GUIDE: What is Ripple's XRP?

XRP in a nutshell

XRP is the native cryptocurrency of the XRP Ledger, a public blockchain that launched in 2012, just three years after Bitcoin. It was created with a very specific goal: to move value between countries in seconds and at near-zero cost, something traditional bank transfers still take days to do.

It's important to differentiate three things that are often confused. The XRP Ledger is the network, open and maintained by independent validators. XRP is the currency that circulates on that network. And Ripple is a private American company that develops payment software and owns a large amount of XRP, but does not own the network itself.

Unlike Bitcoin, all XRP that will ever exist — one hundred billion units — were created at once at the beginning. There is no mining or new issuance: only a small amount is destroyed with each transaction, so the supply slowly decreases over time.

How the XRP Ledger works

The XRP Ledger does not use proof-of-work or proof-of-stake. It uses its own consensus mechanism where a set of validators shares a list of trusted nodes and votes, every three or four seconds, on which transactions enter the next block. When a broad majority agrees, the operation is definitively finalized.

The practical result is a network that confirms payments in a few seconds, with fees amounting to a minuscule fraction of a cent and with energy consumption comparable to that of a normal web service. There are no miners competing to solve calculations, so there's no associated electricity cost either.

The price of this design is a decentralization different from Bitcoin's: the set of validators is smaller, and the trust lists recommended by Ripple carry a lot of weight, although anyone can set up a validator and choose who they trust.

The ledger also includes an integrated exchange market, the ability to issue tokens and stablecoins, and more recently, contract and lending functionalities, expanding its use beyond payments.

What XRP is used for in practice

The star use case is international payments. When a bank sends money to another country, it usually needs to maintain accounts with funds parked in the destination country. Ripple's proposal is to use XRP as a bridge: the source currency is converted to XRP, sent in seconds, and then converted to the destination currency, freeing up capital that was previously immobilized.

Other uses have grown around this: remittances for individuals, inter-company payments, issuance of stablecoins on the ledger, and asset tokenization such as funds or bonds. Several payment entities in Europe, Asia, and Latin America use the network in production.

For years, the major pending issue was the lawsuit between Ripple and the US securities regulator, which questioned whether XRP should be treated as a financial security. The courts concluded that open market sales to retail investors were not securities offerings, which cleared up much of the uncertainty surrounding the currency.

As an investment, XRP remains a highly volatile asset, strongly linked to regulatory news, and with a significant portion of the supply held by the company, which releases it on a scheduled monthly basis. This is a factor to consider before buying.