Getting to know the XRP cryptocurrency

We’ve talked about XRP several times on this blog, especially in connection with the legal case brought by the SEC (the US markets watchdog) under the chairmanship of  Gary Gensler, the Great Adversary of the crypto world. However, we’ve never gone into the details of this coin’s features. We’re happy to do so this week because it is a very special virtual currency, which differs in its origins, operating mechanisms and functionality from the other (thousands of) existing ones, including the best known: Bitcoin, Ether, Ada and Solana (to mention just those cited by Trump in his recent announcement of the Strategic Bitcoin Reserve).

Let’s start with a bit of history. XRP was created and launched in 2013 by the company OpenLabs, known today as Ripple Inc., based in San Francisco (USA). Its origins, however, go back to 2004, 4 years before the publication of Satoshi Nakamoto’s Bitcoin white paper, with the search for a system that would allow people to create their own money in a decentralized way. The core idea is a cryptocurrency with a transaction verification system different from Bitcoin’s, based on the consensus of all network members (nodes) instead of using mining.

Features and strengths of the XRP cryptocurrency

1. It does not use a blockchain to operate: transactions are validated according to the consensus protocol defined by Ripple Inc. The XRP coins were all created at the outset (100 billion), and it is Ripple itself that decides how many tokens to release (and when). About 48 billion (almost 50% of the total) have already been released onto the market.
2. It was precisely this affinity with the typical mechanisms of the financial markets that led the SEC, not without at least some reason, let’s be honest, to sue Ripple for violating the laws on the issuance of securities, a case that has dominated the crypto community’s attention for the past 4 years.
3. Validation is very fast: transactions are processed and validated in about 4 seconds.
4. It is highly scalable: it processes 1,500 transactions per second.
5. The XRP currency is mainly used to carry out transactions quickly with very low fees. That’s why it is largely used for international bank transfers. In this sense, it is often cited as a potential rival to SWIFT, the dollar-centric system that handles international transactions. Fees are of course paid in XRP, which therefore serves both as a bridge between fiat currencies and as a means of paying for services.

The most interesting aspect, and the one that most sets XRP apart from other currencies, is its transaction validation model.

XRP uses a unique consensus protocol to validate transactions and maintain the integrity of the decentralized ledger. Here’s how it works:

1. Decentralized consensus: unlike traditional blockchains that rely on mining, the XRP Ledger uses a consensus algorithm in which independent validator nodes agree on the order and validity of transactions.
2. Validators: these are trusted network nodes that propose and validate transactions. Validator nodes are selected based on their reliability and performance.
3. Consensus process:
   1. Validators propose a set of transactions to include in the next ledger. They exchange proposals and vote on which transactions should be accepted.
   1. A transaction is confirmed if it receives at least 80% agreement among the validators.
4. Ledger finalization: once consensus is reached, the new version of the ledger  is finalized and becomes the network’s reference record.

Weaknesses and gray areas of the XRP cryptocurrency

Obviously, as always happens on this planet, all that glitters is not gold. XRP has gray areas and weaknesses that in fact overlap, since they are all linked to the role of Ripple Inc. It is the company itself that decides how many coins to release onto the market, as well as the rules for validating transactions on the network, particularly the list of validator nodes. The centralized management of this list is, on the one hand, a strong point of control and, on the other, a lack of transparency as regards the criteria for adding and keeping validator nodes.

Finally, there’s the legal battle with the SEC, which is still ongoing, although the first partial court rulings leaned towards Ripple and the new US administration seems much closer to the crypto world than the previous one.