price, no nothing. If anything, it makes sense that Ripple would be the first to want to see the price of XRP increase. What we think happens is that the price of XRP reflects the current demand for it and that demand reflects on the huge uncertainty surrounding it.

Having said that, let me explain why we are very very very optimistic about the next few years. Keep in mind that everything here is our own assumptions. There is no conspiracy theory, no insider information, no nothing. Don’t let charlatans sell this to you as a fact of what’s coming.

The SEC understands the potential of the technology and the role they play at this critical time of enabling it, especially when any action against Ripple and XRP may cause the USA to fall behind on a global scale. The SEC has already pledged to run an XRP validator to help them better understand the technology, as well as nodes for other blockchains. They have been accepting pressure from all around the political spectrum. Presumably, that’s why even though they didn’t green-light Ripple they allowed Coinbase, a highly regulated exchange in the USA, to list XRP in February 2019.  Coinbase has a rigid legal framework for listing digital assets and the status of XRP as a potential security was the reason Coinbase initially refused to list it, however, it seems that this changed in 2019. We believe that the unregistered security concerns are the biggest obstacle at the moment and perhaps the reason Ripple investors will not speak of XRP. If the lawsuit clears in favor of Ripple there will be a tremendous marketing campaign and push for adoption.

Ripple has a world-class executive team and employees and world-class investors. The Ripple investors include Google Ventures, SBI Holdings, Route 66 ventures, and Accenture and recently closed its series C funding round at a valuation of $10 billion. Ripple employs over 500 people. Here is a table of some important Ripple employees, where they came from, and where they went if they left Ripple:

Name Ripple Position Past position Position after Ripple
Brad Garlinghouse CEO SVP @ Yahoo
President @ AOL
David Schwartz CTO CTO @ WebMaster INC
Consultant @ NSA
Asheesh Birla Head of Product VP @ Thomson Reuters
Monica Long SVP Marketing PR Manager @ Intuit
Ethan Beard SVP Xpring Director @ Facebook Unknown
Marcus Treacher SVP Customer Success Head of Payments Innovation @ HSBC,Board Member @ SWIFT CEO @ CB Investment Growth Holdings
Stuart Alderoty General Counsel General Counsel @ HSBC, American Express
Catherine Coley Head of XRP Institutional Liquidity FX Advisor @ Silicon Valley Bank, FX Sales and Trading @ Morgan Stanley CEO @ Binance US
Kahina Van Dyke SVP Business & Corporate Development Global Director Financial Services & Payments @ Facebook Global Head, Digital Channels & Client Data Analytics @ Standard Chartered Bank
Dilip Rao Global Head of Infrastructure Innovation Founder & CEO @ Woomera Labs, Founder & Director @ Paymate Pty Advisor @ Woomera Labs
FlashFX Part Time
Miguel Vias Head of XRP Markets Global Head of Precious Metals @ CME Group COO @ Linqto Inc
Ryan Zagone Director of Regulatory Relations Steering Committee – Federal Reserve Faster Payments Task Force, Director of Communications @ American Bankers Association Head of Americas @ Wise for Banks (Formerly TransferWise)
Cory Johnson Chief Market Strategist Media editor-at-large @ Bloomberg Managing Member @ Epistrophy Capital Research
Navin Gupta Managing Director, South Asia & MENA Head of Growth Strategy, Asia @ HSBC
VP @ Citigroup
Ron Will Chief Financial Officer CFO @ TubeMogul CFO @ Hinge Health
John Mitchell SVP Global Sales Global Sales Lead @ Reval
Eric van Miltenburg SVP Global Operations Growth @ Yahoo & Adobe

We do not believe that these people have been leaving executive positions from some of the largest companies and banks in the world (and even SWIFT) to join Ripple unless they thought that Ripple has a good chance of revolutionizing payments. There is no middle-ground for Ripple. What they are promoting is an entirely different way of managing payments. Ripple is trying to solve a $155 trillion global payments problem and as Navin Gupta said in a conference talk in December 2018:

“Ripple is not a normal company. We are not here to have a small market share or do X do Y & make a little bit of money. We are here to make a dent in the universe. Either we change the remittance universe the way you understand the way value gets transferred across the world between people, between institutions or we will just fade away. It’s zero or one, that’s the reason six years ago we were born with a mission of moving money like information moves today, and we are making this possible using the current financial ecosystem. There are two kinds of banks- those with Ripple, and those that will be shortly.”

Ripple executives migrating to related positions at Ripple’s partners only signals that Ripple partners take things seriously. Ripple has over 300 production customers on its network, some of which are the world’s largest banks. The RippleNet steering committee is made up of some of these banks.

Ripple is underneath every stone you turn in the financial world. Their reach does not just extend to W3C for standardizing web payments. They were also part of the Federal Reserve Faster Payments Task Force steering committee. Former managing director of the IMF and current president of the ECB Christine Lagarde is incredibly crypto-friendly and outspoken in favor of digital assets. Chris Larsen is a member of the IMF high-level advisory group on fintech. Ripple is present at all financial community events, and their own annual conference called Swell attracts participants from the entire industry.

To us, everything above is strong indication the XRP will be seeing a lot more mainstream adoption in the future.