The concept
In short, Ripple is a system of fast payments, exchanges, and transfers. It is considered one of the safest and the fastest in its type. For its use people just should have 20 XPR (~$6), only for prevention of spam, and pay for each transaction 0.00001 XRP. XRP is cryptocurrency, existing only inside its platform Ripple.
Related: Head of Ripple predicted disappearance of 99% of cryptocoins
Example, please
For easier understanding, let's use a clear example of the concept of Ripple. Imagine that you urgently need a ticket to the concert of Lady Gaga. And one girl living in Japan, who couldn’t manage to fly, has it. But she urgently needs a gift for her brother's wedding. She wants to give him a kilo of Brazilian coffee. Somewhere in Brazil, there is a man who has a lot of coffee. But he would like to buy a black elegant umbrella. Of course, without even knowing it all, you are trying to change your black umbrella (which you never needed) with your favorite singer's concert ticket. In the Ripple system, spending only a fraction of a cent, you, a Brazilian man and girl from Japan, receive the desired things, without any intermediaries.
But this is just an example of the logic of the work. For minimization of abstraction, we can give a more pragmatic example.
You want to exchange the Ukrainian hryvnia for the Guinean franc. Most likely, there will not be such an opportunity in your country. Hryvnia will have to be exchanged for US dollars, and those already for Guinean francs. Especially if the amount is large, then through the bank, it will be quite an expensive pleasure. But in Ripple you can do this transfer, even not thinking about losing some additional money.
How Ripple Works
One of the differences between XRP and other cryptocurrencies is that it doesn’t work on the blockchain. It is rather a database distributed between network nodes, whose speed indicators are really surprising. It has a capacity of one and a half thousand transactions in just a second. And let’s again don’t forget about the minimum cost that it could have. The system is supported by 14 servers that are located in different parts of the world.
Therefore, in fact, this cryptocurrency cannot be mined. The company itself, before entering the world market, created 100 billion of its own coins. Hence the answer to the question of why XRP is so cheap (~$0.3). Because there is a huge amount of tokens. But some of these coins, 61 billion, belong to the developers. 55 billion of them are frozen through smart contracts. Each for one billion.
As we have already noted, each transaction costs 0.00001 XRP. This is done so that hackers trying to overload the server by sending empty requests could not achieve this goal. That is, for one transfer this amount is small, but for reloading, you need a huge amount of such transfers. And so the costs for such actions will be not small at all.
It should also be noted that the coins used for the transfer immediately disappear. Thus, the number of coins in general decreases each time. This is also one factor that contributes to the growth of the price of this cryptocurrency.
Cost of Ripple
During all years from the company’s foundation, its market capitalization (for now) reached ~$12.859.708.153 (3rd place among more than 2000 “competitors”). Its cost now comes to ~$0.31. But in January of 2018, it rose to $3.65. The unstable price is the main reason why some companies are wary of XRP. But the company is already taking steps to solve this problem and discover new horizons for international cooperation.
Interest in Ripple
Founded in 2012 it had as customers more than 200 organizations. Also as the company noted its services are used by American Express, Santander, some South Korean, Japanese banks, one of the Middle East’s largest banks, the National Commercial Bank.
Even one of the most prestigious economic magazines as Forbes has mentioned Ripple in its list of best fintech companies of 2016.
So, why are banks interested in a service which use its own cryptocurrency and is doing the same thing as a bank? The answer is simple. Some banks spend millions on transactions per month. If we take the average figure, then one such operation costs a little more than $3. With this platform, you can reduce costs by a lot. Why not all banks still use Ripple? As we have mentioned, the coin is unstable, and banks cannot afford the use of currency, whose price may dramatically change.
Pros
- Speed. The platform runs faster than almost all systems of cryptocurrencies, making a transaction in a couple of seconds.
- Price. The whole idea of the non-existence of intermediaries who will take large sums for the transfer is reflected in the symbolic 0.00001 XRP.
- Rising cost.
- Creation of an alternative future of banks.
- Protection from spam.
- The impossibility of inflation.
Cons
- Centralization. What basically no other cryptocurrency has.
- The ability to block or freeze accounts of people using XRP.
- Monopoly. Many still don’t trust Ripple, precisely because most of the coins belong to its developers.
- It is likely that banks control its exchange rate.