What is Ripple?

what is rippleRipple is a protocol and a crypto currency (XRP). It is primarily used by banks and financial institutions to transfer/convert money around the world cheaply and quickly in a decentralized manner.

Who owns/controls Ripple?

Ripple Labs is the company that created the Ripple Protocol. Ripple Labs earns revenue by selling services related to the Ripple Network but they don’t own or control the Ripple network or Ripple Protocol in any way. The Ripple Protocol itself is free and open source. No one owns or controls the Ripple network or protocol.

How does Ripple work?

Since Ripple is a decentralized network, it relies on nodes in the network to maintain a copy of a worldwide shared ledger. This ledger maintains information such as: balances between accounts, current offers to buy and/or sell currencies, and settings for each account on the network.

Ripple uses “Gateways” to move money around the network. Gateways can be anything from other banks, exchanges or any money exchange services that are apart of the Ripple Network. Gateways act as points of entry for money into the network. The Ripple Protocol will find the most efficient route to move money from one point to another by passing it along to other Gateways on the network until it reaches the destination Gateway.

Traditionally if a bank wants to transfer funds to a bank in another country, the funds would go through a centralized payment system that all banks share. Since Ripple is a decentralized network, funds are transferred without a centralized gatekeeper.

For example, suppose there is a bank in the U.S that wants to transfer USD to a bank in China, but both banks don’t have a pre existing trust relationship with each other. There is however a bank in France that does have a relationship with both the U.S bank and Chinese bank. Assuming all 3 banks are using the Ripple network, the U.S bank can send funds to the French bank and the French bank can pass those funds to the Chinese bank. All this is done without a centralized authority maintaining a ledger of balances between the banks.

What if the Chinese Bank does not deal in USD? And the U.S Bank does not deal in Yuan? How does the U.S bank send USD to the Chinese Bank in a decentralized way? This is where the Ripple Currency comes into play (XRP). XRP is used as a sort of lubricant in the Ripple network, making converting between assets/currencies easier. All Gateways, on the Ripple network provide a price in XRP for everything they deal with. So The Chinese bank may quote a XRP price for Yuan and the U.S bank will quote a XRP price for USD. Each gateway along the chain of trust can move this XRP along until it gets to it’s destination. The U.S bank can convert USD to XRP and transfer that through the network. The Chinese Bank would then convert this XRP to Yuan.

XRP essentially allows Gateways on the Ripple network to transfer any asset/currency. As long as the Gateway is equipped to deal with the asset/currency. For example, you can send Bitcoin to another organization and the receiving organization can receive those funds in the form of Gold.

Ripple has proven itself to be a quick and cost effective way for banks and companies to move money around the world. As the Ripple network continues to grow, the cost and speed of using the network continues to fall, saving these organizations a great deal of time and money.

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