Ripple vs XRP: what’s the difference?
XRP is a cryptocurrency issued and operated by Ripple Labs Inc., the company behind the Ripple Payment Protocol, a real-time gross settlement system. However, people generally mistakenly use the terms Ripple and XRP to refer to cryptocurrency, which has led people to believe that XRP and Ripple cryptocurrency are the same thing.
In fact, although Ripple Labs Inc. issued XRP and manages its continued distribution, the company does not have control over the cryptocurrency or the Ripple Consensus Ledger, the blockchain that XRP relies on. Instead, they were released as open source software.
What is ripple?
The company and the payment protocol are called Ripple, but we’re interested in the payment protocol. Ripple is a real-time gross settlement system based on a distributed open source protocol that includes the XRP Ledger and RippleNet.
Financial and non-financial entities can integrate the protocol into their systems. It’s open and anyone can join it without Ripple’s prior approval. As such, the protocol and the crypto are entirely separate entities from Ripple Labs Inc., the company.
Ripple’s stated goal is to enable “secure, instant and near-free global transactions of any size with no chargebacks.” As such, it presents itself as an alternative to the Society for Worldwide Interbank Financial Telecommunications (SWIFT), which acts as an intermediary for financial transactions for banks around the world.
What is the XRP ledger?
The XRP Ledger is the backbone of the Ripple protocol, and like any other blockchain, it is a distributed ledger interconnected through a peer-to-peer network. However, it has one key difference from other blockchains: its consensus mechanism.
Operating within a distributed peer-to-peer network means that XRP ledger faces the same challenges as other blockchains: solving the problem of double spending and ensuring network-wide consensus on state. accounts and balances.
The XRP Ledger addresses these issues using a Byzantine fault-tolerant memorandum of understanding on collectively trusted subnets, the XRP Ledger Consensus Protocol. As such, unlike other blockchains, it doesn’t rely on proof of work or proof of stake, instead using its own consensus mechanism.
What is XRP?
XRP is the native cryptocurrency of Ripple’s XRP ledger, although Ripple calls it a digital asset. XRP was pre-mined before launch and 100 billion units were created, a number that cannot increase or decrease according to its protocol.
When XRP was created, the creators transferred 80% of all XRP to Ripple Labs Inc., while keeping 20% to themselves. As owning such amounts of XRP would inevitably give the company far too much power over the price of XRP, he put XRP 50 billion in escrow as a sign of goodwill.
This escrow account is governed by a built-in smart contract that controls the publication of XRP. The smart contract is designed to release one billion XRP each month for five years while returning any unused portion of XRP to the escrow account, adding an additional month to the five-year period.
Since its inception, Ripple has presented XRP as a convenient way to link different currencies within the Ripple protocol. Just as Ripple presents its protocol as an alternative to the SWIFT system, it also intends for XRP to become the settlement currency of choice for financial institutions within its protocol.
How are Ripple and XRP related?
It all comes down to ownership and who controls what. The fact that Ripple Labs Inc. owns most of the XRP supply gives it central control over it, even though the XRP is sequestered. It also makes the net worth of the company as a whole dependent on whether the price of XRP goes up or down.
Ripple vs. XRP
So to recap, Ripple Labs Inc. is a software company engaged in licensing payment software to financial institutions. The company created and released the Ripple Payment Protocol, which is based on a distributed open source protocol and includes both the XRP Consensus Ledger as well as its native crypto, XRP.
Even though the existence of XRP is entirely independent of Ripple Labs Inc., the fact that the company owns most of the existence of the crypto gives it effective control over its supply. This effectively places the cryptocurrency in the hands of a central authority, which is also why XRP is considered a controversial cryptocurrency.
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