Ripple (payment system)

Ripple is an Internet protocol that is used to make financial transactions. Its ledger system allows for an accounting of virtual transactions that take place between users across a virtually unlimited array of currencies and currency issuers.

Ripple was created and developed by OpenCoin, Inc., now known as Ripple Labs, which in turn was founded by Chris Larsen and Jed McCaleb. The company has stated, “We are committed to a simple, global, and open currency and payment system…As a decentralized and open source global payment network, Ripple enables free and instant payments to merchants, consumers and developers with no chargebacks and in any currency – including dollars, yen, euros, and even Bitcoin. The goal is to make Ripple the best way for people to send money to anyone, anywhere.”1)

A beta version of Ripple was released in early 2013, and as of September 26, 2013, the source code was released to the public,2) ending a longstanding debate about whether Ripple would ever became open source.

The Ripple protocol

Ripple transactions are not controlled by a single entity. Rather, they are controlled by the Ripple Transaction Protocol (RTXP). The protocol is run on a network of servers across the world, which uses the protocol’s mathematical algorithm to confirm whether financial transactions are accurate. Effectively, the protocol establishes a network that automatically processes financial transactions such as payments and currency exchanges.

Using a consensus-based system, the computers running the Ripple protocol come to a consensus regarding the Ledger – Ripple’s open record of all network activity – allowing for the processing of payments, the adjustment of balances, and the execution of transactions and trades.

The Ledger

Like the Bitcoin blockchain, the Ripple Ledger is a public, distributed ledger that accounts for all activity within the Ripple network. Since the Ripple protocol constantly updates the ledger, an identical ledger exists on servers across the world, so that transactions happen virtually instantly, in real-time. This is due to the fact that a transaction is completed in the time it takes for the Ripple network’s servers to be updated – generally in seconds.

XRP (currency)

The Ripple network has a native currency called XRP, known in some places as “ripples.” Within the Ripple network, XRP is a cryptographic digital currency that functions similar to cash. Since XRP is a peer-to-peer (P2P) currency, there is no third party involved in transactions that involve only XRP. It has real monetary value and there is an active, if illiquid, market for trading XRP against currencies such as US Dollars, Chinese Yuan, Euros and Bitcoins. There is no counterparty risk with XRP transactions since payments are irreversible – there are no chargebacks or things of that nature.

While users on the Ripple network can send each other money in various currencies without incurring transaction fees denominated in those currencies, they must possess a small amount of XRP to utilize the network. At this time, each user must have 50 XRP in their wallet to activate their account.3)

Additionally, each user must have 12.5 XRP to make transactions. In the case of payments, this means that a user must only have the 12.5 XRP reserve for the few seconds it takes for a payment to be processed. In the case of placing bids and asks on a currency exchange order book, however, a user must retain the 12.5 XRP reserve for as long as his/her order remains on the order book.4)

Unlike Bitcoins, which are subject to varying levels of inflation until the entire money supply is created (mined), XRP is not subject to inflation. The network contains 100 billion XRP – that amount will not increase, and will actually slowly decrease, based on the tiny fractions of XRP that are destroyed when used as transaction fees.5)


Every transaction on the network costs a very small fraction of XRP, in order to prevent abuse of the network, as in the case of distributed denial-of-service attacks. The amount of XRP required to be paid for each transaction is designed to be so small so as to be negligible for normal users. However, this system is designed to make it difficult for bots, spammers and other malicious actors to overload the network with transactions. Ripple’s “dynamic scalability system”6) discourages such attacks by automatically increasing the XRP security cost during times when the network is overloaded. Receiving payments in Ripple is free.

How to obtain XRP

The first principal way that one can obtain XRP is to simply buy it. A list of entities that exchange XRP outside of the Ripple network can be found on the International Ripple Business Association (IRBA)’s list of exchangers. There are various gateways – the most prominent of which is Bitstamp – where one can buy XRP with traditional currencies.

The other principal way one can obtain XRP is to participate in a giveaway. There is an active giveaway on the bitcointalk forum. OpenCoin distributed XRP to 25,000 Ripple users that signed up for their email distribution list. OpenCoin is currently distributing XRP to anyone who verifies a US bank account with SnapSwap, a gateway. You can find an active list of giveaways on

You can also use Fiverr services where people offer you to fund your account with small amounts of XRP Ripple Activation Via Fiverr

IOU system

Within the Ripple system, all currencies except for XRP have issuers. Therefore, non-XRP currencies possessed by a user are not currency per se, but rather a debt owed by the issuer. Ripple has received considerable criticism on this basis, which is discussed further below.


Gateways are entities that allow for Ripple users to take money in and out of the Ripple payment network. In other words, they facilitate deposits and withdrawals in and out of the system. For example, if a Ripple user sends you a bitcoin IOU issued by the gateway Bitstamp, and you want to withdraw the bitcoin to your personal wallet, you can send the IOU to Bitstamp, who will then allow you to withdraw to your personal wallet.

Distributed exchange

The Ripple protocol allows for an automated system for trading currencies, which makes cross-currency payments possible. This means that a user, for example, can send a payment to another user in US Dollars and the recipient can receive the payment in Chinese yuan, assuming there is sufficient liquidity within the network to allow for the transaction. Unlike traditional currency exchange, there is no broker or intermediary necessary to facilitate the exchange of currencies.

OpenCoin claims that since “Ripple is a distributed system, it has no single point of weakness or attack, and no one has special access to the network. As a result it is protected from the price-manipulation associated with traditional currency exchanges.”7)

Bridge Protocol

This is a protocol used in addition to the Ripple protocol that allows for payments between Ripple and external payment networks. The “Bitcoin Bridge”, for example, allows a Ripple user to send a payment (in any currency, assuming there is enough liquidity in the system) to a Bitcoin address. The “Email Bridge” allows for Ripple payments to be sent to an email address. Other bridges are currently under development, and they include “a SMS bridge, and a bank-account bridge.” 8)


Ripple has received considerable criticism for its implementation as a distributed rather than a decentralized system. According to, in a distributed network like Ripple, “the few ‘validators’ are in total control over the network” and while you can run your own validator, “you must connect with OpenCoin Inc servers, or you will be building a different ledger.” 9) also states that Ripple “doesn’t let you send money. It lets you send tokens printed arbitrarily at the whim of gateways.” For example, an IOU for a bitcoin is not the same as a bitcoin – the gateway that issues a bitcoin IOU may default on its debt obligations.10)

Ripple has been criticized on the basis of its “liquidity providing” features, which means that IOUs issued by different gateways in the same currency are all valued the same. For example: You trust two gateways – Gateway A reliably honors its obligations, and Gateway B does not. Another Ripple user who holds IOUs from Gateway B can swap his IOUs with your IOUs issued by Gateway A – significantly increasing your risk of holding IOUs, while providing no compensation.

Ripple has also been criticized on the basis of the “pre-mining” of XRP. Under OpenCoin's stated distribution scheme, OpenCoin's founders retain 20 billion XRP for themselves, and 30 billion XRP will be retained by OpenCoin. The remaining XRP is controlled by OpenCoin until they distribute it.11) Because the money supply is so closely controlled by OpenCoin and its founders, Ripple has received considerable criticism.

Ripple was criticized for some time based on its existence as a closed-source protocol. However, since September 2013, it has been open-source.12)

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