If you follow the financial world with any regularity, you’ve probably heard of the new digital currency phenomenon known as cryptocurrency. Bitcoin and Ethereum are the two most popular cryptocurrencies right now, but if you want to be on the cutting edge of the next cryptocurrency to rise in popularity, you should be focusing your attention on Ripple (XRP).
What is Ripple (XRP)?
Unlike Bitcoin and Ethereum which have focused on using the blockchain to make transactions between individuals instantaneous, Ripple is concentrated on making transactions between banks for currency exchange just as instantaneous.
When a currency exchange at a traditional bank is needed, most banks use USD as a middleman to perform these currency exchanges. For example, a bank that needs to process a transaction from Indian rupees (INR) to Malaysian Ringgits (MYR) may first process an INR/USD transaction into a USD/MYR transaction. Each step of the way, fees add up, and they are passed on to the person who requested the transaction.
Ripple aims to make this way of currency change obsolete by acting as a go-between for currency exchange that is more reliable than USD and can be processed instantaneously anywhere across the globe. Ripple also saves banks money, since there are no currency conversion fees with using the platform. In fact, Ripple has partnered with 61 banks in Japan to test its feasibility as a global settlement network.
How Does Ripple Work?
While Bitcoin and Ripple are both cryptocurrencies, the Ripple system operates in a fundamentally different way than Bitcoin. Bitcoin uses a proof-of-work system, where miners verify transactions against a ledger of the entire cryptocurrency system known as the blockchain.
Ripple instead relies on a consensus protocol among the various gateways on the network to ensure users are not double spending their Ripple funds. The Ripple platform itself is decentralized in that no governing body determines who can set up a node and begin verifying transactions.
Ripple’s digital currency, XRP, acts as a bridge between any type of money, be it fiat or other cryptocurrencies like Bitcoin or Ethereum. Fiat currencies processed with XRP have their own gateways to verify transactions between XRP and BTC or ETH. The real beauty of Ripple is that the person who is paying does not have to have the same currency type as the person who is receiving the funds.
For example, Jeff can send ETH to Dan, who receives the payment in BTC thanks to the transaction processed through the Ripple network. This works by using the ETH and BTC gateways, where holders of those cryptocurrencies approve the exchange from each into Ripple and back again. These transaction approvals are near instantaneous and take only five seconds or so before the conversion is complete, unlike the timely process of sending money through a service like Western Union.
Advantages of Ripple
The primary benefit of Ripple lies more in its payment settlement network than the cryptocurrency itself, but that shouldn’t stop you from considering investing in the network. Currently, Ripple transactions are processed in less than five seconds, which makes money transfer across the globe faster than ever.
Traditional banks have shied away from other cryptocurrencies like Bitcoin and Ethereum, but some have embraced Ripple as a settlement network to help reduce fees and improve the processing times for their customers. Ripple is a scalable network that is capable of handling 1,000 transactions per second and could be used to purchase everyday items if more merchants and retailers begin accepting the cryptocurrency component of the network.
Purchasing Ripple at its current price and holding it while more banks discover the value of instantaneous transaction processing could be a very valuable stake if Ripple manages to gain more of a foothold in the corporate financial world.
Drawbacks of Ripple
Of course, there are some disadvantages to the Ripple network, too. Because it relies on gateways to confirm transactions and there is no governing body determining who can set up a Ripple gateway, users are exposed to counterparty risk. It is the same risk that users assume when transacting with traditional banks if the said bank does not honor their liability.
However, the Ripple network can identify untrustworthy gateways quickly, and if the user themselves does not trust a gateway for that transaction, they can choose to use another gateway. This sort of risk isn’t assumed when holding bitcoin or other altcoins since those cryptocurrencies never operate with a liability principle in transactions.
Another potential issue with the platform is in how the XRP currency was distributed when Ripple was created. Ripple Labs issued 100 billion XRP at the start of Ripple’s lifespan and have released no more since. This practice is not uncommon in the world of cryptocurrency. However, unlike Bitcoin and other altcoins where distribution is determined by who performs the most work on the network, Ripple Labs still owns about 60% of the XRP that is available.
If the value of XRP were to grow enough where Ripple Labs wanted to cash out of the market, that significant share of ownership could potentially be enough to trash the value of the currency. Additionally, since network fees are paid through burning XRP, which makes them unavailable for use again, each transaction processed on the network increases the value of the XRP held by Ripple Labs. That may not be a concern for investors right now, but it could become a significant problem in the future.
Ripple vs. Bitcoin
So Ripple and Bitcoin are both cryptocurrencies, but they are vastly different in how they operate on a day-to-day basis. Here’s what you need to know about the differences between these two.
First up is decentralization. As previously mentioned, Bitcoin is designed to be decentralized where the Bitcoin community at large agrees on changes to the network. That makes upgrading the network to support more people difficult and results in soft forks, where nodes can opt out of changes in the system. For a hard fork to occur on the Bitcoin platform, at least 51% of the nodes must support the change.
Ripple’s approach is an amendment system, where developers seek consensus among those on the network before changes can be enacted. At least 80% of nodes on the network must support the proposed changes for two weeks before they will be adopted. This approach helps avoid the irreversible splits that occur on the Bitcoin network and keeps all nodes in the network dealing XRP instead of a fork.
Bitcoin and Ripple are also vastly different in how they process transactions on the network. For transactions on the Bitcoin network, users can pay miners to prioritize their transactions, which increases fees and processing time. In fact, some online retailers have stopped accepting Bitcoin because transaction fees have become too expensive. The average processing fee is up to $27 and can take upwards of an hour to clear.
Ripple solves this problem by burning 0.00001 XRP, or a fraction of a cent each time a transaction is processed. This act of burning coins increases the value of the remaining XRP on the network and helps keep transaction costs lower than Bitcoin.
Why Should I Buy Ripple?
Ripple has the potential to change the way the world transfers money between countries and banking entities. Currently, cross-border money transfers use the SWIFT platform, which takes between three and five days to process. SWIFT uses the middleman currency method described above, which also increases the fees involved with handling this type of transaction.
Ripple flips this idea on its head as XRP transactions can be processed in under five seconds. To compare that to other cryptocurrencies on the market, Ethereum can process transactions in about three minutes, and Bitcoin’s fastest transactions are anywhere between 10 and 30 minutes. XRP has the potential to process up to 1,500 transfers a second, which makes it the best technology to adopt for wide-spread currency exchange.
Ripple is valued around $.66 at the time of writing, but as the network has gained more support from banks around the world, that value has slowly increased. As more financial institutions adopt the Ripple network and XRP as a way to process fiat funds more quickly, the value of XRP will rise with the demand for this new currency. SWIFT transactions that take upwards of three days to process could be a thing of the past as more financial institutions experiment with trading fiat currencies through XRP instead of USD transactions.
Some analysts believe XRP is undervalued because of its potential as a network to transfer funds across the globe since both Bitcoin and Ethereum are unable to process as many transactions as the Ripple network. While there are some concerns about the amount of XRP held by the creator of Ripple, the same could be said for the creator of Bitcoin and Ethereum. Ultimately, the decision to buy XRP should be based on whether or not you believe that a faster global payment processing network will revolutionize the way the world transfers money.
How To Buy Ripple
There are a handful of ways to buy XRP.
Three of the most popular cryptocurrency exchanges that support Ripple include Binance, Kraken and Bitstamp. However, smaller exchanges like Uphold and CoinOne now support XRP exchange for other cryptocurrencies like Bitcoin.
To purchase XRP from an exchange, you will need to link your bank account or debit card and verify your identity before you can begin trading currency for XRP. Steps for this will differ depending on which exchange you choose, so consult their help guide on purchasing XRP if you have further questions.
Peer-to-peer exchange is harder to perform with XRP compared to Bitcoin, but it is still possible using a service like Cointal. Cointal works by allowing you to set up the cryptocurrency exchange you want to be fulfilled by other members who have that in their wallets. You will need your own Ripple wallet to use Cointal. A free and open source Ripple wallet available for multiple platforms is ToastWallet.
Asset exchange sites like Uphold allow you to purchase XRP with other cryptocurrencies supported by the network. You will still need to set up your account and verify your identity before using an asset exchange service, but this gives you more options to get your hands on Ripple if you have already invested in another cryptocurrency.
How To Buy Ripple On Binance
We think Binance is the best crypro exchange, purely down to the sheer variety of coins available to trade, and the easy to use interface.
For that reason, I’m going to show you exactly how to buy Ripple (XRP) on Binance in a few easy steps.
In order to buy Ripple (XRP) on Binance, you will need to deposit Bitcoin, Litecoin, or Ethereum to exchange for Ripple. You can’t simply buy it via traditional forms of currency like USD or GBP.
The best way to do this is to purchase your trading coins ( Bitcoin, Litecoin, or Ethereum ) via Coinbase, and then transfer them over to your Binance account.
You can find out how to do this by heading over to my Transffering Crypto from Coinbase to Binance guide.
So here’s the step by step guide to buying Ripple on Binance…
First up you will need to open an account on the Binance Exchange platform. On the Binance Exchange official site, in the top right of the screen, click on the Register link to start the process. You then need to fill out the form and verify your account with Binance.
As I just mentioned, you need to transfer over funds in the form of Bitcoin, Litecoin or Ethereum to your Binance wallet. You’ll find the ‘Funds’ links at the top. Then click on the ‘Deposits’ option.
On the drop down menu, find the currency you want to deposit. If it’s Bitcoin, type in BTC, or Ethereum type in ETH.
In the deposit address window you will see your very own generated wallet address. Make a copy of this address, go to the wallet you have your cryptocurrency stored ( example: Coinbase ) and send to the wallet address generated by Binance.
Once you have sent over your Crypto ( Bitcoin, Ethereum or Litecoin) to Binance, click on the exchange link next to the Binance logo and select “Basic”.
Ripple is a new proof-of-concept that could radically change the way the world exchanges currency with one another. Several test pilots with banks across the globe are underway to determine how well Ripple works as a global settlement network and the value of XRP has only gone up since it was created.
While XRP has not seen the explosive growth that Bitcoin and Ethereum have experienced, the network has also not been exposed to the same global news cycle that focused international attention on those cryptocurrency networks. The simple truth is that Ripple is the third-largest cryptocurrency network in the world behind Bitcoin and Ethereum and it only has room to grow as it is a third-generation cryptocurrency that addresses many of the concerns in first and second generation currencies like Bitcoin and Ethereum.
By cutting international transfer processing time and fees, Ripple has room to grow as one of the world’s premier ways to send and receive money between borders. If you are considering investing in Ripple to see if it grows as a global settlement network, follow the news closely as announcements of new supported banks and financial institutions can skyrocket the value of XRP as more financial institutions consider the value of near-instant transactions.
If you do decide to invest in XRP, make sure you trust the exchange or service you choose to use to obtain the cryptocurrency, since exchange-level hacks and security exploits have been responsible for most cryptocurrency losses experienced by end-users.