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The XRP Ledger (XRPL) is an open-sourced distributed ledger powered by a network of peer-to-peer servers.
XRP is the digital asset native to XRPL. It is designed to function as a bridge currency, with the goal to "power innovative technology across the payments space" and enable "seamless, real-time, final, and cost-effective" global payments.
The XRPL also supports IOUs (obligation-like assets), which can represent a large variety assets (e.g. fiat currencies, gold, airline miles, credit card points, and other cryptocurrencies).
The XRPL offers a decentralized exchange, allowing for trading of IOUs and XRP. XRPL also offers some smart contract functionality and supports the network-agnostic Interledger Protocol.
The supply of XRP is capped at a total of 100 billion XRP, while the available supply of XRP is designed to decrease over time, as the accrued amounts of transaction fees are “destroyed”.
XRPL was initially released in 2012 and is maintained by community participants, prominently amongst them the company Ripple, which holds a large amount of XRP that are largely locked up and purpose-bound.
1. What is XRP?
XRP is a digital asset built to “power innovative technology across the payments space”. It is the native digital asset on the XRP Ledger - an open-source, permissionless, and distributed ledger that is operated by a network of peer-to-peer servers.
1.1 How is XRP used?
The vision for XRP is for it to transform global payments by having improved utility over legacy payment channels. XRP can be used by a wide range of third parties, who ought to develop innovative value-adding solutions in a decentralized manner.
1.2 How does the XRP Ledger work?
In the XRP Ledger, validator nodes collect the set of all candidate transactions and come to an agreement on which transactions, if any, occurred before the cut-off time for any given ledger.
Once the set of transactions is agreed upon, the transactions are executed in a deterministic order, subject to the objective rules of the network, as imposed by every server independently.
This agreement, called consensus, serves as the final and irreversible settlement. The ledger reaches consensus on all outstanding transactions every 3-5 seconds, at which point a new ledger is issued.
Any party may become a validator. The Ripple team publishes a list of nodes that its own servers refer to during consensus and which other servers can choose to also refer to. This list is called a Unique Node List (“UNL”) and comprises - as of 2020 Q2 - 36 validators out of a total of 140 validators. However, anyone is able to create and publish their own UNLs for others to use.
1.3 Usage of XRP
According to information provided by Ripple, XRP has the following traits that make XRP best suited for payments:
Speed: payments moving across the XRP Ledger settle in 3-5 seconds.
Scalable: the XRP Ledger is technically capable of handling over 1,500 transactions per second. Since XRPL supports payment channels, this ceiling could be potentially be further raised.
Distributed: XRPL has over 140 validators distributed across the globe.
Stable: since its inception in 2012, all ledgers closed without issue (56 million+ ledgers closed as of July 2020).
Eco-friendly: since XRPL is not built on a Proof-of-Work (PoW) consensus mechanism, it consumes less resources for its operations than Bitcoin and other PoW coins.
Transparency: like other public distributed ledgers, XRPL’s statistics are updated in real-time for information on settlement speed, network transaction fees, and number of transactions per second.
2. XRP’s key features
2.1 XRP Ledger consensus protocol
The XRP Ledger uses a Federated Byzantine Agreement, the XRP Ledger Consensus Protocol - which in turn builds on the Ripple Protocol Consensus Algorithm, RPCA - to come to an agreement on the order and validity of XRP transactions.
A new ledger with updated balances is created every 3 to 5 seconds, which further creates not probabilistic, but absolute settlement finality.
The XRPL Consensus Protocol differs from most permissionless consensus mechanisms (e.g., Proof of Work or Proof of Stake). The main difference (from these commonly deployed consensus mechanisms) is that the XRPL Consensus Protocol does not rely on providing incentives to any party. One of the goals of such a structure was to avoid centralization of block validating operators over time, where block validators sometimes cartelize as networks mature.
In the XRP Ledger, the exact procedure of finding consensus is described as follows:
(1) Every validator takes all valid transactions that are not already included in the previous block, and broadcasts them as a “candidate set”.
(2) Every validator examines the candidate sets from other validators on its UNL, and votes for those transactions that, based on a set of deterministic rules, should be included in the next ledger.
(3) Transactions that receive more than a minimum percentage of “yes” votes are passed onto the next round, while transactions that do not receive enough votes will either be discarded or included in the candidate set for the next block.
(4) If a minimum of 80% of validators on a server’s UNL agree on a transaction, the transaction will be added to the “consensus set” which is the set of all transactions to attempt to include in the next ledger. All transactions in the consensus set are applied to the ledger in a deterministic order, and the result of their application (which may or may not succeed) will produce the next ledger.
2.2. The “Digital Asset for Payments”
XRP is the native digital asset of the XRP Ledger. Anyone with a cryptographic key and an internet connection can receive, hold, and send XRP to anyone else. The creators of XRP developed it to be a desirable bridge currency that can facilitate trades in any other currency.
XRP is best described by:
XRPL's consensus mechanism which is self-developed, scalable (throughput of roughly 1500 transactions per second) and is based on the premise “that a little trust goes a long way". XRPL's software makes it further possible to switch cryptographic algorithms, to continuously reflect the current state of the art.
While the supply of XRP is capped at a total of 100 billion XRP, the available supply of XRP is designed to decrease over time, as the accrued amounts of transaction cost payments are destroyed. XRP is furthermore subdivisible down to 6 decimal places.
Similarly, the deployed cryptography algorithms (such as ECDSA or Ed25519) are industry standards and are integrated in a way that allows for their replacement as the state of the art in cryptography advances.
XRPL offers some integrated smart contract functionality. By leveraging these, XRPL further offers a fully-functional accounting system for tracking trading obligations and settling transactions with atomicity.
Ripple furthermore ensures a ‘Responsible Software Governance’, guaranteeing that the XRP Ledger's underlying software will be well maintained.
2.3 Smart contracts with specific features
As previously mentioned, XRPL supports a limited set of smart contract functions. This functionality allows for:
Payment channels decouple payments from settlements without increasing the risk typically associated with delayed settlement. This allows for asynchronous balance changes whose speed is only limited by the ability to create and validate signatures.
Escrows may lock up XRP until a declared time passes or another cryptographic condition is met.
DepositAuth lets users decide who can send them money and who can't.
Invariant checking provides an independent layer of protection against bugs in transaction execution.
Amendments provide smooth upgrades to the existing feature set, so the technology can continue to evolve without fracturing the network or causing uncertainty around times of transition.
2.4 Censorship-resistant transaction processing
By relying on trusted validators, XRPL uses a small amount of human interaction to attempt to achieve a “better distribution of authority than other decentralized systems”.
Users on the XRP Ledger select a Unique Node List (UNL), a list of validators trusted by that user to order transactions. Users can select the specific validators for their own UNL, or they can rely on recommended UNLs that have been compiled by other parties.
Users always retain the freedom to change their UNLs and the corresponding validators that they trust. For example, if a party controlling a large number of validators abused that power to propose changes that served only its own interests, users operating nodes could simply remove the party’s validators from their UNLs and rely on other validators that more closely represented their interests.
3. Economics and supply distribution
There is a finite supply of XRP; 100 billion XRP were created at the outset in 2012, and no new XRP can be created.
The supply of XRP available to the general public changes over time due to a few factors: transaction fees, anti-spam requirements, and escrow's reserve changes.
Sending transactions in the XRP Ledger incurs a small cost denominated in XRP. This amount is subsequently destroyed. Senders choose how much to destroy, with certain minimums based on the expected work of processing the transaction and the current level of activity of the network.
If the network is congested, potential transactions that promise to destroy more XRP can cut in front of the transaction queue. This is an anti-spam measure to make it prohibitively expensive to launch a DDoS attack on the XRP Ledger network.
Each account in the XRP Ledger must hold a small amount of XRP in reserve. This is an anti-spam measure to disincentivize the ledger data to occupy too much space.
XRP Ledger validators can vote to change the amount of XRP required as a reserve, to compensate for changes in XRP's real-world value.
Ripple (the company) holds a large reserve of XRP in a cryptographically-secured escrow account. At the start of each month, 1 billion XRP is released from escrow for Ripple to use. Ripple is bound to use XRP to incentivize growth of the XRP community and may sell XRP to institutional investors. Ripple publishes sales figures quarterly in its XRP Markets Report.
At the end of each month, any remaining XRPs the company does not sell or give away is stored into escrow for a 54-month period. RippleLabs inherited 80 bn XRP after it rebranded from OpenCoin Inc. to Ripple. 55 bn XRP have been escrowed and purpose-restricted in order to foster supply predictability and to grow the XRP ecosystem.
For more information on the technical capabilities of the Escrow feature, see Escrow.
4. Project team
The XRP Ledger was built in 2012 by Jed McCaleb, Arthur Britto, and David Schwartz. However, the conceptual development of a decentralized monetary system already started in 2004 by Ryan Fugger, who was subsequently approached by and joined Jed McCaleb.
Former CTO at WebMaster Incorporated, and developed encrypted cloud storage and enterprise messaging systems for organizations like CNN and the National Security Agency.
Besides co-founding XRPL, Jed McCaleb was the co-founder and CTO of Ripple and created MtGox. He is currently serving as the co-founder and CTO of Stellar.
Arthur Britto co-founded Ripple and XRPL, as well as PolySign.
The XRP Ledger and its surrounding community are maintained by participants of the global “XRP Community”, of which the company Ripple, is an active member.
5. XRP’s activity
5.1. Development activity and GitHub repositories
XRPL is hosted on ripple-lib, an open-source repo within the umbrella of Ripple's GitHub repo.
Xpring is Ripple's ecosystem initiative "to help build the Internet of Value".
Anchorage provides custody of XRP, which enables its enterprise customers to securely store XRP for various use cases.
BitPay is a payment processing system for digital assets that enables thousands of merchants to accept payments in XRP.
Blockset by BRD is a robust blockchain data integration platform offering a suite of tools for developers to build applications across multiple chains using a simple API. Blockset includes support for XRP, which enables developers to access the XRP Ledger as they build applications.
Flare, a next-generation blockchain network that allows developers to build, fund and settle smart contracts using XRP.
XRPScan, one of the most popular blockchain explorers for XRP, used by over 50+ exchanges globally, including Coinbase, Bitfinex, Bitkub, and Bitpay, among others, to look up XRP Ledger account information and show Proof-of-Transaction to their users.
Ripple uses XRP in its on-demand liquidity product, which leverages the digital asset to bridge two currencies in seconds, ensuring payments are quickly sent and received in local currency on either side of a transaction. This also reduces the need for pre-funding accounts in the sending country.