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What is Ripple and How Does it Work?

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The GoCardless content team comprises a group of subject-matter experts in multiple fields from across GoCardless. The authors and reviewers work in the sales, marketing, legal, and finance departments. All have in-depth knowledge and experience in various aspects of payment scheme technology and the operating rules applicable to each. The team holds expertise in the well-established payment schemes such as UK Direct Debit, the European SEPA scheme, and the US ACH scheme, as well as in schemes operating in Scandinavia, Australia, and New Zealand. See full bio

Last editedOct 20212 min read

UK businesses, especially online merchants, have grown to understand the importance of flexible payment options. Fewer and fewer of us are using cash to make purchases, and Merchant Machine predicts that we may be a completely cashless nation by 2026. Although cash is probably here to stay (at least for the foreseeable future), it’s important to offer customers a broader range of payment options. As well as credit and debit cards, EMV (chip & PIN and contactless payments) and e-wallets, a growing number of consumers prefer to pay for purchases with cryptocurrencies.

Indeed, the rise of Bitcoin ATMs in the UK demonstrates how much we’re embracing crypto not just to round out our investment portfolios, but to facilitate everyday transactions. However, there’s more to cryptocurrency than Bitcoin. Here, we’ll take a close look at Ripple, and how it differs from other cryptocurrencies.

What is Ripple?

Ripple is not primarily a cryptocurrency. Rather, it is a digital payment network and protocol based on a decentralised peer-to-peer platform. This is what sets it apart from other cryptocurrencies. Instead of using the conventional method of blockchain mining, the Ripple network uses a unique distributed consensus mechanism. In order to validate transactions, a poll is conducted by participating nodes to verify the transaction’s authenticity. This happens almost instantaneously, facilitating fast confirmations without the need for a central authority.

What is Ripple XRP?

XRP is Ripple’s cryptocurrency, which runs on the XRP ledger. As such, many use the terms ‘XRP’ and ‘Ripple’ interchangeably. It can be used just like any other cryptocurrencies. You can buy it as an investment, exchange it for fiat currencies (or other cryptocurrencies) and use it to make online or on-site transactions.

Many Ripple users treat it as a hawala service, enabling them to send money back and forth across borders without any money physically moving between locations. Think of Ripple as a bridge between currencies.

Pros and cons of Ripple

Like all cryptocurrencies, Ripple has its pros and cons. The better merchants get to know these, the better positioned they are to decide whether or not to accept Ripple as payment, or incorporate it into their investment strategy.

Let’s take a look.

Advantages of Ripple

Very low fees, with transactions costing just 0.0001 XRP – at current rates, this is a fraction of 1p.
Fast settlement with transactions usually confirmed within 4 or 5 seconds.
Ripple’s exchange network can be used for transactions using XRP, other cryptocurrencies, fiat currencies and even other commodities like gold.
Ripple is used by a number of large financial institutions, and even high street banks like Santander.

Disadvantages of Ripple

Unlike, say, Bitcoin XRP’s supply is pre-mined. Because investors don’t know when large quantities could be issued into circulation, it’s hard to track XRP’s value.
Because Ripple has a default list of transaction validators, it’s not as decentralised as other cryptocurrencies.
In 2020 the Securities and Exchange Commission (SEC) took legal action against Ripple. Because it can release XRP at any time, the SEC reasoned that it should have registered as a security. This has made some institutions and exchanges warier of it until this matter is resolved.

Should I accept Ripple as payment?

Despite the ongoing fracas with the SEC, there are a lot of reasons to consider accepting Ripple XRP as payment. The Ripple network negates differences between fiat and cryptocurrencies, and transaction fees are extremely low. If you’ve been considering using a crypto payment gateway for some time anyway, using Ripple can allow for faster and cheaper transactions!

We Can Help

If you’re interested in finding out more about Ripple and how to accept payments via XRP, then get in touch with our financial experts. Discover how GoCardless can help you with ad hoc payments or recurring payments.