Categories
Crypto University

What is RIPPLE and How It Works?

How does it work is xrp ripples cryptocurrency a good investment? And what does this all have to do with the banking system? Well stick around in this episode of crypto whiteboard. Tuesday will answer these questions and more.

Hi, I’m Nate Martin from 99Bitcoins.com and welcome to crypto whiteboard Tuesday where we take complex cryptocurrency topics break them down and translate them into plain English before we begin don’t forget to subscribe to the channel and click that Bell. So you will immediately get notified when a new video comes out. Today’s topic is Ripple and xrp one of the leading cryptocurrencies around have you ever had occasion where you needed to wire money to someone only to be told it might take several days for that money to

In their account, well, that’s because most major banks are still using systems that were built 40 years ago for this task Swift MoneyGram and Western Union are just some examples of slow expensive and relatively limited systems that Financial Services used to transfer money on top of that not all of the Pink’s are connected via the same network. So in many cases you don’t even have a direct line between two Banks when they need to transfer money from one account to the other in order for Bank a to send money to bank. Be that it doesn’t have any direct relationship with more often than not it will have to go through several intermediary Banks searching for common network connections between each other in order to clear a path for the money. That’s why International wire transfers are so slow and costly each Bank along the way takes time to process the transaction and a fee for servicing the process in some cases Bank transfers must involve currency conversions, which make things even more problematic and expensive for example

Directly transferring currency from Japan to Nicaragua means turning Yen’s into cordobas, which is generally not feasible. The reason is that Japanese Banks don’t usually hold accounts denominated in cordobas because there’s not a lot of demand for them. However both Japanese and Nicaraguan Banks hold accounts in dollars. So instead an individual or bank will usually trade Yen’s four dollars and then dollars to cordobas as you can imagine. This process can be costly due to the multiple. Ian’s in short the banking system today doesn’t have a main connecting network with a uniform set of rules each time. You want to exchange or send money through the banking system. You need to find a path to transfer that money depending on the circumstances. That’s exactly what Ripple is here to change just like the internet has its own rules or protocol to transfer information known as HTTP Ripple met uses a protocol known as art exp for moving value around the world Ripple laps the

Haters are triple net aim to create the internet of value away from money to move as quickly as information desk through the use of Ripple map. There is no reason to be a fortune and wait days when transferring money globally the idea for ripple was actually first conceived way back in 2004 by Ryan fugger and was called Ripple pay but in 2012 was passed to Jed McCaleb and Chris Larson who found it open coin later to be called Ripple Labs unlike most cryptocurrencies who focus on the individual. The Ripple Labs aims to serve Banks and payment providers allowing them to lower transaction costs and expedite settlements. But how does it all work Ripple net is a network based on a set of rules known as the Ripple transaction protocol or art exp. For sure. The network consists of computers monads validators that are spread around the world and maintain a shared Ledger of who owns what validators make sure every transaction sent through the network follows the art exp rules.

Anyone can run a validator and help maintain the Ripple Network just like anyone can run a Bitcoin though to maintain the Bitcoin Network companies who want to access the Ripple Network can use gateways gateways, which are usually run by Banks act as entry points to Ripple for people outside the network. It’s the same idea as going to a bank or a credit company to gain access to the banking system. So Ripple basically offers businesses and alternative to the banking system in the form of an Internet of value.

Call Triple net Ripple products like X rapid X via and X current are offered to companies in order to optimize their current solutions for transferring money around the world. It’s worth mentioning that for you as a customer of a financial service using Ripple. This solution is transparent if the banks which is to this technology, your bank account balance could be residing on The xrp Ledger tomorrow, and you would never know it this all sounds great. But what type of currency can actually be sent through the Ripple Network well. So unlike other cryptocurrencies. Two calls which support only their own asset Ripple offers two different types of currencies, iou’s and XR P IO u–‘s are tokens on the Ripple Network that can be stored on any Ripple wallet just like we can store a variety of ethereum tokens on an ethereum wallet. We can have plenty of tokens coexisting on the same Ripple wallet, but we should really stop the comparison here since this is as far as the similarities go any participant on the Ripple Network can issue an IOU, however an Oh, you doesn’t represent something you own it represents something you oh, it’s a debt an obligation to pay back something you got in real life when I issue an IOU to someone. It means I owe them something when I hold an IOU issued by someone else. It means someone owes me something each IOU has a name that is comprised out of who issued it and what it represents. For example. USD dot bitstamp is an IOU issued by bitstamp promising to pay back.

Back US Dollars and I owe you can be issued for any type of real world asset. For example, you can have an IOU for dollars Euros gold oil airline miles and even cows for each asset. We borrow we will issue a new I owe you unlike other forms of debt that can be traded iou’s for the same asset type are not interchangeable if they were issued by two different people. For example, if I borrow money from you and issue you a 20 USD dot Nate I owe you. That I owe you can’t be added to a 20 USD bitstamp I owe you since each IOU has a different credit line or trust line. You can only redeem the USD dominate IOU for me. It’s important to note that the IOU itself is not the asset. It’s just a promise by the issuer to give you the asset back in the future This Promise won’t do you any good if the issuer isn’t good for his word. That’s why I trust pays an important issue with iou’s in order for you to accept an eye.

You from someone you have to trust that they will be able to pay you back in Ripple net. This is known as a trust lie. A trust line is somewhat similar to a line of credit with the bank. It’s an agreement to trust someone up to a limited amount of money aside from iou’s there is another currency the Ripple protocol supports XR P XR p is a currency issued by Ripple labs to help transfer payments through the Ripple Network, for example, if a bank wants to move large amounts of money instead. Ed of needing to use multiple intermediary Banks to transfer the money it can just convert the money to xrp and send that xrp to the recipient bank. It’s important to note that two Banks don’t have to use xrp to transfer assets between them instead. They can choose to keep an open tab using iou’s only without ever closing. It still xrp is a form of payment that unlike an IOU is final and considered a tradable asset by anyone on the network unlike iou’s xrp is the actual ass.

So there is no counterparty risk in other words, once you’ve received payment in xrp the transaction is made and there’s no fear that the other party will not meet its obligations for payment. So if know trust is needed and no trust line needs to be opened when sending xrp to the other network participants, why do we even need IO use the simple answer is that xrp being a crypto currency asset by itself is relatively volatile and also not respected worldwide iou’s on the other hand are treated and valued as the The assets each represents xrp has additional advantages as well. It’s fast and scalable sending an X RP transaction through the network takes 4 seconds as opposed to Bitcoins 10-minute average also xrp can handle 1500 transactions per second while Bitcoin can handle only seven. So the upside of using xrp is a form of payment is pretty obvious. One question. People ask us a lot is if x RP is a cryptocurrency. Can it be mind the answer?

No, it can’t Mining and Bitcoin is done in order to confirm and determine the order of transactions on the blockchain in Ripple transactions are handled through a different process. Let me explain when an xrp transaction is broadcast through the network the validators that maintain the network decide if it’s valid or not through voting when a validator receives the transaction it consults with other trusted validators and they vote on whether a transaction is valid if 80% or more vote.

Valid the transaction is updated in the Ripple Ledger this list. Trusted validators that a validator consults with is known as a unique node, lesueur UNL for short each validator has its own UNL deciding who will be included in the validators. UNL is completely up to the person who runs the validator. However, Ripple offers a default list of trusted validators validators don’t get compensated for the work like Bitcoin miners do with new coins when Ripple Labs started out. They actually issued or pre mind a total of 100 billion xrp and according to the Ripple Protocol no more xrp can ever be created you might be wondering who owns all of these pre mind coins 20 billion xrp were given to Ripple Founders Gemma Caleb Chris Larson and Arthur Britto Ripple Labs holds around 7 billion xrp 40 billion xrp have been sold to companies and individuals. The remaining Supply is sealed in a smart contract that releases 1 billion xrp

We’ll all of the 100 billion xrp cap will be reached xrp can be divided into six decimal points with the smallest unit being known as a drop. If you want to hold xrp, you will need a wallet that supports the currency and the minimum deposit of 20 x RP in your account. This is done in order to prevent people from spamming the Ripple Network by opening a large number of accounts. One last thing to know about xrp. Is that the xrp supply decreases over time making it It in theory more valuable as time passes. This is done through destroying the transaction fees attached to each xrp transaction. For example, at the time of shooting this video were down to about 99.99% of the original 100 billion. Xrp the missing xrp our transaction fees that have been destroyed and can never be used again. So is it a good idea to invest in xrp when people invest in xrp they are

We betting that in the future Banks and institutions will use xrp to move value and will therefore by xrp and drive up its price of course Banks could always use iou’s instead and that will keep XR peas price rather stagnant. Therefore. The question of will XRP rise in value is mainly a question of whether a majority of Banks and payment providers choose to utilize it instead of their current infrastructure before we end this video. I want to touch upon one more subject and that’s the criticism. Chism about Ripple being a centralized platform there are many arguments for both sides. And well I clearly have my opinion. I will try to display some of the main points of debate just like Bitcoin once ripples protocol is published Ripple Labs has no control over it validators run the code themselves. This is pretty similar to Bitcoins core development team maintaining the Bitcoin protocol but having no real control over the nodes that run it but while Ripple Labs doesn’t control the protocol it does.

A lot of influence since it is the organization maintaining it. So if for some good reason it determined to create more coins, it might succeed Ripple Labs. It’s sort of a central bank for ripple men. The Ripple protocol itself is open source, meaning that if Ripple Labs ceases to exist the validators can still run the network themselves on the other hand products the company offers to Banks and institutions aren’t open source and our run solely by Ripple Labs the number of Ripple voltage. Validators today is relatively small and is a fraction of the number of Bitcoin nodes that maintain the Bitcoin Network since these relatively few validators are ultimately responsible for maintaining the Integrity of the network this raises the question. How can we know the validators aren’t colluding in order to defraud ripples users. Another attribute in Ripple that raises concern is that you ultimately have to depend on trust in order to use the IOU tokens in contrast Bitcoins entire system is designed to work in a

Crustless environment additionally while Bitcoin is free for all and censorship resistant Ripple is committed to monitoring and Reporting any anti-money laundering Flags across the network as well as reporting suspicious activity to relevant authorities on the upside, since there’s no such thing as Ripple mining. The network itself is much more energy efficient compared to Bitcoins extreme energy consumption in the end. There’s no clear answer to whether Ripple is decentralized or not. A personally I I think the real question of centralization arises when there’s one key figure or company that has implicit power over what the community thinks in this case Ripple Labs. Undoubtedly has the most influence on the entire Rebel Community making it much more centralized in nature than Bitcoin. It’s up to you to decide if you think Ripple is centralized or not or whether it even matters Rupal isn’t built on the same ideals as Bitcoin. It’s a for-profit company serving the banking system perhaps this centralized solution is a more efficient means of

International transaction but is it the right one? Well, that’s it for today’s episode of crypto whiteboard Tuesday a hopefully by now you understand what Ripple is and how it works a network designed to move value around the world mainly aimed at Banks and payment providers. You may still have some questions ma’am. If so, just leave them in the comment section below and if you’re watching this video on YouTube and enjoy what you’ve seen don’t forget to hit the like button then make sure to subscribe to the channel and click that Bell so that you’ll be notified as soon as we post new. New episodes. Thanks for joining me. Here at the Whiteboard 499 Bitcoins.com. I’m Nate Martin and I’ll see you in a bit.