Finance

What is Ripple? The cryptocurrency growing faster than bitcoin explained

Ripple has been on a tear over the past few weeks: XRP, the ..

Published

January 4, 2018

Ripple has been on a tear over the past few weeks: XRP, the token that powers the blockchain startup’s network, RippleNet, first hit $1 about two weeks ago, and today it climbed to as high as $3.84.

While bitcoin, the cryptocurrency king, soared more than 1,200 per cent last year, Ripple rose a whopping 35,000 per cent in the same period.

Ripple is now the second-largest cryptocurrency by market capitalisation behind bitcoin, having reached more than $140bn today. Compared to bitcoin’s $250bn value, it is still a long way off, but with its rapid rise in value meaning Ripple is attracting more attention than ever, here’s everything you need to know.

What is Ripple?

Ripple is a San Francisco-based blockchain startup led by chief executive Brad Garlinghouse that dates back to 2012. It works with a number of institutions including UBS, Santander and American Express to apply blockchain technology to payments, making them faster and cheaper.

How does it compare to bitcoin?

While Ripple has its own digital token, any currency – including bitcoin – can be traded on RippleNet. Dennis de Jong, managing director at UFX, said: “While the governance of bitcoin and other cryptocurrencies remains unstable, Ripple’s seems far more reliable, with validators run by MIT and Microsoft.”

How is it used by banks?

Iqbal Gandham, UK managing director at eToro, said Ripple allows banks, payment providers and businesses to improve cross-border payments, expand into new markets, increase payment volume, lower foreign exchange costs and provide faster settlement times for customers.

With Ripple, cross-border payments can be completed within seconds while bitcoin can take an hour or longer, and the Society for Worldwide Interbank Financial Telecommunication (Swift) network takes about three days. De Jong said the quick settlement times and extremely low transaction fees could increase remittance profitability for some smaller banks to up to 60 per cent. “The fact that the likes of American Express and Santander have signed up shows it certainly is an attractive proposition that should grow and grow,” he said.

Why is Ripple controversial in the crypto community?

Gandham said there were a number of reasons why not every cryptocurrency fan has jumped on the Ripple bandwagon. The decentralised nature of bitcoin and other cryptocurrencies is seen as one of the main selling points, but Ripple is owned by Ripple Labs and centralised there, which Gandham said was “in direct opposition to one of the basic tenents of cryptocurrencies”. He added: “Secondly, Ripple could in theory increase the supply of XRP and the crypto community would not be able to stop this. Thirdly, the XRP token is not vital for the Ripple network, which could survive without XRP.”

Where will Ripple’s price go from here?

Gandham said the recent rally in XRP’s price could be attributed to the expansion of Ripple’s global network, which now consists of more than 100 customers and over 75 commercial deployments. “From American Express to Santander and Standard Chartered, Ripple’s adoption by financial institutions is on the rise – which has strengthened the demand for XRP,” he said.

De Jong added that every time a new bank takes on Ripple, the price of XRP will increase sharply. “2016 and 2017 saw banks trialling the product, with this year likely to see some major implementations – which means we could see some very quick short-term growth. Whether this is able to last longer-term, however, does still remain to be seen.” He said: “Bitcoin’s peaks and valleys are already well-known, but Ripple’s relentless growth and record highs don’t alter the fact that it’s only just begun its crypto-coaster ride.”