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Ripple, also known as the Ripple network, consists of a real-time gross settlement system (RTGS)[1], currency exchange and remittance platform with which banks, payment service providers, and users can facilitate cross-border payments through the public Ripple blockchain.Built on a peer-to-peer (P2P) and distributed network of interconnected payment channels, blockchain networks, financial institutions, and payment providers, Ripple specializes on settling transactions in real-time, within an immutable, decentralized, and transparent ecosystem.Some of the largest banks in Europe, Japan, and the US including UBS, Santander, Sumitomo Mitsui Banking Corporation (SMBC), and Mizuho have joined the Ripple consortium[2] to implement Ripple’s blockchain-based payment settlement solutions such as xCurrent, xVia, and xRapid to reduce operating costs in processing transactions.

Early Stage

In February of 2013, Ethereum co-founder Vitalik Buterin introduced Ripple and its history to the bitcoin community.[3] The Ripple project, which initially began as RipplePay, was created by Ryan Fugger in 2004. The concept of blockchain technology and cryptographically secured blocks of transactions were later implemented by bitcoin and its anonymous creator Satoshi Nakamoto. Without blockchain technology in place, Fugger intended[4] to create a decentralized system wherein individuals and communities can create their own money, effectively running a unified system of a variety of payment channels and currencies.Fugger launched RipplePay.com in 2005, as a financial technology platform designed to secure transactions and process payments for users of the Ripple community. Following the lead of RipplePay.com, Jeb McCaleb along with engineers Arthur Britto and David Schwartz created a new system known as eDonkey Network, which eventually evolved into the current version of the Ripple network through the adoption of bitcoin’s blockchain technology.Over time, the eDonkey Network implementation evolved into a more mature, efficient, and stable interconnected network of multiple payment channels. In 2012, after receiving the approval from Fugger, the original founder of the RipplePay.com platform, E-Loan founder Chris Larsen and the existing team of McCaleb, Arthur Britto, and David Schwartz found OpenCoin[5], a commercial company to focus on the development of the Ripple blockchain network.

Ripple Labs

Upon the establishment of OpenCoin, the team of Larsen, McCaleb, Britto, and Schwartz started to implement bitcoin’s blockchain technology to pursue the original vision of Fugger in creating a unified decentralized protocol in which many currencies, payment channels, and assets can be supported. OpenCoin initially developed the Ripple Transaction Protocol (RTXP) based on the RipplePay.com model of Fugger.Prioritizing flexibility and transparency, the OpenCoin development team built a blockchain protocol that is capable of settling transaction between two parties in an instantaneous and P2P manner. By processing transactions of any type of currency including the US dollar (USD), euros (EUR), Chinese yuan (CNY), Japanese yen, gold, and cryptocurrencies on a decentralized network, the Ripple Transaction Protocol allowed financial institutions and payment channel operators to settle payments without high fees, long confirmation periods, and inefficient verification processes.Upon the launch of the newly designed Ripple Transaction Protocol, OpenCoin launched the XRP token, the native cryptocurrency of the Ripple blockchain network, which represents the real-world value of any currency or asset listed on the network. Buterin described money on the XRP network as “debt,” which is represented by XRP. “All money in Ripple is explicitly represented as debt, with transactions simply consisting of balances being shifted on a series of imaginary credit lines from the payer to the receiver,” noted Buterin.Subsequent to the launch of the Ripple Transaction Protocol and its unified blockchain network supporting multiple payment channels, the OpenCoin development team secured early-stage investment from leading venture capital firms Andreessen Horowitz and Google Ventures. At Ripple’s early development stage, Google considered Ripple as a strong competitor to bitcoin. OpenCoin received an undisclosed investment[6] from China’s IDG, Google Ventures, and Andreessen Horowitz for its built-in cryptocurrency exchange, which the three venture capital firms believed could provide liquidity for bitcoin investors and traders in the long-term. The OpenCoin development team said at the time, "Ripple will likely be the easiest way to buy and sell bitcoins. Ripple's built-in exchange will allow people to buy and sell bitcoins using any other currency on the ripple network."[7]

Ripple Protocol and Banking Structure

In 2013, 12 months after OpenCoin was formed, the developers of Ripple targeted its business model towards large-scale banks, with the aim of integrating the systems of financial institutions and payment service providers into the Ripple blockchain network to process payments with reduced operating costs and increased transparency. On September 26, 2013, OpenCoin officially rebranded the company to Ripple Labs[8], with the vision of developing a blockchain network that can easily “integrate with banks’ existing networks.”Throughout 2014 to 2016, Ripple Labs deployed several pieces of software for transaction settlement targeted at large-scale banks and financial institutions. It formed a consortium of banks to implement its blockchain network across major banking and financial systems in the traditional financial industry. Ripple first experienced its break through after entering into a strategic partnership with German online bank Fidor Bank[9], which started to use the Ripple network to process cross-border remittance payments for retail customers, corporations, and other global financial institutions. Triggered by the success of Fidor Bank, other banks in the global banking sector such as New Jersey-based Cross River Bank and Kansas-based CBW Bank began to utilize the Ripple network to process expensive cross-border and international payments.In late 2015, Ripple secured its largest contract since its launch in 2012, with a global payments service provider EarthPort. During that period, EarthPort served many of the leading banks such as Bank of America and HSBC. Consequently, the market valuation of the Ripple network and the price of XRP surged by 200 percent. As of November, 2017, the market cap of Ripple remains above $7.8 billion, as the fourth largest cryptocurrency in the global market.From 2016 to 2017, Ripple continued to work with major banks in Europe such as SEB, a major Swedish bank, to process hundreds of millions of dollars in international payments and remittances. Brad Garlinghouse, the CEO of Ripple Labs, said that SEB used the Ripple network to transfer $180 million from Sweden to the US on behalf of its corporate and retail clients.[10]TerminologyThe term Ripple was first introduced by Ripple Labs in 2012 upon the launch of the Ripple blockchain network. Most dictionaries including Merriam Webster and Oxford use Ripple, the capitalized term, to refer to the blockchain network. News publications prefer to use ripple in lowercase to refer to the native currency of the Ripple network. On most platforms such as cryptocurrency market data providers and cryptocurrency media outlets, the term “XRP” is used more often to refer to the native currency of the Ripple network. Unlike bitcoin, which has several units of account, the Ripple network and its native currency ripple have one unit of account that is XRP. Because the value of one XRP is less than $1 and since the Ripple network often deals with currencies and assets traded within the traditional financial industry, developers have not come up with alternative units of account for XRP.Structure

Blockchain

The Ripple network is truly unique because it was first launched as a decentralized network prior to bitcoin without blockchain technology. Over time, it adopted the blockchain system of bitcoin to provide a transparent ecosystem for banks, financial institutions, payment channel operators, and users. Ripple’s frictionless and instantaneous payments platform is based on the Ripple blockchain, which focuses on flexibility to process as many data points as possible to seamlessly process transactions for large-scale retail clients and customers.[11]The Ripple blockchain operates as the base infrastructure for every intermediary and financial institution on the Ripple network, connecting originating banks, corresponding banks, and beneficiary banks on a single blockchain network.

Consensus Protocol

The Ripple consensus protocol was introduced by David Schwartz and Arthur Britto in 2014, the original founders of OpenCoin. The Ripple Protocol Consensus Algorithm is fundamentally, conceptually, and structurally different than other public blockchain networks like bitcoin and Ethereum, because Ripple operates a wide range of subnetworks within its larger financial network.In essence, each subnetwork on the larger Ripple network represent a collection of member nodes, which creates a network that is capable of maintaining agreement throughout the entire protocol. The Ripple Protocol Consensus Algorithm minimizes the trust required amongst subnetworks, leading to a low-latency consensus algorithm.The whitepaper released by Schwartz read, “We show that the ‘trust’ required of these subnetworks is in fact minimal and can be further reduced with principled choice of the member nodes. In addition, we show that minimal connectivity is required to maintain agreement throughout the whole network. The result is a low-latency consensus algorithm which still maintains robustness in the face of Byzantine failures. We present this algorithm in its embodiment in the Ripple Protocol.”[12]

Mining

Mining is a controversial topic within the Ripple and cryptocurrency communities because there exists no miners on the Ripple network. The Ripple consensus protocol is fundamentally different than Bitcoin and Ethereum, which operate proof-of-work (PoW) consensus protocols.In 2013, Buterin noted that the lack of mining on the Ripple network can be seen as both an advantage and a disadvantage. Because there is no mining, Ripple’s blockchain can be significantly more flexible and handle larger capacity of transactions. On the contrary, it lacks a fair system in which XRPs or ripples are distributed transparently to users and miners, like the Bitcoin and Ethereum networks.Delving into the method the Ripple developers relied on to distribute XRPs across the network, Buterin explained, “the lack of mining introduces an aspect to Ripple which can be thought of as both a strength and a weakness. Because there is no mining, there can be no fair mechanism to automatically distribute XRP to users, and so the Ripple developers went with the simplest solution: starting off with all 100 billion XRP that will ever exist in their own wallets.”The lack of mining also creates a centralization issue with which controversial deals can be allowed and pursued. For instance, in October, 2017, Ripple CEO Brad Garlihing house revealed that R3CEV filed a lawsuit against Ripple for its previous contract that allowed R3CEV to purchase billions of XRPs at $0.0085 per XRP, which Ripple unilaterally terminated. As of October, 2017, each XRP costs nearly $0.25. On October 14, 2017, Ripple CEO Garlinghouse announced[13] that Ripple prevailed in lawsuit filed by R3CEV. However, the legal conflict established a dangerous precedent for Ripple and demonstrated the centralization issue Buterin delved into in 2013.Flexibility For Large-Scale Financial NetworksScaling is still an underlying issue of the Ripple network because the protocol itself was designed specifically to process many data points and transactions every second. Public blockchains like Ethereum are currently exploring ways to prevent every node or user from verifying every single transaction broadcasted to the blockchain. Because of the lack of mining and Ripple’s unique consensus protocol, Ripple has a significantly large capacity in contrast to other blockchains.Capacity and scaling are two important aspects of the Ripple network as it prioritizes flexibility for large-scale financial networks. Major banks like JPMorgan process $8 trillion in transactions on a daily basis. For Ripple to power banking systems, it needs to be able to handle tens of thousands of data points per second, which it has not achieved as of yet. Consensus within the Ripple network takes around 3.5 seconds. The long-term goal to expand flexibility to power large-scale financial networks for Ripple is to decrease the consensus and confirmation period below 3.5 seconds.On February 28, Miguel Vias, the head of XRP markets, stated that Ripple network can handle 1,000 transactions per second. Vias noted, “Throughout 2016, the network received upgrades that seamlessly enables new functionality and significantly improved performance. Fast ledger close times have been the hallmark of Ripple Consensus Ledger (RCL) since its inception and those were further improved last year. Ledgers now close, on average, every 3.5 seconds – a full 20% faster than they did a year ago.”[14]Gateways As a unified blockchain protocol with a variety of payment channels, currencies, and assets available on the network, Ripple enables businesses or individuals to issue gateways on the Ripple network to allow users to trade or transact other forms of value or money through the transfer of XRPs. Three types of gateway models exist on the Ripple network: issuing gateway, private exchange, and merchants. An issuing gateway enables users or consumers to bring money in and out of the Ripple ledger. Operators of issuing gateways are rewarded with XRPs for processing trades on behalf of customers and users on the Ripple network. Private exchange, a built-in system within the Ripple protocol, allows users to trade cryptocurrencies on the Ripple network itself, without relying on external private exchanges to process cryptocurrency trades. Merchants on the Ripple network accept XRPs in exchange for goods or services, similar to the mechanism of marketplaces.[15]Application

Base Infrastructure For Banking Systems

Ripple solutions are divided into three major platforms: xCurrent, xRapid, and xVia. xCurrent is the base infrastructure for banking systems, in which originating bank, corresponding bank, and beneficiary bank are connected within one unified system to settle transactions amongst each other. Like existing banking systems such as SWIFT, Ripple’s xCurrent includes a built-in bidirectional messenger, which allows banks to communicate each other through the Ripple blockchain in real-time, to verify, confirm, and approve payments. The Interledger Protocol (ILT) serves as the basis of the xCurrent network, guaranteeing real-time settlement of transactions on a transparent and instantaneous channel.xCurrent is particularly important and efficient for banks because it is compatible with widely utilized banking systems including SWIFT and ISO. xCurrent autonomously detects and convert messages received in SWIFT or ISO formats, allowing banks to communicate with each other without boundaries.

Ripple Consortium of Banks

Since 2015, Ripple has maintained an active consortium of banks and financial institutions that have been testing the Ripple network and its compatible blockchain-based systems such as xCurrent to settle and process payments. Specifically, Ripple has maintained a large consortium of banks in Japan, which are utilizing the Ripple network to initiate global transactions and remittances in real-time, with lower operating costs and expenses.As of 2017, three of the largest commercial banks in Japan are in the Ripple consortium, actively utilizing the Ripple network to settle transactions on behalf of retail clients and corporate customers.SBI Ripple Asia, which first introduced Ripple’s first consortium of banks in 2016, is an important platform for Ripple to test its software, products, and blockchain network to ensure its flexibility, capacity, scalability, and security measures are on par with global banking standards.[16]By the end of 2016, the Ripple consortium grew to 47 banks, which have all successfully implemented the Ripple blockcahin network onto existing banking infrastructures to enable real-time money transfers both domestically and internationally.Ongoing Developments and Partnerships Technical DevelopmentsRipple developers are continuously developing scaling solutions and banking applications to enhance the existing infrastructure of the Ripple network. The xCurrent, xRapid, and xVia solutions were recently introduced to address the demand from financial institutions and large-scale corporate customers. Currently, and in the long-term, Ripple will continue to work with its consortium of banks and partner financial institutions such as Japan’s Mizuho and Sweden’s SEB to transfer large sums of money in various currencies to overseas banks, markets, and businesses.