Formerly known as OpenCoin, Ripple is a privately held company that is building a payment and exchange network (RippleNet) on top of a distributed ledger database (XRP Ledger). The main goal of Ripple is to connect banks, payment providers and digital asset exchanges, enabling faster and cost-efficient global payments.
Ripple was first idealized in 2004 by Ryan Fugger, who developed the first prototype of Ripple as a decentralized digital monetary system (RipplePay). The system went live in 2005 and was meant to provide secure payment solutions within a global network.
In 2012, Fugger handed over the project to Jed McCaleb and Chris Larsen and together they founded the US-based technology company OpenCoin. From that point on, Ripple started to be built as a protocol focused on payment solutions for banks and other financial institutions. In 2013, OpenCoin was rebranded to Ripple Labs, which was later rebranded to Ripple, in 2015.
The XRP Ledger (XRPL)
The XRPL works as a distributed economic system that not only stores all the accounting information of the network participants but also provides exchange services across multiple currency pairs. Ripple presents the XRPL as an open-source distributed ledger that allows for real-time financial transactions. These transactions are secured and verified by the participants of the network through a consensus mechanism.
The XRPL is managed by a network of independent validating nodes that constantly compare their transaction records. Anyone is able to not only set up and run a Ripple validator node but also to choose which nodes to trust as validators. However, Ripple recommends its clients to use a list of identified, trusted participants to validate their transactions. This list is known as the Unique Node List (UNL).
The UNL nodes exchange transaction data between each other until all of them agree on the current state of the ledger. In other words, transactions that are agreed upon by a supermajority of UNL nodes are considered valid and the consensus is achieved when all these nodes apply the same set of transactions to the ledger.
According to Ripple’s official website, Ripple is a privately held company that founded the development of the XRPL as an open-source distributed ledger. This means that anyone can contribute to the code and that the XRPL is able to continue even if the company ceases to exist.
In contrast to XRPL, the RippleNet is exclusive to the Ripple company and was built on top of the XRPL as a payment and exchange network.
The RippleNet currently offers a 3-product suite that is designed as a payment solution system for banks and other financial institutions. Currently, RippleNet has three major products: xRapid, xCurrent, and xVia.
Let’s take a simple example. Bob from Australia wants to send $100 to Alice who is based in India. Bob transfers the money via a financial institution called FIN. In order to perform the transaction, FIN uses the xRapid solution to create a connection with asset exchanges in both the originating and destination country. This way, the company is able to convert Bob’s $100 to XRP, which provides the necessary liquidity for the final payment. In a matter of seconds, the XRP is converted to Indian Rupees and Alice is able to withdraw the money from the asset exchange located in India.
xCurrent is a solution designed to provide instant settlement and tracking of cross-border payments between RippleNet members. Unlike xRapid, the xCurrent solution is not based on the XRP Ledger and does not use the XRP cryptocurrency by default. The xCurrent is built around the Interledger Protocol (ILP), which was designed by Ripple as a protocol for connecting different ledgers or payment networks.
- Messenger - The xCurrent messenger provides peer-to-peer communication between connected RippleNet financial institutions. It is used to exchange information regarding risk and compliance, fees, FX rates, payment details and expected time of funds delivery.
- Validator - Validator is used to cryptographically confirm the success or failure of a transaction and also to coordinate moving of funds across the Interledger. Financial institutions can run their own validator or can rely on a third-party validator.
- ILP Ledger - The Interledger Protocol is implemented into existing banking ledgers, which creates the ILP Ledger. The ILP Ledger functions as a sub-ledger and is used to track credits, debits, and liquidity across transacting parties. Funds are settled atomically, meaning that they are either settled instantly or not at all.
- FX Ticker - FX ticker is used to define exchange rates between transacting parties. It tracks the current state of each configured ILP Ledger.
Although xCurrent is primarily designed for fiat currencies, it also supports cryptocurrency transactions.
xVia is an API-based standardized interface that allows banks and other financial service providers to interact within a single framework - without having to rely on multiple payment network integrations. xVia allow banks to create payments through other banking partners that are connected to RippleNet and also enables them to attach invoices or other information to their transactions.
RippleNet may be implemented on top of the existing banking infrastructure as a way to complement and improve the traditional payment system. xCurrent allows for cost-efficient real-time payments across financial institutions, xRapid uses XRP as a bridge borderless currency to provide on-demand liquidity pools, and xVia facilitates the integration and communication of all RippleNet participants.