Ripple and its associated coin XRP are marketed as a cross-border payment solution for banks and other financial institutions. Immediately, you can see that it is very different from Bitcoin – being targeted at big businesses rather than individuals.

The other most-noticeable difference is that the maximum amount of XRP was created at its inception. Those coins are then used or destroyed by banks when they make their “cross border” transfers.

Why Ripple?

An international payment between banks can currently take a few days to complete and the costs are quite high. OK, so the costs are not high if you imaging banks sending millions of dollars to one another for major transactions, but imagine the cost of sending micro-payments of just a few dollars to thousands of customers – an example might be Amazon paying its app developers.

Then you have to consider the failure rate of those transactions which, from a customer’s point of view, is infuriatingly high. And lastly there’s the sheer amount of capital that is tied up in banks Nostro and Vostro accounts by way of ‘float’, which amounts to literally trillions of dollars.

Ripple is also fast.  Payments are settled in approximately 4 seconds compared to the already-mentioned three days for regular banking transactions.  But it is also fast compared to Bitcoin which can be a couple of hours and even Ether which takes around two minutes.

Ripple as a Bridge Currency

Ripple acts as a bridge currency, between fiat currencies, during a transaction and can be seen as a foreign exchange asset that is liquid with any other currency.  So, if you are trying to change one currency into another, you will often have to go through several other intermediate currencies to achieve your aim with each one attracting a fee. Don’t think dollars to euros here, think about Kenyan Shillings into Russian Rouble. XRP shortens the path between currency pairs. What is more, there is a reduced risk of counterparty default – there’s no institution in between that might not live up to its contractual obligations.

Here's an example: Your bank account is in US Dollars but want to buy some electrical goods from Japan. This is how it would happen...
Your US bank account => US Federal reserve => Nostro Account => Forex Market => Bank of Japan =>Supplier's Japanese bank account

The process would take between 3-14 days and would be costly.

But using Ripple...

Your US bank account => Ripple => Supplier's Japanese bank account

This process would take around 8 seconds and be 75% cheaper.

Ripple in Practicality

Banks are already using Ripple with many established financial players including American Express and UBS. One of the main reasons behind its adoption is because it has robust compliance controls already in place, certainly compared most other cryptocurrencies. In other words, it is being used in the real world unlike many other altcoins and has the trust of establishment players.

And there’s the rub. Fans of Bitcoin and other cryptocurrencies like the fact that it is a decentralised currency and not controlled by banks, governments or other institutions. Whereas Ripple is positioned to be the crypto of the establishment, arguably making it centralised.

Amount of XRP

100,000,000,000 XRP were created at the start of Ripple.  That quantity wont change. Each time a transaction occurs on Ripple some XRP is used or destroyed.  So, the amount of XRP will decrease over time.  You will notice from this statement, that Ripple or XRP cannot be mined. If you want some Ripple for yourself, as an investment, you can buy it on an exchange like Kraken or Bitstamp.

How to buy Ripple

You can buy XRP direct from exchanges such as Kraken using fiat currency like dollars, and euros.  However, if you are unable to set up an account or you can’t deposit currency from your country, the trick is to first buy some bitcoin in the regular manner. If you are happy with regulation and big brother watching over you, use a friendly exchange like Coinbase.  If you value anonymity, buy some on the localbitcoins market. Next up, use a service like Changelly to swap your BTC for XRP.  It’s that simple!