Both cryptos are often used interchangeably; however, Ripple and XRP have different meanings. The separation of XRP and Ripple is about to take effect, giving institutional and retail investors alike a better understanding of the two cryptocurrencies and what they represent, and buy Ripple without giving it a second thought.
Ripple and XRP are two separate and distinct entities, despite popular belief. The Securities and Exchange Commission (SEC) pushes for a clear separation between the two, so things may eventually change. However, the real cryptocurrency XRP has been referred to as “Ripple” by most people for the longest period.
Ripple Labs Inc., the firm behind all the Ripple payment protocol, a gross resolution system, is the issuer and manager of the XRP cryptocurrency. As a result, many individuals wrongly use the phrases “Ripple” and “XRP” interchangeably, which has led them to assume that the two concepts are synonymous.
Because of this, even though Ripple Labs Inc. issued and distributed XRP, it does not have authority over the cryptocurrency or its underlying blockchain. Open-source software has been used elsewhere.
Ripple is the name given to both the corporation and the payment protocol, but we’re just interested in the payment protocol for the time being. It’s a real-time gross settlement system based on a distributed open-source technology comprising the XRP Ledger and RippleNet.
Both financial and non-financial organizations may use the protocol. Anyone may join, although Ripple has not permitted to do so. This means that the Ripple Protocol and Ripple Cryptocurrency are two distinct organizations from Ripple Labs, Inc.
“Secure, fast, and practically free worldwide transactions of any size with no chargebacks” is Ripple’s declared purpose. So, it proposes itself as an alternative to SWIFT, which acts as a middleman for financial transactions between banks throughout the globe.
With the XRP Ledger serving as the foundation, the Ripple protocol is a peer-to-peer network with a distributed ledger at its core. While this differs from all other blockchains in one essential respect: its consensus method.
All blockchains suffer the same consequences: resolving the double-spend issue and ensuring all accounts and balances are consistent throughout the network. The XRP Ledger is no exception to this.
The XRP Ledger uses a Byzantine fault-tolerant agreement system, the XRP Ledger Consensus Protocol, to address these issues. Because of this, among other blockchains, it does not depend on proof of work or proof of stake. Instead, it uses its consensus process.
However, Ripple refers to it as a “digital asset,” it is the native cryptocurrency of the XRP Ledger. One hundred billion XRP tokens were pre-mined before the coin went live, meaning their supply is finite and cannot be increased or decreased.
A portion of XRP was given to Ripple Labs Inc., while a portion was retained by its developers. Given that holding that much XRP would give the corporation undue control over its pricing, it placed 50 billion in an investment fund to show its good faith.
A smart contract governs the allocation of XRP from this escrow account. Every month for the next five years, the smart contract will disburse one billion XRP and return any unused amount to its account, adding a month to the 5-year timeframe.
It has been Ripple’s goal from its formation to use XRP to bridge multiple currencies inside the Ripple network. Aside from presenting its protocol as a rival to SWIFT, Ripple hopes that XRP will become the preferred method of settlement for financial institutions using its system.
Ripple and XRP: What’s the Connection?
Ownership and control are at the heart of the matter. As long as Ripple Labs Inc. holds a large portion of the XRP supply, it retains command and control of the currency. As a result, the absolute value of the firm is directly tied to the performance of the Ripple (XRP) market.
That’s a summary of Ripple Labs Inc.’s business: licensing payment systems to financial institutions. The XRP Consensus Ledger and its native coin, XRP, are parts of the Ripple payment system, which the business developed and published.
The truth is that Ripple Labs Inc. holds the vast majority of XRP means that it has complete control over the cryptocurrency’s supply. Because it places the cryptocurrency in the hands of one person, XRP is seen as a problematic coin.