At its most basic, Ripple is a simple way for anyone in the world to send money to anyone else at practically no cost. This reach, speed, and affordability are the advantages of a platform built for the distributed internet.
Because Ripple is a single unified system that doesn’t require ACH, banks, or credit card networks, Ripple avoids many of the obstacles that drive other systems’ fees and hassles. Ripple also automatically exchanges currencies within the platform to make global payments easy. Finally, Ripple network is truly open. Anyone can use it. It will be fully open sourced soon, so anyone can build on top of it.
I still don’t get it – how does Ripple work?
Understanding how Ripple works means understanding how money moves today. Today’s money is digital.
Today, money is often a number associated with an account rather than something physical. In eras past, people used everything from cowrie shells to green-inked bills, but these days most money never leaves the digital dimension. So moving money today usually means appropriately increasing one account balance and decreasing another.
It’s stored in multiple systems.
But these accounts generally exist in different systems — for example, your bank system, the VISA/Mastercard system, or maybe the PayPal system. In addition, you and your mom or employee likely use multiple, different systems. So sending money between accounts, whether yours or belonging to others, incurs costs and delays at every border. And you have to confirm your personal identity with every system.
Ripple is a decentralized but unified system.
The Ripple network is open and peer-to-peer. So, instead of a central server, owned by an individual or corporation, a distributed collection of servers around the globe runs Ripple. These interconnected servers collectively maintain a shared Ledger. Since the Ledger tracks account balances and not people, moving money through the Ripple network only takes as long as updating the Ledger, a matter of seconds. Also, Ripple contains its own network currency called ripples (XRP), which serve as the single most efficient way to send payments within the unified system.
You can move money from system to system. Or you can keep it simple in Ripple.
Ripple avoids the costs, delays, and inconveniences of system-hopping by keeping everything within Ripple. Ripple never asks for personally identifiable information because it securely associates balances with accounts, but not personally identifiable account holders.
This does mean that the holder of a Ripple account must safeguard her Ripple account login information, or wallet. Ripple account balances are more like cash in this sense. Whoever has the wallet has the cash. We mean it when we say Ripple is simple.
Moving money into and out of Ripple is easy too.
But it is true that the Ripple system itself is bounded by a border, which your cash has to cross if you’re sending traditional currency. For this purpose you use a Ripple gateway: A bridge between Ripple and the outside economy, a Ripple gateway is where those bills you have in your pocket can take digital form to get across the world in seconds. Or where you can withdraw local currency straight into your bank account after money’s been sent to you.
Unlike other payment systems, Ripple strives to be more open. Anyone can form a gateway if they comply with applicable governmental regulations. This makes it more likely there is one convenient to you. The easiest-to-reach gateways for many will be online, but there could be gateways with physical locations. Integration between a gateway and the Ripple system should be seamless, making interaction with the two indistinguishable for you.
At its heart, Ripple is a distributed database, a network of shared information. Instead of a central server, all the servers around the globe running the free Ripple software power the Ripple network.
The distributed database maintains The Ledger. The Ledger keeps track of every transaction, account and balance. The time it takes to move money within Ripple is the time it takes to update the Ledger, usually a few seconds.
Ledger updates depend on Consensus, the process by which all the servers in the network verify and come to agree upon the correct view of the database. Consensus keeps the database current and ensures that all and only legitimate transactions enter the Ledger.
The Virtual Currency
Ripple contains a virtual currency, called ripples (XRP). These are used to pay the small fee required by the network for each transaction. They can also be sent between two accounts, converted into other currencies, or spent at venues that accept them.
The network was created with a fixed and finite number of ripples (100 billion). No more can ever be made.
While Ripple does not charge a typical fee for profit, each transaction does require a small portion of a ripple (equivalent to ~1/1000th of a cent) for security.
This fractional cost is required by the network to prevent someone from sending millions of transactions and swamping the system.
No one collects these amounts. They are simply destroyed within the network. The effect is the same as redistributing them evenly to all the Ripple account holders in proportion to their balance.
Ripple is fundamentally open. Like http:// for money, it’s an open protocol that allows the development of almost infinite transaction features. Anyone can build on top of it, the way anyone can use it.
So eventually there will be new ways that Ripple works.
Already planning new features in Ripple? Visit our page for Developers.
Want to know even more about how Ripple works? Check out the wiki.