What is Ripple?

In the last two weeks the so called Ripple virtual currency has reached a huge capitalization (>$10B). It’s too bad I didn’t invest in it earlier – most of us may think – however before investing in some assets it is better to understand what exactly the asset is and what it does. Better safe than sorry. The straightforward way to capture valuable information about Ripple is, no need to say, the Ripple web site. The first sentence that draws my attention is:

Ripple works with banks to transform how they send money around the world

Hence Ripple is not, like Bitcoin, an open network where everyone can connect a PC, send payments, validate transactions and ideally generate new coins. Ripple is aimed at banks and financial institutions, it is not aimed at end users. It is also defined as:

Global Settlement Network

so Ripple wants to be a modern alternative to two pillars of today’s payments industry: the clearing houses and Swift. The clearing houses are a sort of banks of banks which secure at the end of the day that each bank has all transactions properly cleared and any pending credit or debit among different banks is properly reconciled. Think of millions or billions of payments that everydays are generated by customers of different banks and maybe from different countries. Clearing houses manage a lot of money, every day. Swift is another interbanking consortium with the aim to define and maintain the wire protocol to make payments happen. It introduces “informatics” formalism and it is a step forward if compared to telex, the plain old technology used for transmitting payments orders worldwide before the rise of Swift. Despite Swift is a digital wire protocol routed over IP networks and with XML used to embed messages, Ripple seems in a good position to compete with it and to make it look old school tech.



“A key benchmark that we aim to achieve is to become more decentralized than Bitcoin, which at the time of writing is 51% controlled by just five mining pools. This means the largest five pools working together could achieve a 51% attack and reverse transactions (double spend) at will. For Ethereum, this number is even lower: only three pools are needed for a takeover.”

Ripple was not born “decentralized by design” like Bitcoin. However, according to their founders, Ripple has a roadmap to become the most decentralized among Internet of value networks.

“Today, RCL has 25 validator nodes running, but continuing to grow and diversify this list of recommended validator operators is a priority for us”

25 nodes do not look impressive if we talk of decentralization, expecially if they are all controlled by Ripple. To make a comparison, Bitcoin counts 6000 full nodes.

Ripple will add attested validators to its Unique Node Lists (UNLs). A UNL is a list of transaction validator nodes that are seen as ‘trusted”

Thus Ripple envisions to enlarge the set of validators with “trusted” third party nodes. The words “seen as trusted” cause some perplexity: at a first glance we don’t see a protocol to decide who’s trusted. Who decides then? Ripple? It seems so.

An impressive fact is that Bitcoin has “only” 6k nodes, Ethereum about 14k, and Ripple 25 (all managed). Of course this is a apple Vs. orange comparison, we know for instance that behind a single Bitcoin node could be either a huge chinese farm or a student PC with no mining capabilities. The amazing thing is that behind the biggest and most remarkable decentralized project in the history of computing we have something like 20k nodes up and running. About mining, 5-6 mining pools can reach 50% of Bitcoin hashing and 3-4 can do the same for Ethereum. The level of decetralization is not great indeed.


The magic word that make banks and fintechs more confortable with Ripple is compliance. Compliance is the subject that absorb an important part of business resources (source, https://blogs.thomsonreuters.com/financial-risk/risk-management-compliance/cost-compliance-handling-regulatory-overload-fintech/) to do the proper Anti money laundering, to report suspicious behaviours, to fully identify the customers and to manage all the mass of data that come from this activity. Data which contains personal information in most cases and that must be managed up to five years later the termination of the customer account. So compliance is a huge thing.

Ripple offers seamless integration with your bank’s existing systems and processes, such as anti-money laundering controls, fraud detection, sanction screening, and regulatory reporting.”

What does this mean is not immediatly evident, does Ripple send consultants to work in banks to make this integration happen?

The Coin

An important and probably the only aspect that cryptocurrency fans around the world can directly touch about Ripple is its coin, the XRP. So far it is not clear why Ripple has such digital asset. It would work very well even without it if the goal is to build a reconciliation network for cross bank transactions. By the way, XRP is not just a digital coin, it is right now the second most capitalized coin in the crypto market, outshining ethers and aiming at the market of bitcoins. Today market cap is about $10B+ and growing, one XRP is worth 0.30$ while two months ago was 100 time less worth. Is sky-rocketing because of a crazy and deep speculation or maybe the Ripple platform is gaining trust and adoption in the banking system?

Liquidity providers can bridge any currencies directly through XRP in a trade. Similar to USD in today’s currency market, XRP enables liquidity concentration around fewer pairs, creating order book thickness and competitive FX rates, especially for exotic currency pairs

In practice, crossborder and multicurrency payments can benefit of XRP asset. Instead of having NxN different pairs it is more efficient having a standard currency and only N market pairs. Another advantage is …

Unlike USD, trading through XRP does not require bank accounts, service fees, …


Let’s see some details about the consensus protocol. Like any other DLT (Distributed Ledger Technology) we start with the concept of ledger, as the logbook of all valid transactions observed so far. The ledger itself immortalizes the state of the network at a given time. Every several seconds, a new ledger is generated adding the new transaction observed since the last ledger. The protocol mandates that a set of validator nodes approve or deny the transactions they observe, and only the transactions that are approved by a supermajority of nodes are allowed to be part of the next ledger. From the doc …

Chosen validators represent a subset of the network which, when taken collectively, is “trusted” not to collude in an attempt to defraud the node evaluating the proposals

No need to say that Ripple consensus is not designed to cope with the same threat model of Bitcoin. The latter must face a situation in which:

  • All can access and generate new transactions without any sort of authentication.
  • No authority is in charge to keep a master copy of the ledger or to approve transactions.
  • All participants are potentially malicious though not coordinated.

Ripple is not dealing with the above threats/conditions: participants are identified, authenticated and trusted to operate in the network. A comparison between the transaction throughput between Ripple, Bitcoin, (and Visa) is simple pointless. They are different networks based on different principles. Bitcoin aims at a no-bank world, and in fact can be seen like a sort of cash for remote payments. Ripple is a framework for cross border, cross currency settlement network which matches the requirements of the banking system. In other words, Ripple competes with Swift while Bitcoin competes with banks.

(immagine in CC da https://www.flickr.com/photos/scott-s_photos/)