Ripple Crypto 101: A Beginner’s Guide To Ripple Cryptocurrency
13 July 2022
Rippleis a digital payment protocol and network that utilises blockchain technology for processing international fund transfers. Besides ensuring fast processing, it imposes minimal transaction charges. Note that Ripple is not a cryptocurrency; it is the name of the network protocol. And the cryptocurrency token exchanged on the Ripple network is called XRP.
If you are interested in Ripple, you have to purchase XRP. However, before that, it is essential for you to be aware of the various details concerning Ripple, including benefits and drawbacks. Read on to get a clear picture of Ripple.
What is Ripple?
Ripple is a payment platform that is based on a peer-to-peer, open-source decentralised network. Instead of utilising the traditional process of blockchain mining, Ripple uses a distributed consensus mechanism that is one-of-a-kind. Participating nodes conduct polls to validate transactions and verify their authenticity. The process is instantaneous which allows it to facilitate quick confirmations without the requirement of a central authority.
How does Ripple Work?
Ripple works in a way that is similar to the Hawala system, an informal method of transferring funds via preferred intermediaries. Since it is a digital payment network, one can use it to send cryptocurrencies like Bitcoin and Litecoin as well as fiat currencies such as Dollars, Euro, Yen, etc.
Here’s an example to help you understand how the Hawalasystem works:
Let’s say that you want to transfer Rs. 500 to your brother staying in a different city. You can choose to transfer the amount to your agent, Agent ABC. The person will intimate your brother’s agent, Agent XYZ, who will inform your brother. If your brother is able to share the right password with Agent XYZ, he will get Rs. 500. Now, Agent ABC will pay the amount to Agent XYZ. The latter can keep a ledger of all receivables from Agent ABC. Alternatively, XYZ can choose to balance it with some other transactions between them.
The working of Ripple crypto is similar to the Hawala system, but it is much more complex. Ripple utilises a medium called Gateway which serves as a credit intermediary between two parties. It establishes a link in the Ripple network’s trust chain, which makes it easier to send as well as receive funds via public addresses.
Any person can choose to register on the Ripple network and give the authority to a particular intermediary for payment transfer and currency exchange while making sure that liquidity is maintained at the same time.
Individuals can buy Ripple coin in India from a cryptocurrency exchange by following these steps:
Step 1: Selecta cryptocurrency exchange. All platforms have unique features. Make sure to check the currency that you are going to use for buying XRP. Note that if you choose to purchase XRP using another cryptocurrency, you need to have a crypto wallet.
Step 2: Once you select the preferred exchange, you need to create an account on the platform.
Step 3: After successful verification of your account, you can start investing in XRP. That said, make sure to check Ripple coin price to get a clear idea of how much you will be investing.
Step 4: After deciding how many XRP tokens you wish to purchase, transfer the required funds to the platform. Click on ‘BUY’ to go ahead with the purchase.
Step 5: After you buy XRP, you will require acrypto wallet to store it. Keep in mind that you can store XRP in the following ways:
Custodial wallets of the crypto exchange
Advantages of Ripple
The following are some significant advantages of the Ripple network:
Cost-efficiency: Ripple offers a cost-effective way to transfer funds. The transaction charges are quite lower than that of big financial institutions, specifically when the volume of transactions is high.
Absence of mining pools: Mining pools are one of the issues associated with crypto mining. Mining pools refer to a dedicated group of computers that are developed to validate transactions. The mining pools tend to solve the problems quickly and receive faster rewards, but they end up consuming a lot of energy. However, there are no mining pools present in the case of XRP since it is pre-mined crypto.
Safe and secure: Owing to its blockchain mechanism, Ripple ensures quick transfer of funds. Transfers made via Ripple are completed in a few seconds only. In addition, Ripple has a safe protocol for the purpose of validating payments.
Optimised for large enterprises: Ripple was initially developed to cater to the requirements of the financial services sector. It has the ability to deal with the high transaction volumes of large financial institutions.
Disadvantages of Ripple
Here are some drawbacks of Ripple that you should consider taking into account:
Volatility: Just like other cryptocurrencies, XRP is extremely volatile. The price may decrease or surge unexpectedly. Hence, only individuals with a high-risk appetite should consider investing in XRP.
Legal issues: Similar to other cryptocurrencies, Ripple has been subjected to a lot of debate and litigation. It is under the scrutiny of multiple regulatory bodies and government institutions.
Pre-mining protocol: Ripple utilises a pre-mining protocol because of which it releases small quantities of XRP at regular intervals. However, some investors fear that Ripple might release a large quantity of XRP at once which may lead to the dilution of XRP’s value.
More centralisation: Ripple utilises trusted validators for the purpose of verifying transactions while ensuring that the integrity of its blockchain is not impacted. Since there is no mining benefit, it implies that there would be a lesser number of security checks carried out on the blockchain. This could lead to an increase in the associated security risks.
Should You Invest in Ripple (XRP)?
Considering Ripple’s ability to replace the current inefficient money transfer system, there appears to be room for the potential growth of XRP. If you are optimistic regarding future prospects, you can consider investing in XRP.
That said, keep in mind that Ripple price is volatile just like any other cryptocurrency. Investors will want to assess their risk appetite before parting with their savings as there’s a chance of suffering substantial losses.
Differences between Ripple and Bitcoin
Here are some key differences between Bitcoin and Ripple:
Ripple and Bitcoin utilise different systems for the verification of transactions. While Bitcoin utilises mining for verifying transactions, XRP verifies them via its own consensus protocol.
XRP is cheaper, quicker and much more energy-efficient compared to Bitcoin. XRP can process a transaction in a few seconds while levying minimal charges. Its energy efficiency makes it environmentally-friendly as well.
Bitcoin and Ripple have different distribution methods. The former is distributed via the Bitcoin mining procedure. New coins get added as the participants mine them. On the other hand, XRP is pre-mined. Out of the 100 billion mined tokens, 55 billion were locked into escrow, and Ripple created smart contracts for releasing 1 billion XRP every month. Ripple can sell as many as it wants after releasing them to raise funds. Later on, it can put the unsold ones into another escrow.
Another key difference is that Bitcoin’s supply is limited to 21 million coins, whereas XRP’s maximum supply is 100 billion, as mentioned above.
Although XRP is decentralised, it is still tied to Ripple, which is a private network. On the other hand, Bitcoin is completely decentralised.
Ripple has become quite popular in the world of cryptocurrency. It has been able to plug various flaws of Bitcoin while extending its capabilities. However, you must assess various aspects such as your financial goals, risk appetite and investment time horizon before investing.
FAQs on Ripple
Q1. Why is Ripple’s price volatile?
Ans:The price of Ripple coin fluctuates owing to the following factors: – Demand and supply – Media hype – Government regulations – Investor sentiments Search “Ripple price today” on the internet to stay updated with the current Ripple price in INR.
Q2. What is Ripple price prediction?
Ans:It is difficult to predict the price of Ripple as it is associated with so much volatility. Its price might increase/decrease in the future. Hence, one should conduct thorough market research before investing.
Q3. How is Ripple helping financial institutions?
Ans:Ripple has collaborated with more than 300 financial institutions, including banks,to offer real-time cross-border payments at a low cost. The network also offers end-to-end tracking for each of the payments.
Q4. What are some of the payment providers and banks that are using Ripple’s network?
Ans:Some of the companies that use Ripple’s network are as follows: UniCredit HSBC Barclays Royal Bank of Scotland American Express Santander
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Disclaimer: Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions.
Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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