Key Insights
- The XRP Ledger is not the same as XRP. Instead, XRP is the cryptocurrency, while the XRPL is the blockchain itself.
- XRPL runs on a consensus mechanism known as the Federated Consensus Protocol.
- This makes it faster and cheaper compared to other networks like Bitcoin and Ethereum.
- A popular use case of XRP and the XRPL is with cross-border payments because of their role as a bridge between different fiat currencies.
- The XRPL also features its own DEX, which allows users to buy and sell crypto directly on the blockchain.
There are many easy-to-understand aspects in the blockchain and crypto world.
At the same time, the blockchain space can be very confusing at times, especially for beginners.
For example, there are many misconceptions that “XRP” and “the XRP Ledger” are the same thing.
In reality, XRP is the crypto, and the XRP ledger (also known as the XRPL) is the blockchain itself.
In essence, XRP is the car, and the XRP Ledger is the road it drives on.
In this article, we will break down what the XRP Ledger is and what makes it special. Let’s jump right in.
What Is the XRP Ledger?
The XRP Ledger is a decentralized public record book.
This is a fancy way of saying that the XRPL is a blockchain, much like Bitcoin or Ethereum.
The only difference is that the XRPL was designed mainly for fast and cheap payments and consumes much less energy than most other chains.
The network is maintained by thousands of independent validators, much like the way that Ethereum functions.
It is also faster than Ethereum and can settle transactions within 3 to 5 seconds. Even better, fees on the XRP Ledger are minimal.
This makes the network great for sending funds across borders.
Another interesting thing about the XRPL is that it is completely open source. This means that developers around the world can contribute to its code and expand its features.
How Does the XRP Ledger Work?
At its core, the XRP Ledger works on a consensus mechanism called the Federated Consensus Protocol.
This is unlike Bitcoin’s proof-of-work system, which relies on miners to validate transactions.
Instead, this consensus protocol is similar to Ethereum’s Proof of Stake in that it makes the network faster and more efficient compared to Bitcoin.
Like Ethereum, the XRPL runs on independent validators, who verify transactions and make sure that the network remains stable.
However, unlike Ethereum’s PoS, the XRPL’s validators follow a trusted list of other validators (known as a UNL) to determine which transactions are valid.
This is where the name “Federated Consensus Protocol” comes from.
Instead of having its validators compete to solve mathematical problems like Bitcoin does, XRPL validators communicate with each other to reach agreements.
Since the XRPL does not require mining, it consumes far less energy compared to Bitcoin and is therefore faster because of it.
This Is Where XRP Comes In
XRP is the native cryptocurrency of the XRP Ledger. It functions in much the same way as ETH on Ethereum and BTC on the Bitcoin network.
This means that it helps to complete transactions and make the network efficient. XRP has a few more tricks up its sleeves compared to other cryptocurrencies though.
For example, it can act as a bridge between different fiat currencies and is therefore great for sending funds from one country to another.
XRP is also used for transaction fees on the network, where every transaction on the XRPL requires a small amount of XRP.
The XRP cryptocurrency also enjoys a deflationary mechanism, where fees collected on the network are permanently destroyed in an arrangement that reduces its total supply over time.
Finally, since XRP transactions settle in seconds, it is great for payments and other kinds of financial settlements around the world.
Use Cases of the XRP Ledger
Contrary to popular opinion, the XRPL isn’t merely for transferring XRP from one point to another.
It is a highly versatile technology that supports a wide range of use cases. Some of these include:
1. Cross-Border Payments
Moving money across borders via banks and other traditional means can take days. Even worse, these transactions tend to be highly expensive. The XRP Ledger makes transactions nearly instant and is cheaper alongside.
This makes it a strong competitor to traditional banking systems like SWIFT.
2. Microtransactions
The low fees demanded by the XRPL also make it great for microtransactions. This means that XRP and the XRPL are great for encouraging new digital business models, like pay-per-use content and tipping systems.
3. Built-In Decentralized Exchange (DEX)
Other blockchains typically need to have decentralized exchanges built on top of them by third parties.
The XRPL, on the other hand, has a native DEX that allows users to trade their digital assets directly on the blockchain. No need for third parties or centralized services.
4. Tokenization of Real-World Assets
Finally, the XRPL supports tokenization. This means that it can represent real-world assets like stocks, commodities, or even real estate as digital tokens.
The XRPL is more than just a payment solution. It is a major step forward in making blockchains more efficient and making users more financially independent.
As the years pass by and blockchain adoption continues to expand, the XRPL will play more and more of a role in shaping the future of payments and defi.
Whether as an investor or developer, understanding what the XRPL is and how it works could be key to more efficient trading strategies.
