When most people hear “cryptocurrencies,” they think of Bitcoin. While it’s true that Bitcoin is the most popular virtual currency, other less popular cryptos play a significant role in the industry's development, versatility, and growth by bringing innovations and providing different solutions.
In this article, we will discuss one such cryptocurrency, the XRP, and see what makes it unique compared to other virtual currencies.
Most alternative cryptocurrencies, also known as altcoins, were created to improve upon Bitcoin’s limitations or offer additional functionalities and features.
Altcoins are either Bitcoin forks or most often completely separate cryptos developed on separate blockchains.
Such is the case of XRP. The XRP Ledger, as the XRP blockchain is called, is a blockchain built for business and works differently than the Bitcoin blockchain.
It uses a unique consensus mechanism called the Ripple Protocol Consensus Algorithm (RPCA), which is different from Proof-of-Work (Bitcoin) or Proof-of-Stake (Ethereum 2.0).
XRP was created by Ripple Labs Inc., a technology company founded in 2012 by Chris Larson and Jed McCaleb. The main idea behind XRP was to enable smooth and low-cost real-time cross-border transactions. And here is where the main difference between Bitcoin and XRP lies.
While Bitcoin was primarily designed as a digital currency for peer-to-peer transactions (from person A to person B), XRP facilitates cross-border transactions, acting as a bridge currency between businesses.
Imagine that Company A, based in the United States, needs to pay Company B which is based in Germany a certain amount of money for the shipment of goods.
As a bridge currency, XRP enables Company A to use US dollars to buy XRP on a cryptocurrency exchange and send it directly to Company B's crypto wallet. Then, Company B converts XRP to Euro and transfers the money to its business accounts.
There are several benefits to this process:
Speed:
The transaction is completed in 3 to 5 seconds, rather than days as is usually the case with traditional banking systems. In that sense, it’s fast and efficient.
Fees:
The almost real-time transaction speed reduces the risk of exchange rate fluctuations between fiat currencies. Bank fees are also reduced because they are not involved in the transfer process.
As mentioned above, alternative currencies emerged to changethe status quo and offer something different. Therefore, they vary in purpose, design, function, and even coin supply.
Both Bitcoin and XRP have a limited maximum supply of coins, but the numbers differ significantly.
While Bitcoin has a fixed cap of 21 million of which over 19 million are in circulation, Ripple’s native token XRP has a maximum supply of 100 billion coins with over 55 billion currently in circulation.
The XRP Ledger does not rely on mining like Bitcoin. Transactions are processed by a network of trusted validators (servers) using a consensus algorithm called the Ripple Protocol Consensus Algorithm, where instead of work (solving cryptographic puzzles), “a little trust goes a long way”.
The process works in two rounds:
XRP’s unique consensus mechanism accounts for its eco-friendliness, especially when compared with Bitcoin. Bitcoin’s Proof of Work consensus mechanism makes it the most energy-consuming cryptocurrency globally.
It’s estimated it uses more electricity than countries like Malaysia, Norway, Argentina, Finland, and many more.
Here is more on how XRP compares to other cryptocurrencies.
Did you know that the Ovoro Big Five Asset Collection automates trading with five of the industry's top assets including XRP?
Ripple, the company behind XRP, has been involved in a several-year-long legal battle with the U.S. Securities and Exchange Commission (SEC), which filed a lawsuit in December 2020 claiming that XRP was an unregistered security.
In July 2023, Ripple achieved a partial victory, with a court ruling that XRP was not a security when sold to retail investors.
The case is not over yet, so it remains to be seen what the future holds. Despite these challenges, however, Ripple has continued to expand its global network and innovate its technology.
One of the most significant trends for XRP is the increasing adoption by financial institutions. Ripple's technology offers a compelling solution for banks and payment providers looking to streamline cross-border transactions, reduce costs, and improve speed.
This trend is likely to continue as more institutions recognize the benefits of using XRP for liquidity.
In addition, the development of the XRP Ledger, an open-source platform, allows developers to build applications and solutions on top of the XRP network, further expanding its use cases.
XRP has found a unique niche in the cryptocurrency world by focusing on providing efficient, low-cost, and fast cross-border payment solutions for financial institutions and businesses.
As the financial world continues to evolve, XRP seems well-positioned to play a crucial role in the future of digital payments.
Its speed, efficiency, scalability, and focus on sustainability make it the go-to solution for institutions looking to modernize their payment systems.
Ovoro is the future of crypto investing.