Read and learn about Ripple and XRP in this article

What is XRP and Ripple?

XRP is one of the world's largest cryptocurrencies. It is common for the cryptocurrency XRP to be confused with the company Ripple, but it is important to point out that these two are not the same.



If you want to see an overview of the XRP price, you can click here.


In this post, we will explain what XRP is and how it works, but also give a brief introduction to what Ripple is, so you can easily understand the difference between Ripple and XRP.

What is Ripple?

Ripple, also known as Ripple Labs, is a private company that develops products for banks and other financial companies. Their main product is called RippleNet, and is a payment network that enables fast transfers between financial institutions across national borders.

The current global payment infrastructure can be complex, involve high fees and have a long transaction time. Ripple envisions a "The Internet of Value" (IoV) where value can be transferred as quickly, reliably and cheaply as data over the Internet today.

What is XRP?

What is XRP?

XRP is a cryptocurrency belonging to the blockchain-based protocol XRP Ledger, which was launched by Ripple in 2012.


XRP was marketed as a faster and cheaper alternative to bitcoin and is used, among other things, to transfer value through RippleNet. The main purpose of XRP is to be a kind of broker between different currencies - both cryptocurrency and fiat. It should be quick and cheap to switch between currencies.


It is possible for anyone, anywhere in the world to send XRP without relying on a central intermediary. XRP's transactions are settled in 3-5 seconds, and the cryptocurrency is known for its very low fees.


XRP Ledger's source code is open, and the protocol is by nature decentralized. Despite the fact that Ripple has created XRP Ledger, it is therefore important to note that XRP Ledger is not owned by Ripple or any other key player.


However, it should be mentioned that Ripple owns the majority of all XRP tokens that will ever be in circulation. This has created an ongoing discussion about whether Ripple controls XRP or not.

  • XRP is available on the majority of all crypto exchanges in the world, and anyone can buy, sell and send each other XRP.
  • There are a total of 100,000,000,000 XRPs and there is no way to generate new XRPs.
  • As of today, Ripple owns approx. 52.3% of all XRP in existence, corresponding to 52,326,695,396 XRP. The remaining 47.6% is in circulation, corresponding to 47,663,117,635 XRP.

The company Ripple uses XRP to facilitate payment settlement, exchange of assets and remittance in a number of their products. Despite this, some of the products in RippleNet work completely independently of the XRP cryptocurrency.

In short:

  1. Ripple is the company.
  2. XRP Ledger is the protocol.
  3. XRP is the cryptocurrency.
  4. RippleNet is a Ripple product that uses the protocol and the cryptocurrency.

Who made Ripple and XRP?

XRP Ledger was conceptualized by Jed McCaleb in 2011. McCaleb hired David Schwartz and Arthur Britto, and this was to become known as the founders of XRP Ledger, which was to end up being the protocol Ripple uses.


All three were fascinated by Bitcoin, and aimed to develop a better version of Bitcoin that was more sustainable and adapted to global payments.


In June 2012, the XRP Ledger protocol was launched, and with it the associated cryptocurrency XRP. At this time, it was possible to buy XRP on the open market.


Shortly after the launch, the founders hired Chris Larsen, and together the four opened the company NewCoin in September 2012. The same year, they changed the name of the company to OpenCoin.


It was not until 2013 that the company officially changed its name to Ripple Labs, and publicly published the source code for Ripple's network. In 2015, the name of the company was changed to Ripple.


In addition to being a co-founder of Ripple, Jed McCaleb is also a co-founder of the decentralized crypto protocol Stellar Lumens.


McCaleb is also the founder of Mt. Gox, a crypto exchange that in 2014 handled over 70% of all Bitcoin transactions around the world, and which is best known for being the first major crypto exchange to experience a security breach when the exchange was hacked for around 850,000 bitcoins, which at that time was worth about $ 500 million.

How to buy and store XRP?

How to buy and store XRP?

There are primarily two ways you can buy XRP. You can either buy XRP through a crypto exchange, or you can buy XRP from a private individual who wants to sell their XRP.

Regardless of the method you use, you must keep your XRP in an XRP wallet.

You can choose between creating an account in a cryptocurrency exchange and letting the cryptocurrency exchange take care of your cryptocurrencies for you, or creating a decentralized wallet where you are responsible for the storage and security of your cryptocurrency.

Buy and store XRP with a crypto exchange like Firi

An easy and cheap way to buy and store XRP is through a crypto exchange such as Firi. Firi makes it easy to buy, sell and store your XRP and other cryptocurrencies.


When you create an account with Firi, an XRP wallet is generated for you automatically. In practice, this means that Firi can safely store your XRP for you and that you do not have to deal with the security of your XRP wallet.



You can access your XRP wallet by logging in to your user by e-mail or Vipps, and by verifying yourself with BankID. You can easily send and receive XRP to your wallet in Firi from other exchanges or other XRP wallets.



Cryptocurrency can be purchased 24/7, and Firi makes it easy to switch between XRP and NOK. In less than one business day, you can also sell your XRP for NOK and transfer to your bank account if you wish.

How to store XRP in a decentralized wallet

Because XRP is a decentralized network, it is possible to create a separate, private XRP wallet where you can store your XRP.

XRP is sent and received using destination codes. To be able to make transfers with XRP, you must send XRP to a destination code that belongs to an XRP wallet.

When you create a decentralized XRP wallet, a public key (public key) is generated which acts as an account number and a private key (private-key) which acts as a password for your wallet. If someone gets hold of your private key, they will have access to all of your cryptocurrency. No one can help you get your money back if you lose access to your private key.



A public key can be compared to an account number for your XRP wallet. For example, if someone is going to send you an XRP, they need access to your public key associated with your XRP combo book.


You can safely send others your public key. A public key is a combination of letters and numbers that are unique to your XRP wallet.


A private key can be compared to the password of your digital wallet. A private key is a combination of letters and numbers that are unique to your XRP wallet.



A private key can also be generated in the form of a seed phrase, which in practice is a backup copy of your private key. If someone has access to your private key or your seed phrase, they will also have access to all of your cryptocurrency. It is therefore important not to share your private key with anyone.


It is important to note that an XRP wallet only supports XRP. For example, if you send XRP from an XRP wallet to a Bitcoin wallet, the XRPs that are sent will be gone forever without you being able to access them again.


It is very important that you are aware of which public key you send and receive cryptocurrency on.


The most common way to buy XRP is through a cryptocurrency exchange. Firi makes it easy to buy XRP and other cryptocurrencies for Norwegian kroner. After you have purchased cryptocurrency from Firi, you can choose whether you want Firi to keep your cryptocurrency for you, or whether you want to send it to your own decentralized wallet.


Firi explains: What is a consensus mechanism?

  • A consensus mechanism is a mechanism for reaching a common agreement. In order to verify the information as credible in a decentralized network, there must be a consensus mechanism that allows all participants in the network to agree and can verify that all information is valid for all parties.
  • In XRP's protocol, the XRP Ledger Consensus Protocol is used to ensure that everyone has equal information about transactions and balances in XRP's database.

How does XRP work?

To send XRP transactions, just like in bitcoin, one must sign the transaction with a cryptographic key. Anyone can create an XRP wallet and in practice interact with the network to send, receive and store XRP.

Although XRP is based on blockchain technology, XRP Ledger is not a blockchain. To make it easier to understand how XRP works, we have drawn some parallels with how Bitcoin works.

How to verify XRP transactions?

XRP's protocol is called XRP Ledger, and all data and transactions related to XRP are stored and verified in XRP Ledger. This can be compared to how Bitcoin uses blockchain technology to store and verify transactions.


Unlike Bitcoin, which uses Proof of Work and mining as its consensus mechanism to verify transactions, XRP Ledger uses a trust-based consensus mechanism called the XRP Ledger Consensus Protocol to verify transactions.

XRP Ledger is managed by a distributed network of around 150 participants around the world. The participants run their own servers, and act as nodes in the network. XRP transactions are stored in the form of so-called ledger entries at the various nodes. New ledger entries contain new information about transactions and data related to XRP.


Although these nodes store the information in the XRP Ledger, someone still needs to verify that the information is correct. Unlike Bitcoin, where information in the blockchain is verified "untrustworthy" by thousands of miners around the world, XRP Ledger is trust-based, and the majority of transactions are validated by a selection of validators.


There are only 35 validators globally that are marked in a so-called "Unique Node List". This list consists of validators who are considered "safe". It is Ripple who decides who qualifies to be part of the "Unique Node List". With that said, you are free to use any validator you want.


Validators ensure that the transaction history stored across all servers is accurate using a voice system. This makes many question how decentralized XRP actually is. 6 of these validators are controlled by Ripple, and a majority of validators are controlled by various banks.


Despite the fact that there are 35 validators, one must have some confidence that these validators have no malicious intentions, as a majority of 80% in practice can change the state of the network. One must also have confidence in Ripple, as Ripple decides who is "approved" as safe validators, and thus which validators are most used.


Because XRP has a low number of validators, transactions in XRP Ledger are verified almost immediately and at very low cost.


Because large banks and financial institutions are validators and they have great confidence in XRP Ledger's validators, XRP can thus be an excellent alternative for making global monetary settlements, and competing with existing centralized systems such as. interbank system SWIFT. It is thought, among other things, that if Ripple will be used as a global system for money transfers, this will give the network (and perhaps XRP) great value.


Summary

  • XRP's protocol uses the XRP Ledger Consensus Protocol as a consensus mechanism to ensure that all information in the protocol is accurate.
  • Everyone can participate as a participant in XRP's network, but Ripple is involved in deciding which participants are defined as safe for everyone to use.

How are XRP's coins distributed on the market?

When XRP was launched in 2012, all XRPs that will ever exist were produced at once - a supply of 100 billion XRP. Unlike Bitcoin, which is distributed by mining over time as prizes to the miners, XRP was distributed as follows:


  • 20% (20 billion XRP) was given to the founders of XRP.
  • 80% (80 billion XRP) was given to Ripple.

Unlike other cryptocurrencies, a key player (Ripple) controls the majority of all XRPs.


From 2012 to 2022, Ripple has sold parts of its large holdings on various crypto exchanges and to financial institutions, and this is how new XRPs are distributed on the market and enter circulation.


Ripple currently controls about 50%, and a majority of this XRP is locked in a smart contract so it can only be sold in smaller batches. About 50% is in circulation in the market.


All XRPs that will ever exist were produced immediately in 2012. They have been distributed on the market by Ripple Labs having sold XRP to the market on a regular basis since 2012. A smart contract has been made to ensure that a limited number XRP is sold in each round. 50% of all XRPs are owned by Ripple, and the remaining 50% are in circulation.

Ripple's partnerships

Within the global financial sector, cross-border payments have long been characterized by slow and inefficient money transfer processes. This is where Ripple comes into play with its pioneering blockchain, dedicated to revolutionizing these challenges through strategic partnerships.


Ripple's collaborations range from partnerships with traditional banks to fintech (financial technology) companies, and aim to improve cross-border payment solutions. Below we have listed some examples of Ripple's various partnerships:

Santander Group:

Ripple partnered with Santander in 2015 to create the first mobile app powered by blockchain technology. The app, known as "Santander One Pay FX", uses Ripple's technology and enables real-time international money transfers for Santander customers.


American Express:

Ripple's partnership with American Express focuses on enabling instant transfers of business payments between the US and the UK. This collaboration aims to leverage Ripple's blockchain solutions to increase the efficiency of cross-border payments for American Express business customers.


National Commercial Bank (NCB):

NCB, based in Saudi Arabia, has partnered with Ripple to improve payment services and cross-border payments.


SBI Holdings:

SBI Holdings, a financial group based in Japan, has a strong partnership with Ripple. They have jointly established a venture called "SBI Ripple Asia" to promote the use of blockchain and digital assets in financial markets in Asia.

The R3 Consortium:

The R3 Consortium (R3 LLC), which focuses on creating blockchain solutions designed for the specific needs of the financial industry, is indirectly partnering with Ripple to explore the use of blockchain across various industries. R3's and Ripple's technologies will enable interoperability between different blockchain networks.


The court case between the SEC and Ripple.

The court case between the SEC and Ripple.

Many people have probably realized that for several years there has been a legal case between the SEC (Securities and Exchange Comission), and Ripple. The crux of the matter was that the SEC believed that XRP must be considered a security (in the same way as a share) and that XRP is thus subject to their control and regulations, while Ripple, for its part, is adamant that XRP is not a security.

The SEC believes that the sale of XRP tokens by the company Ripple and its executives constituted an unregistered sale of securities, which is illegal. (Anyone who is going to sell securities must be registered and approved by the SEC). This can be compared to selling shares without registering with the Norwegian or Danish Financial Supervisory Authority.

The core of the case, and some important details

The court case has been important for the entire crypto industry because the SEC, for its part, believes that a large proportion of cryptocurrencies can be considered securities, and are therefore subject to their control. They will potentially be able to go after a number of other cryptocurrencies, and not just XRP, and they will be able to limit US retail investors access to these assets under the guise of protecting "the little guy". (Since the US is a big market, what happens there is very important for the entire crypto market).

At the same time, the crypto industry and its supporters strongly disagree with the SEC, believing that crypto is a different type of financial asset. Other financial assets, such as commodities, gold and silver, are regulated in a different and less strict way, and here it is a control body other than the SEC that is in charge.

So then a core question becomes whether one can classify XRP as "a security" or not. The criteria for what counts as a security in the USA is determined based on something they call the "Howie test". This is a set of criteria that must be met in order to be able to classify something as a security.


The 4 criteria in the Howie-test

  • Investment of money
  • In a common enterprise
  • Expectation of profits
  • From the efforts of a promoter or third party

So: First, it is something you invest money in. The price and the price development are the same for everyone who has invested. There is an expectation of profit on the part of the investors and it is ultimately important that that expectation of profit comes from an identifiable third party (such as a company).

Almost all cryptocurrencies meet the first three criteria. It is the fourth criterion that is decisive for the classification. In the case of XRP, the company Ripple was this third party that allegedly created an expectation of profit. Ripple, for its part, focused during the trial on something called "fair notice", which means that the SEC should have given a warning in advance that XRP could be classified as a security, or that they saw the sale of XRP as an illegal sale of securities.


Many crypto companies have used the same argument against the SEC, that they have previously been unclear about which cryptocurrencies they count as a security.

Something important to the case is that XRP was created one year before the company Ripple existed. And that 80% of XRP was gifted to Ripple when this company was founded, while 20% was kept by the founders. Much of the funding for the company Ripple has come from the cryptocurrency XRP, but they also have their own Ripple shares, which have been sold to investors. These shares are not a cryptocurrency, and not the same as XRP. XRP is therefore NOT a share in the company Ripple.

The SEC has used both ICOs (public sale of a new cryptocurrency) and staking as examples of the sale of securities, but XRP has not adopted either of these. It is worth mentioning that launching through ICO and using staking is central to many cryptocurrencies.

Finally a decision in the case

After the trial has been ongoing since December 2020, it was finally decided on 13 July 2023 that the court does NOT consider XRP a security, and that Ripple has thus not broken the securities law by selling XRP on public exchanges. It is the Howie test that has been used as the basis for this decision, and this gives a signal that this test will probably also be used in similar cases later.

The market saw this as a big win for Ripple and XRP, and it led to an immediate jump in the XRP price. This also means that US crypto exchanges can legally offer XRP to their customers in the future. Coinbase is among those who have come out and promised that XRP will return for sale on the exchange.

This is important because it gives XRP “regulatory clarity”, which only Bitcoin has among the other cryptocurrencies. This means that you then have completely clear rules to deal with now that XRP is not considered a security.

At the same time, the SEC prevailed on some other points, making the case a shared victory between the SEC and Ripple. This applies, among other things, to the fact that the SEC was right that Ripple's sale of XRP directly to sophisticated institutional investors was in fact a breach of the Securities Act because in this case there was an "expectation of profit" created by the company Ripple.

It is possible that Ripple will appeal this decision before the final judgment falls in 2024, but the result could be that they have to pay a large fine. The difference between this sale to institutional investors and the sale to small investors on the open market was, among other things, that here it was clear that the money went to Ripple, while in a sale on a public crypto exchange it is not clear to the buyer whether the money goes to Ripple or to another former XRP investor. This means, with regard to the howie test, that the institutional investors had an expectation of profit from the company Ripple, which according to the howie test made XRP a security in this case.

We know that this is a complicated matter, and that there are many details to discuss in terms of the matter's importance for the crypto market. But we hope you have gained a good understanding in this article. If you want to learn more about the details of the case and the effect this may have on crypto, we can recommend this video: https://www.youtube.com/watch?v=8SeIQ93xwyU

You can also read this article about the decisions in the case: https://www.reuters.com/legal/us-judge-says-sec-lawsuit-vs-ripple-labs-can-proceed-trial-some-claims-2023-07-13/



Milad Mirshahi22/02/2022