The Ripple network has its own coin called XRP. As of the writing of this article, XRP is divisible up to six decimal points. Just like bitcoin has a name for its smallest part, which is satoshi, Ripple also has a name for the smallest part. This name is drop. A drop is one-millionth of a Ripple, which means that 1 Ripple coin equals one million drops.
Just like bitcoin and ether, Ripple network does not accept any chargeback or transaction reversals, meaning that once you initiate a transaction, there is no way to cancel it.
One of the differences between Ripple and other cryptocurrencies is that it is impossible to mine the Ripple coin or to create it in some other way. At the inception of the network, the founders of the network introduced 100 billion coins to it. Per its protocol, the network would not allow any more coins in it, which makes the coin a scarce asset.
The coin does not need a third party for redemption and is the only currency and digital asset on the Ripple network. The network processes all other currencies as debt instruments that exist in the form of debt balances.
While users do not have to own XRP to exchange funds or as a way of value storage, each Ripple account needs to have a reserve of 20XRP for security purposes.
When users on the Ripple network send funds to each other in currencies other than XRP, the network does charge a small fee to protect the network from attacks because if transactions on the network were to be completely free, hackers could flood the network with fake accounts and fake transactions to cripple its performance. This is the reason for the balance requirement and transaction fees, that start at .00001XRP. The transaction fee does not go to any party. Ripple network actually destroys the fee, which means that the number of XRP tokens on the network is actually decreasing.
Pros and cons of the lack of mining
Because it is impossible to mine XRPs, Ripple network has its own unique set of advantages and disadvantages compared to the Bitcoin network and to the Ethereum network. In absence of mining, the network does not have a fair way to distribute the currency between the users of the network. For this reason, Ripple creators first placed 100 billion XRP in their own wallets intending to give it away to Bitcoin users that they wanted to get onto the Ripple network.
One of the biggest disadvantages of the network was absence of trust from the crypto community. Many of the Bitcoin users did not trust the currency because its creators pre-mined the whole amount and kept 20% of the currency.
Design features of the Ripple protocol
A gateway on the Ripple network is a part of the network that lets users add and withdraw funds from the network. Both individuals and organizations can become gateways on the network. The function of a gateway is to provide the Ripple ledger with balances and records about transactions between users that occur on the network.
To put this in simple terms, a gateway on the Ripple network operates very similarly to a regular bank. The difference is that gateways on the network are decentralized and they all use Ripple protocol to facilitate the transactions and verify users. Just like a bank, at a certain point a gateway instructs the users to provide some kind of verification to eliminate the possibility of scams, attacks and abuses of the network. Ripple gateways do so in one of two ways: Anti-Money Laundering (or AML) and Know Your Customer (or KYC).
Money laundering is a process of transfer of funds obtained as a result of a criminal activity into legitimate assets. Anti-money laundering is a set of legal mechanisms that prevent money laundering. These mechanisms vary from country to country and institution to institution and may include identification requirements, record keeping and notification of authorities about suspicious activities.
Know your customer is a process that entities use to identify their customers and verify the identities. Typical parts of the KYC process include collecting and recording identity information, doing name matching against certain lists and databases, determination of risks and monitoring of the transactions.
A bitcoin bridge is a feature of the Ripple network that allows members of the network to use their Ripple accounts to make Bitcoin payments. In essence, the feature serves as a connecting link between the bitcoin network and the ripple network.
Reception of Ripple by media and experts
Since the inception of the Ripple network, it has received a lot of attention from media and experts. Many of the banking professionals agree that Ripple can significantly improve the speed and accuracy of the operations in the banking industry. In 2015, American Banker magazine wrote that from the perspective of the established banks, Ripple has a number of advantages that do not exist on other cryptocurrency networks. The Federal Bank of Boston, The New York Times and Bloomberg all wrote positively about the network and its opportunities. When speaking about cryptocurrencies in 2014, Bill Gates said that he didn’t believe that bitcoin will stay the dominant system because networks like Ripple can move money between banks and individuals very effectively without all the disadvantages of the bitcoin network such as its limited capacity for transaction processing and anonymous miners.