Ripple is one of the oldest virtual value transfer systems, having its roots in a project called Ripplepay in 2004. The Ripple project has seen several iterations and project leaders. It initially began as an exchange trading system in Vancouver, Canada, created by Ryan Fugger in 2004 and was called Ripplepay. The next version of Ripple was founded in 2012 in San Francisco, California as Opencoin. The founders, Chris Larsen and Jed McCaleb, renamed it Ripple Labs, then renamed it yet again as simply Ripple in 2015. This particular system acts as a payment protocol and exchange system and their targeted audience is financial institutions.

The original 2004 peer-to-peer payment network called Ripplepay connected participants together who formed links based on who they trusted. To make a payment, a connection path would need to be found on the network with every link on the path having 2 parties which trusted each other. Thus, if A wanted to pay B but there was no direct trust relationship between A and B, the network would try and find a route on the network between A and B such that every link on the route was a trust relationship.

Once Bitcoin was created, a threshold was crossed as it required no levels of implied trust, could be secured by proof of work, and were transparent in their transactions through a series of online ledgers. Learning from the Bitcoin model, the next generation of Ripple developers absorbed Ripplepay and relaunched as Opencoin in 2012. The difference in the way exchanges were transacted was that although the management of transacted instruments was still included, they also included a base currency for the network — a token called XRP. The SWIFT system is the major messaging system worldwide for transfers between banks, with a volume of $5 Trillion per day. The Ripple team considered SWIFT slow and expensive. SWIFT transfers take between 1 and 4 days and for international payments have costs of about $50 for both parties to the transaction, whereas Ripple transactions occur in a handful of seconds and cost cents. Operating with a very specifically stated aim of replacing the SWIFT system, Ripple courted the attention of their intended focus – the major banks around the world. (Ripple News, Jan 2018)

The decentralized Ripple network has a ledger which holds the status of all Ripple accounts. Transactions change the entries in this ledger. Transactions are at first submitted to the network, then the validating servers on network as a whole vote on which transactions are considered valid. As the voting process continues, the criteria for voting approval increases from 50% to 80%. The changes to the ledger, which are the transactions, achieving this consensus level are adopted by the next iteration of the ledger. (Coin Academy, n.d.) This process usually occurs very rapidly, within seconds. Participants must choose a list of trusted validating servers whom they believe are honest actors who will only validate genuine transactions.

XRP is the native token of the Ripple system, which acts as the base currency of the Ripple system. Thus, participants can exchange XRP, or participants wanting to exchange different instruments, can use XRP as a common currency. For example, a participant holding US dollars wanting to exchange with another holding euros can do so using the US dollar to XRP and euro to XRP exchange rates. To maintain the value of the product, a fixed number of 100 billion was produced initially, an amount that is constantly reduced through destruction of a small portion of XRP during transaction processing. Of the 100 billion XRP tokens that have been issued, Ripple owns 60 billion of them. An escrow system has been created that prevents an outpouring of XRP product from Ripple into the market. (Journal du Net, 2016)

Transfer times are a mere few seconds in most cases. But within that transfer time, a portion of the value of XRP can be lost. To lessen or remove that volatility, banks will employ an intermediary firm, a liquidity provider, who will absorb the risk of any market swings while the XRP tokens are moving from one point to another. For these liquidity providers, the act of taking on the transfer risk can prove to be profitable as they balance out the up and down swings of the market transactions.

Since Ripple has a consensus system which does not require the computationally intensive proof-of-work algorithms to be performed, its electrical power requirements are much lower than other cryptocurrencies. Transactions can be carried out and cleared in seconds rather than the 10 minutes required by bitcoin. Ripple participants must trust the gateway servers and is not a trustless system like decentralized blockchain-based cryptocurrencies. This has led to participants having their funds frozen, an action which would not be possible on a decentralised cryptocurrency (Inside bitcoins, April 2015)

Ripple has signed up over 75 major banks and financial institutions, and the money transfer company MoneyGram has begun to test it. (Fortune, Jan 2018) XRP is available at major cryptocurrency exchanges.