• Team Sygnum

XRP and the XRP Ledger

This article provides an overview of XRP and the XRP Ledger, a consensus protocol and its protocol token which is uniquely designed to solve current issues with payment processing. This protocol underlies the payment solutions developed by Ripple. Here, we explain what it is, how it works, its key differentiators and the use cases that it enables.

What is XRP and the XRP Ledger?

The XRP Ledger is an open-source technology designed for payment processing, which is maintained and improved by the company, Ripple. Ripple has built a range of enterprise software solutions for global payments on top of the XRP Ledger, although the way in which the ledger is designed makes it such that it cannot be owned by any individual or entity.

XRP is the protocol token native to the ledger and is part of the ledger’s overall design to solve problems with payments. It also functions as a bridge currency to facilitate cross-border transactions – i.e., the sender converts the sending currency into XRP, XRP is used as the medium for value transfer, and the receiver converts XRP into the receiving currency.

Key differentiators of the XRP Ledger are both speed and cost. Global payment systems, known for being slow and costly, are long due to be modernised. XRP transactions settle faster and cheaper than most other protocol tokens at about four seconds [1], in contrast to one hour or more for Bitcoin and at times a few working days through traditional banking systems.

How does it work? A “no mining” consensus mechanism

The speed of settlement on the XRP Ledger is due to a unique consensus mechanism which does not require mining. Instead, the mechanism is based on trust and run by an ever-growing network of more than 150 validators[2] globally, who agree on the validity and order of XRP transactions. Each validator chooses a set of other validators that it trusts, constituting a Unique Node List (UNL). There is no restriction on who can become a validator, and each validator has the freedom to select their own UNL.

Given that no tokens are created during the process of confirming transactions, 100 billion XRP was created from the start in 2012, of which about half[3] is currently held in escrow. Ripple, as the steward of XRP and the XRP Ledger, governs the supply of the XRP tokens to ensure healthy liquidity and market dynamics.

With no mining involved, one of XRP’s advantages include negligible energy consumption. The XRP transactions are settled without the energy costs associated with proof of work. Being faster, cheaper, and more eco-friendly than most protocols, the XRP Ledger powers innovative technology across the payments space.

How does it compare? Similar to Visa in scale

The XRP Ledger can handle 1,500 transactions per second with an impressive accuracy and consistency making it more scalable than most protocols (compared to only seven transactions per second for Bitcoin currently). The ledger also has an advanced feature which further increases scalability, called payment channels, where transactions between two parties can be cleared off-ledger and cryptographically settled through consensus later when either party requests to claim or close the channel. The use of payment channels increases throughput capacity to tens of thousands of transactions per second (limited only by the ability to handle message requests), making it potentially comparable to Visa which has the capacity to handle up to 24,000 transactions per second[4].

What use cases does it enable? Remittances and micropayments

Compared to traditional cross-border payments, the cost of an XRP transfer is marginal, as financial intermediaries are cut out of the value chain. By making it possible to easily facilitate the exchange of money across the world, individuals living abroad can transfer money to their home country without incurring high fees. The low cost also creates an ideal platform for micro payments which will facilitate the development of digital business models based on low prices and high volumes.

Ripple – enabling financial institutions to move money globally

Ripple has developed solutions targeting these areas. In addition, with their On-Demand Liquidity (ODL) product clients can use XRP to source liquidity in cross-border transactions, instead of pre-funding—ensuring instant settlement, lower exchange fees and more efficient use of working capital.

As a demonstration of XRP’s traction, RippleNet, the global payments network of institutions using Ripple’s solutions, currently has more than 300 participating financial institutions across more than 40 countries[5]. These include large banks such as Banco Santander, Siam Commercial Bank and DBS. The company also raised USD 200 million at the end of 2019[6], to be used for global expansion plans.

Ripple’s vision to “instantly move money to all corners of the world” is in line with Sygnum’s mission to empower everyone, everywhere with more direct access to ownership and value. We expect to see more from Ripple and the XRP Ledger in the year ahead, and we have made XRP available for custody, trading and credit services on our banking platform. This addition allows Sygnum clients to further diversify their direct token investment portfolios.

Onboard digitally with Sygnum

100% digital onboarding is the fastest and most convenient way to join Sygnum Bank. With a few clicks, you can verify your identity via video[7], submit information, and sign contracts, all online. Once onboard, put your deposited CHF, EUR, SGD and USD to work to securely buy, trade and hold Bitcoin, Ethereum and XRP 24/7. You can also access a Digital CHF token for instant settlements, and soon a diverse range of asset tokens – all seamlessly integrated in one account, accessible from anywhere in the world.

As part of our portfolio of regulated digital asset banking services, you can also increase fiat liquidity with a lombard loan against your digital assets, invest in our digital asset MultiManager fund, and add regulated digital assets services to your business with our B2B banking services.

To onboard with Sygnum, click here or contact our Client Services team at onboarding@sygnum.com or +41 58 508 2000, 8am – 5pm CET.

[1] https://ripple.com/xrp/ [2] https://xrpcharts.ripple.com/#/validators [3] https://ripple.com/xrp/market-performance/#, as of 29 March 2020 [4] https://www.visa.com.sg/run-your-business/small-business-tools/retail.html [5] https://ripple.com/customers [6] https://www.cnbc.com/2019/12/20/ripple-creator-of-xrp-crypotocurrency-is-now-valued-at-10-billion.html

[7] Available Monday to Saturday, 7am – 10pm CET