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.
- 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.