Ripple is a technology that acts as both a cryptocurrency and a digital payment network for financial transactions. It was first released in 2012 and was co-founded by Chris Larsen and Jed McCaleb.
The coin for the cryptocurrency is premined and labeled XRP.
Ripple’s Digital Currency XRP
The digital currency, XRP, acts as a bridge currency to other currencies. It does not discriminate between one fiat/cryptocurrency and another, and thus, makes it easy for any currency to be exchanged for another. Each currency on the ecosystem has its own gateway e.g. CADBluzelle, BTCbitstamp, and USDsnapswap. If David wanted bitcoins as payment for the services rendered to Lawrence, Lawrence does not necessarily have to have bitcoins. He can send the payment to his gateway in Canadian dollars (CAD), and David can receive bitcoins from his gateway. One gateway is not needed to initiate a complete transaction, multiple gateways can be used, forming a chain of trust rippling across the users.
Holding balances with a gateway exposes the user to counterparty risk which is also a risk that is apparent in the traditional banking system. If the gateway does not honor its IOU or liability, the user could lose the value of his money held at that gateway. Users that don’t trust a gateway, can, therefore, transact with a trusted gateway that in turn deals with the ‘untrusted’ gateway. This way the IOU will be with the trusted or creditworthy-certified gateway. Counterparty risk does not apply to bitcoins and most other altcoins since a user’s bitcoin is not another user’s IOU or liabilities.
HOW RIPPLE WORKS
The Ripple network does not run with a proof-of-work system like bitcoin or a proof-of-stake system like Nxt. Instead, transactions rely on a consensus protocol in order to validate account balances and transactions on the system. The consensus works to improve the integrity of the system by preventing double-spending. A Ripple user that initiates a transaction with multiple gateways but craftily sends the same $100 to the gateway systems will have all but the first transaction deleted. Individual distributed nodes decide by consensus which transaction was made first by taking a poll to determine the majority vote. The confirmations are instant and take roughly 5 seconds. Since there’s no central authority that decides who can set up a node and confirm transactions, the Ripple platform is described as decentralized.
Ripple keeps track of all IOUs in a given currency for any user or gateway. IOU credits and transaction flows that occur between Ripple wallets are publicly available on the Ripple consensus ledger. But even though financial transaction history is publicly recorded and made available on the blockchain, the data is not linked to the ID or account of any individual or business. However, the public record of all dealings, make the information susceptible to de-anonymization measures.