Ripple

Definition

Ripple is both a digital payment protocol and a cryptocurrency (XRP). The protocol enables fast, direct transfers of money between two parties, across different networks, regardless of the type of currency. The cryptocurrency XRP, issued by Ripple, is used as a bridge currency in this process when needed.

Phonetic

The phonetic pronunciation of the word “Ripple” is /ˈrɪpəl/.

Key Takeaways

Here are the three main takeaways about Ripple:

1. Ripple is a digital payment protocol: First and foremost, Ripple is a real-time gross settlement system, currency exchange, and remittance network directly created by Ripple Labs Inc. This makes it much more than just a digital currency; it’s a system with its own protocols and infrastructure that facilitates the quick, seamless transfer of money.
2. Ripple’s currency is XRP: While ‘Ripple’ refers to the technology and the network, ‘XRP’ is the digital currency used within the Ripple system. XRP is an integral part of the Ripple network, serving not just as a cryptocurrency, but as a utility token within the Ripple system to transfer value across the network.
3. Ripple aims to work with banks and financial institutions: Unlike many other cryptocurrencies, which were created to bypass banks and other financial institutions, Ripple is designed to work with these establishments, improving existing financial systems to make them faster, more secure, and more efficient. Ripple is focused on making cross-border payments quicker and cheaper, thereby creating a new standard for transferring money across borders.

Importance

Ripple is important in business and finance because it refers to both a digital payment protocol (RippleNet) and its associated digital currency (Ripple XRP). RippleNet is an innovative, real-time gross settlement system, currency exchange, and remittance network created by Ripple Labs Inc. Its main purpose is to enable almost instant, direct transfers of money between two parties with minimal fees and in any currency – a key advantage in global business transactions. In addition, Ripple XRP is a digital asset that is used within the network to facilitate these transactions and acts as a bridge currency to other currencies, reducing the reliance on traditional banking and financial systems. As a result of these characteristics, the understanding and use of Ripple can offer businesses increased speed, lower costs, and greater transparency in international transactions, thereby making it a significant factor in the modern digital finance landscape.

Explanation

Ripple serves as both a digital payment protocol and a cryptocurrency; it’s designed primarily to streamline transactions and enable swift and cost-effective transfers. With the advent of the digital age, traditional banking systems became subject to criticism due to their delayed transaction processing times and high fees, particularly on a global scale. Ripple was devised as a solution to these issues, leveraging the power of blockchain technology to expedite interbank transactions. Financial institutions can transfer money, including various currencies, immediately around the world with minimal cost using the Ripple network. The specific cryptocurrency within the Ripple ecosystem is known as XRP. XRP’s essential purpose is to serve as a mediator for other exchange transactions. Traditional currencies, digital currencies, Ripple’s XRP doesn’t distinguish between one currency and another, making it just as easy to trade dollars to euros as it is to trade Litecoin to Bitcoin. Thus, Ripple and XRP contribute towards creating a more fluid, instantly accessible global economy, offering a practical solution for real-time, secure, and low-cost international money transfers.

Examples

1. Ripple Labs Inc.: A key example of Ripple in the real world is the firm, Ripple Labs Inc. This company developed the Ripple payment protocol, a technology that allows instant, direct money transfers between two parties. Operating since 2012, it utilizes a distributed open source protocol to facilitate these transfers. Ripple Labs Inc’s digital currency, XRP, plays a crucial role in functioning as a bridge currency to other currencies, minimizing transfer time and expenses.2. MoneyGram Partnership: In 2019, MoneyGram, a global money transfer company, entered into a partnership with Ripple. This real-world example saw MoneyGram using Ripple’s xRapid product for cross-border payments and foreign exchange settlement, leveraging XRP in the process. This partnership stressed the real-world applications of Ripple’s technology within the financial sector in smoothing international transactions.3. Standard Chartered Venture: In November 2020, Standard Chartered PLC announced a strategic venture with a fintech company using Ripple technology. The aim was to establish a new platform for institutional investors to buy and sell digital currencies. This example demonstrates a real world application of Ripple within the banking and institutional investment sector.

Frequently Asked Questions(FAQ)

Related Finance Terms

• XRP: This is the digital currency which transfers payments and remittances on the Ripple network.
• RippleNet: The network of institutional payment-providers such as banks and money services businesses that use solutions developed by Ripple to provide a frictionless experience to send money globally.
• Ripple Labs: The technology company behind the creation and development of the Ripple payment protocol, and the cryptocurrency XRP.
• Payment Protocol: A key aspect of Ripple, it’s a protocol meant to improve upon the existing systems for transferring money between individuals in different currencies.
• Cross-Border Transactions: Transactions made between entities in different countries. Ripple protocol was developed primarily to improve the speed and reliability of these cross-border transactions.

Sources for More Information

• Ripple Official Website
• Investopedia
• Cointelegraph
• CoinDesk