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What do you need to know before investing in Ripple?

Ripple (XRP) is the third-largest cryptocurrency by market cap, valued at $9.7 billion.

The new form of cryptocurrency has taken the world by storm, garnering attention from some of the most famous investors like Marc Andreesen and Tim Draper and financial institutions like UBS and Banco Santander.

Here, you can understand what makes Ripple and XRP stand out from other cryptocurrencies. You will also learn why people believe that Ripple could overtake bitcoin as a mainstream currency.

What Is Ripple?

Ripple works like a payment network and a cryptocurrency that trades on the network. It’s very different from Bitcoin, which can operate relatively independently of banks or financial institutions.

Ripple and XRP have partnered with these organisations to create a better system for cross-border payments while still retaining many of the positive aspects of blockchain technology.

Banks are required to hold onto large amounts of money if they need to make an urgent transaction, making smaller transactions unattractive; however, the more significant problem is the time involved in processing these transfers.

With Ripple, you can quickly send any currency across borders (in seconds) and cheaply (for fractions of a cent).

The benefits for banks using this system are apparent. They get faster transfer times and lower costs. Ripple has made it their business model to make it easy for banks and financial institutions to use XRP, thus driving up demand for the cryptocurrency.

How Does Ripple Work?

Social media platforms like Twitter or Snapchat can all operate on different types of Ripple blockchains without ever needing to communicate with each other.

According to Statista, Ripple is predominantly active in Southeast Asia. There are many different systems in place at Fortune 500 companies because they don’t all use the same software platforms. Ripple wants to create a single payment option, so there’s no need for every company to have its system in place.

The network has three parts: they have their distributed ledger (Ripple ledger), similar to the blockchain technology behind bitcoin; they have tokens called XRP that work similarly to bitcoin and other cryptocurrencies, and the third part is digital assets.

These are financial assets that can be easily transferred from one party to another without hesitation or delays because of foreign exchange rates or other outside influences. You can think of these assets as a form of IOUs, except they’re entirely digital instead of paper-based.

An Example of a Ripple Transaction

Suppose you want to transfer US dollars from your bank account to a friend’s account in Japan. It would take several days for the transfer to go through, and you’d have to pay a fee for it, especially if you were trying to send a large sum of money.

For such a transaction you can use Ripple’s system instead. However, if your bank is not connected with the network, you’d have to buy XRP from an exchange and send them to your friend who has a Ripple wallet.

They can then sell their XRP on another exchange for Yen that they can spend or save as they please. This is how a transaction is made possible across continents through Ripple.

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