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Cryptos to watch: What are Ripple and XRP and what do they do?

Amid the Bitcoin-inspired crypto boom, XRP's value has risen nearly 650% so far this year, but what is it and how does it operate within the Ripple network?

Ripple XRP token

While most of the news headlines around crypto tend to focus on the original cryptocurrency, Bitcoin, however, the sector is also home to a plethora of other digital tokens, each operating on their own networks and offering different benefits and capabilities.

One of these is Ripple and its related cryptocurrency, XRP, which so far this year had soared in value alongside its crypto brethren and is up around 648% on its value on January 1 at around US$1.72.

What are Ripple and XRP?

Ripple is the name of the network and the company behind it, while XRP is the token that is used to run transactions on the system.

The term Ripple is sometimes used to refer to both the network and the crypto, however, XRP is the official name of the token and how it is displayed in trading.

Aside from trading XRP on the crypto markets, Ripple is better known by many as a payment settlement system for international transfers and remittances, similar to more established systems such as SWIFT.

The system works by converting the currency of the sender into XRP and then sending it to the recipient who can then convert the XRP into a different fiat currency. The system is already used by major banks and institutions to process international payments.

What is the difference between Ripple and Bitcoin?

The key differences between the Ripple network and the Bitcoin network are their frameworks and the relative strengths and weaknesses these provide.

Bitcoin is based on the blockchain framework, which functions as a decentralised and unalterable digital ledger that uses computing power to validate transactions for rewards in a process known as crypto “mining”.

On the other hand, Ripple uses a consensus mechanism through a network of computer servers to validate transactions, a process that does not require mining (as XRP tokens are pre-mined) but is faster, cheaper and more reliable than a lot of its competitors in the payment processing space.

The Ripple framework also takes much less time to process transactions than the Bitcoin blockchain, while also consuming less power and costing less in transaction charges.

However, this speed and lower cost come with the trade-off that Ripple is still owned and operated by a private company, a direct contrast to the Bitcoin framework which is a truly public system not owned by a single entity.

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