So you want me to explain ripple like you are a 5 year old? No problemo!
Ripple is a privately owned company that describes itself as, “a technology company that provides the most efficient solutions to send money globally using the power of blockchain technology. [Their] vision is to enable the world to move value like information moves today—the Internet of Value.” Ripple’s desired clientele is the banking industry, as well as payment settling companies.
While other cryptocurrencies like Bitcoin are blockchain-based technologies, XRP is not. Ripple developed its own proprietary system for handling transactions - RippleNet. RippleNet is a network of Ripple clients that utilize a distributed consensus ledger. To clarify, blockchains structure data into blocks. A distributed consensus ledger is a broader category, being a database that’s spread across a network. Blockchains are a specific type of distributed consensus ledger, but RippleNet does not fall into that specific sub-category.
It’s worth noting that RippleNet is more centralized than most other cryptocurrencies. Ripple only permits select people and organizations to participate in the consensus forming process. One central authority - Ripple - controls who is able to participate in transaction processing. It’s this centralization that often results in criticism from supporters of decentralization.
RippleNet uses the XRP token to quickly and cheaply transfer value across a network. XRP was not designed to be used as a currency directly. Instead, it was designed to be an intermediary between other currencies or stores of value. The idea behind this notion is that it is faster and cheaper to send the XRP token than it is to send actual currencies or stores of value. As such, XRP is used as a representation of value while it is being transferred over RippleNet, with the expectation that it is converted to the desired currency or store of value after the transaction is complete.
When XRP was first released, 100 billion tokens were created. There is no means of mining or creating more, meaning that the entire supply of XRP already exists. With that being said, Ripple did not release the entire supply of XRP to the public. As of December 2020, Ripple owns ~6.5 billion XRP tokens with an additional 48 billion held in reserve. That reserve may be sold off to fund Ripple’s business, so long as less than 1 billion tokens are sold per month. This means that, as of December 2020, only approximately 45.5 billion of the total 100 billion tokens have been released into circulation for use.
It is this dynamic that caught the attention of the United States Security Exchange Commission (SEC), leading to a lawsuit against Ripple that is currently ongoing. The SEC alleges that the 48 billion XRP tokens held in reserve and sold off to fund Ripple’s business is “an unregistered, ongoing digital asset securities offering.” As a result, many cryptocurrency exchanges have delisted XRP, despite the ongoing nature of the lawsuit.
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