What is Ripple? (XRP, IOUs, Gateway and Validators Explained)

Summary

The video script provides an in-depth explanation of Ripple, a leading cryptocurrency designed to revolutionize the banking system by facilitating faster and more cost-effective global money transfers. It discusses the inefficiencies of current banking systems, such as Swift, MoneyGram, and Western Union, which rely on outdated technology and lack a unified network, leading to slow and expensive transactions. RippleNet, created by Ripple Labs, utilizes the RTXP protocol to create a decentralized 'Internet of Value,' allowing for swift and secure financial transactions. The script also covers the two types of currencies used within RippleNet: IOUs, which represent debts or obligations, and XRP, a digital asset issued by Ripple Labs to facilitate transactions. It explains the process of validating transactions through a voting system among validators and addresses concerns about Ripple's centralization, contrasting it with Bitcoin's trustless environment. The video concludes by questioning whether Ripple's centralized approach is the right solution for the banking system and invites viewers to consider the implications of investing in XRP.

Takeaways

• 🌐 **Ripple's Purpose**: Ripple aims to improve the efficiency of international money transfers by creating a 'main connecting network' for banks, similar to the Internet's HTTP protocol for information transfer.
• 📈 **XRP as Currency**: XRP is Ripple's native cryptocurrency, designed to facilitate fast and cost-effective transactions on the Ripple network, unlike traditional banking systems.
• 💻 **Technology Behind Ripple**: RippleNet operates on the Ripple Transaction Protocol (RTXP), maintained by a global network of validators who ensure transactions adhere to protocol rules.
• 🏦 **Banking Integration**: Ripple is designed to serve banks and payment providers, offering solutions like xRapid, xVia, and xCurrent to optimize their global money transfer operations.
• 🔄 **Currency Conversions**: The current banking system's inefficiency in currency conversion contributes to the high cost and slow speed of international transfers, an issue Ripple aims to address.
• 🤝 **Trust and IOUs**: Ripple supports IOUs (tokens representing debts or obligations) alongside XRP, where trust in the issuer is crucial, unlike with XRP, which is a tradable asset with no counterparty risk.
• 🚀 **Speed and Scalability**: XRP transactions are significantly faster and more scalable than Bitcoin, with the ability to process 1,500 transactions per second.
• ⛏️ **Non-Mining Currency**: Unlike Bitcoin, XRP cannot be mined. Ripple Labs pre-mined 100 billion XRP, and no more can be created, with a portion released monthly via a smart contract.
• 💰 **Investment Considerations**: The value of XRP is speculative and depends on whether banks and institutions adopt it for transferring value, which could drive up its price.
• 🏛️ **Centralization Debate**: Ripple Labs has significant influence over the Ripple network, raising questions about centralization, despite the protocol being open source and the network being maintained by validators.
• ♻️ **Energy Efficiency**: Ripple's lack of mining makes it more energy-efficient compared to Bitcoin, which consumes vast amounts of energy for transaction validation.

Q & A

What is Ripple and how does it aim to improve the banking system?

Ripple is a network that uses a protocol called RTXP to move value around the world quickly and efficiently. It aims to create the 'Internet of Value' by allowing banks and payment providers to lower transaction costs and expedite settlements, thus improving upon the slow and costly systems like SWIFT, MoneyGram, and Western Union that are currently used.

How does the international money transfer process work traditionally and what are its drawbacks?

Traditionally, international money transfers are slow and costly because they often involve multiple intermediary banks, each taking time to process the transaction and charging a fee. Additionally, currency conversions are often required, adding further complexity and expense. The lack of a unified network for banks also means that direct transfers are not always possible, necessitating the use of intermediaries.

What is XRP and how does it function within the Ripple Network?

XRP is a digital asset issued by Ripple Labs to facilitate transactions on the Ripple Network. It acts as a bridge currency, allowing for the quick and cost-effective transfer of value between different currencies without the need for multiple intermediary banks. XRP is not mined like other cryptocurrencies; instead, it was pre-mined with a total supply of 100 billion, and its supply decreases over time as transaction fees are destroyed.

What are IOUs in the context of Ripple and how do they differ from XRP?

IOUs (I Owe You) are tokens on the Ripple network that represent a debt or an obligation to pay back a certain asset. They are not the asset itself but a promise to deliver the asset. Each IOU has a unique name based on the issuer and what it represents, such as USD.Bitstamp. Unlike XRP, IOUs are not a tradable asset and carry counterparty risk, meaning the issuer must be trusted to fulfill the promise.

How does Ripple's consensus mechanism work and how is it different from Bitcoin's mining?

Ripple's consensus mechanism involves a network of validators that vote on the validity of transactions. When a transaction is broadcast, validators consult with other trusted validators and vote; if 80% or more vote it as valid, the transaction is updated in the Ripple ledger. This process is different from Bitcoin's mining, where new coins are issued as a reward for solving complex mathematical problems to confirm transactions on the blockchain.

Why might banks choose to use IOUs over XRP for transactions?

Banks might choose to use IOUs over XRP because XRP, being a cryptocurrency, is relatively volatile and not universally accepted. IOUs, on the other hand, are treated and valued as the assets they represent, providing a stable means of transferring value without the volatility associated with cryptocurrencies.

What are the advantages of using XRP for transactions?

XRP offers several advantages for transactions, including speed and scalability. An XRP transaction takes about 4 seconds to process, compared to Bitcoin's average of 10 minutes. Additionally, XRP can handle up to 1,500 transactions per second, making it a more efficient option for high-volume transactions.

How does the ownership and distribution of XRP work?

When Ripple Labs started, they pre-mined a total of 100 billion XRP. Of this, 20 billion were given to the founders, and Ripple Labs holds around 7 billion. Forty billion XRP have been sold to companies and individuals. The remaining supply is managed by a smart contract that releases 1 billion XRP to Ripple Labs each month until the cap is reached. The smallest unit of XRP is called a drop.

What are the considerations for investing in XRP?

Investing in XRP is essentially betting on the future adoption of XRP by banks and institutions for moving value. The potential for price increase depends on whether banks choose to use XRP over IOUs or their current infrastructure. The decision to invest in XRP should take into account the technology's adoption rate, market volatility, and the trust in Ripple's network.

What are the centralization concerns associated with Ripple?

Ripple is often criticized for being centralized due to the significant influence Ripple Labs has over the network. While the protocol is open-source and not controlled by Ripple Labs, the company maintains it and has the power to influence its development. Additionally, the relatively small number of validators raises concerns about collusion and the trust required to use IOU tokens.

How does Ripple address regulatory compliance and anti-money laundering (AML)?

Ripple is committed to monitoring and reporting any suspicious activity or Anti-Money Laundering flags across its network. This is in contrast to Bitcoin, which is designed to be a trustless and censorship-resistant system. Ripple's approach to regulatory compliance is part of its strategy to work alongside the existing financial system.

What are the environmental considerations of Ripple compared to Bitcoin?

Ripple's network is more energy-efficient than Bitcoin's because it does not rely on energy-intensive mining processes. Since there is no mining of XRP, the environmental impact is significantly lower compared to Bitcoin, which consumes a large amount of energy for its proof-of-work consensus mechanism.

Outlines

00:00

🌐 Introduction to Ripple and XRP

The video introduces Ripple, a system designed to revolutionize the banking system by enabling fast and cost-effective global money transfers. It discusses the inefficiencies of current banking systems, such as Swift, MoneyGram, and Western Union, which rely on outdated infrastructure and lack a unified network. RippleNet, using the RTXP protocol, aims to create an 'Internet of Value', allowing money to move as quickly as information does. The video also mentions the origin of Ripple, starting with Ryan Fugger's RipplePay in 2004 and its evolution under the stewardship of Jed McCaleb and Chris Larsen. Ripple focuses on serving banks and payment providers to reduce transaction costs and speed up settlements.

05:03

🔄 How RippleNet Functions

RippleNet operates on the Ripple Transaction Protocol (RTXP) and consists of a global network of validators that maintain a shared ledger. These validators ensure transactions adhere to RTXP rules. The network allows anyone to run a validator, similar to how one can run a Bitcoin node. Companies can access RippleNet through gateways, typically banks, which serve as entry points. Ripple offers products like xRapid, xVia, and xCurrent to optimize global money transfers. The video also explains the concept of IOUs (tokens representing a debt or obligation) and XRP, Ripple's native cryptocurrency used for payment and to facilitate transactions on the network. XRP is characterized by its speed and scalability, with transactions confirmed in seconds and the ability to handle a high volume of transactions per second.

10:05

🤔 The Role of IOUs and XRP in RippleNet

The video delves into the specifics of IOUs and XRP within the Ripple ecosystem. IOUs are debt instruments issued by any participant on the network, representing an obligation to pay back a borrowed asset. They are not interchangeable if issued by different entities and require trust, or a trust line, to be accepted. XRP, on the other hand, is a tradable asset issued by Ripple Labs to facilitate transactions, eliminating the need for trust or a trust line. The video also addresses the question of whether XRP can be mined, clarifying that it cannot, as transactions are validated through a voting process by validators. The supply of XRP is capped at 100 billion, with a portion pre-mined by Ripple Labs and the rest released monthly through a smart contract. The supply decreases over time as transaction fees are destroyed, potentially increasing its value.

🏦 Ripple's Centralization and Investment Considerations

The final paragraph addresses the debate over Ripple's centralization. While Ripple's protocol is open source and not controlled by Ripple Labs, the company wields significant influence over the network. The video contrasts Ripple's approach with Bitcoin's trustless and decentralized nature. It also discusses Ripple's commitment to monitoring and reporting for regulatory compliance, which is a departure from Bitcoin's censorship-resistant model. The video concludes by posing the question of whether Ripple's centralized nature is beneficial or detrimental, leaving it to the viewer to decide. It summarizes Ripple as a for-profit company designed to serve banks and payment providers, questioning if its centralized approach is the most effective solution for international transactions.

Keywords

💡Ripple

Ripple is a real-time gross settlement system, currency exchange, and remittance network created by Ripple Labs Inc. It is a system designed to facilitate fast and low-cost international money transfers, which is particularly relevant to the banking system. In the video, Ripple is presented as a solution to the outdated and inefficient methods currently used by banks for international transactions.

💡XRP

XRP is the cryptocurrency native to the Ripple network. It is used as a bridge currency in the network to facilitate quick and cost-effective transactions. The video discusses XRP as an asset that can be traded on the network, contrasting it with IOUs, and highlighting its role in reducing transaction times and costs.

💡Banking System

The banking system refers to the network of financial institutions that handle various forms of currency and financial transactions. The video script discusses the limitations of the current banking system, such as slow and expensive international transfers, and how Ripple aims to revolutionize this system by creating a more efficient and cost-effective alternative.

💡RippleNet

RippleNet is the Ripple protocol that allows for the transfer of value globally using the Internet of Value concept. It is a network of computers, known as validators, that maintain a shared ledger. The video emphasizes RippleNet as a key component of Ripple's strategy to expedite global money transfers and lower transaction costs.

💡RTXP

RTXP stands for Ripple Transaction Protocol, which is the set of rules that govern the transactions on the Ripple network. It is analogous to HTTP for the internet. In the video, RTXP is presented as the protocol that enables the efficient and secure transfer of value on the RippleNet.

💡Validators

Validators in the context of Ripple are computers that maintain a shared ledger of transactions on the Ripple network. They ensure that every transaction follows the RTXP rules. The video explains that anyone can run a validator, similar to running a Bitcoin node, which is crucial for the decentralized operation of the Ripple network.

💡Gateways

Gateways in Ripple are entry points to the Ripple network, typically operated by banks. They allow users outside the network to access Ripple services. The video script uses the analogy of a bank or credit company to explain how gateways function within the Ripple ecosystem.

💡IOUs

In the video, IOUs are described as tokens on the Ripple network that represent a debt or obligation to pay back something in real life. They are not assets one owns but rather promises to repay a certain amount of a specific asset. The video provides the example of USD.Bitstamp, an IOU issued by Bitstamp, as a representation of this concept.

💡Trust Line

A trust line in the Ripple network is an agreement between two parties to trust each other up to a certain amount of money. It is similar to a line of credit with a bank. The video emphasizes trust as a critical factor in the acceptance and use of IOUs within the Ripple ecosystem.

💡xRapid, xVia, xCurrent

These are Ripple products designed to optimize the current solutions for transferring money around the world. The video mentions these products as part of Ripple's offerings to companies, aiming to improve upon existing financial systems rather than replacing them entirely.

💡Decentralization

Decentralization refers to the distribution of authority away from a central location or authority. The video script discusses the debate around Ripple's level of decentralization, contrasting it with Bitcoin's trustless environment. It raises concerns about the centralizing influence of Ripple Labs and the small number of validators compared to Bitcoin nodes.

Highlights

Ripple aims to revolutionize the banking system by creating a fast and cost-effective way to transfer money globally.

Outdated banking systems like SWIFT, MoneyGram, and Western Union are slow and expensive, often requiring intermediary banks for international transfers.

RippleNet uses the RTXP protocol to facilitate the 'Internet of Value', enabling money to move as quickly as information.

The idea for Ripple was first conceived in 2004 by Ryan Fugger and later developed by Ripple Labs, focusing on serving banks and payment providers.

RippleNet is a decentralized network of validators that maintain a shared ledger, ensuring transactions follow the RTXP rules.

Gateways act as entry points to Ripple for those outside the network, similar to how banks provide access to the traditional banking system.

Ripple offers products like xRapid, xVia, and xCurrent to optimize global money transfers for businesses.

Customers of financial services using Ripple may not even be aware their transactions are facilitated by the XRP ledger.

Ripple supports two types of 'currencies': IOUs, which represent debts or obligations, and XRP, a digital asset issued by Ripple Labs.

IOUs are tokens representing a debt and are not the same as the asset itself, requiring trust in the issuer to be valuable.

XRP is used for transferring payments through the Ripple Network, offering finality and no counterparty risk.

XRP transactions are validated through a voting process by network validators, unlike Bitcoin's mining process.

Ripple Labs pre-mined 100 billion XRP, with a capped supply and a smart contract releasing 1 billion XRP monthly to the company.

XRP is divisible into drops, the smallest unit, and requires a minimum deposit to prevent spamming of the network.

The XRP supply decreases over time as transaction fees are destroyed, potentially increasing its value.

Investing in XRP is a bet on its future use by banks and institutions for value transfer, which could drive up its price.

Ripple has been criticized for being centralized due to Ripple Labs' influence over the network and its for-profit nature.

The decentralized nature of Ripple is debated, with concerns over the small number of validators and the need for trust in IOU tokens.

Ripple is more energy-efficient than Bitcoin due to the lack of mining, aligning with its commitment to monitoring and reporting for regulatory compliance.

Transcripts

What is Ripple?

How does it work?

Is XRP, Ripple’s cryptocurrency, a good investment?

And what does this all have to do with the banking system?

Well stick around,

in this episode of Crypto Whiteboard Tuesday

we’ll answer these questions and more.

Hi, I’m Nate Martin from 99Bitcoins.com

and welcome to Crypto Whiteboard Tuesday

where we take complex cryptocurrency topics,

break them down and translate them into plain English.

Before we begin

don’t forget to subscribe to the channel

and click the bell so you’ll immediately get notified

when a new video comes out.

Today’s topic is Ripple and XRP,

one of the leading cryptocurrencies around.

Have you ever had occasion where you needed to wire money to someone

only to be told it might take several days

for that money to appear in their account?

That’s because most major banks

are still using systems that were built 40 years ago for this task.

Swift, MoneyGram and Western Union are just some examples of

slow, expensive and relatively limited systems

that financial services use to transfer money.

On top of that,

not all of the banks are connected via the same network.

So, in many cases,

you don’t even have a direct line between two banks

when they need to transfer money from one account to the other.

In order for bank A to send money to bank B

that it doesn’t have any direct relationship with,

more often than not

it will have to go through several intermediary banks,

searching for common network connections between each other

in order to clear a path for the money.

That’s why international wire transfers are so slow and costly;

Each bank along the way takes time to process the transaction

and a fee for servicing the process.

In some cases,

bank transfers must involve currency conversions,

which make things even more problematic and expensive.

For example,

directly transferring currency from Japan to Nicaragua,

means turning Yens into Cordobas,

which is generally not feasible.

The reason is that Japanese banks

don’t usually hold accounts denominated in Cordobas

because there’s not a lot of demand for them.

However, both Japanese and Nicaraguan banks

hold accounts in dollars.

So instead,

an individual or bank will usually trade Yens for Dollars

and then Dollars to Cordobas.

As you can imagine,

this process can be costly due to the multiple conversions.

In short, the banking system today

doesn’t have a main connecting network with a uniform set of rules.

Each time you want to exchange or send money

through the banking system,

you need to find a path to transfer that money,

depending on the circumstances.

That’s exactly what Ripple is here to change.

Just like the Internet has its own rules, or protocol,

to transfer information known as http.

RippleNet uses a protocol, known as RTXP,

for moving value around the world.

Ripple Labs, the creators of RippleNet,

aim to create the “Internet of Value” -

a way for money to move as quickly as information does.

Through the use of RippleNet,

there is no reason to pay a fortune and wait days

when transferring money globally.

The idea for Ripple was actually first conceived

way back in 2004 by Ryan Fugger

and was called RipplePay,

but in 2012 was passed to Jed McCaleb and Chris Larsen

who founded OpenCoin later to be called Ripple Labs.

Unlike most cryptocurrencies who focus on the individual,

Ripple Labs aims to serve banks and payment providers,

allowing them to lower transaction costs and expedite settlements.

But how does it all work?

RippleNet is a network based on a set of rules known as

the Ripple Transaction Protocol or RTXP for short.

The network consists of computers, known as validators,

that are spread around the world

and maintain a shared ledger of who owns what.

Validators make sure every transaction sent through the network

follows the RTXP rules.

Anyone can run a validator and help maintain the Ripple network

just like anyone can run a Bitcoin node to maintain the Bitcoin network.

Companies who want to access the Ripple network can use gateways.

Gateways, which are usually run by banks,

act as entry points to Ripple for people outside the network.

It’s the same idea as going to a bank or a credit company

to gain access to the banking system.

So Ripple basically offers businesses an alternative to the banking system

in the form of an Internet of value called RippleNet.

Ripple products like xRapid, xVia and xCurrent

are offered to companies in order to optimize

their current solutions for transfering money around the world.

It’s worth mentioning that for you,

as a customer of a financial service using Ripple,

this solution is transparent.

If the bank switches to this technology,

your bank account balance could be residing on the XRP ledger tomorrow

and you would never know it.

This all sounds great,

but what type of currency can actually be sent

through the Ripple Network?

Well,

unlike other cryptocurrency protocols which support only their own asset,

Ripple offers two different types of “currencies”:

IOUs and XRP.

IOUs are tokens on the Ripple network that can be stored on any Ripple wallet.

Just like we can store a variety of Ethereum tokens

on an Ethereum wallet,

we can have plenty of tokens coexisting on the same Ripple wallet.

But we really should stop the comparison here,

since this is as far as the similarities go.

Any participant on the Ripple network can issue an IOU,

however an IOU doesn’t represent something you OWN.

It represents something you OWE.

It’s a debt,

an obligation to pay back something you got in real life.

When I issue an IOU to someone,

it means I owe them something.

When I hold an IOU issued by someone else,

it means someone owes me something.

Each IOU has a name that is comprised out of

who issued it and what it represents.

For example,

USD.Bitstamp is an IOU issued by Bitstamp

promising to pay back USD dollars.

An IOU can be issued for any type of real world asset.

For example

you can have an IOU for dollars, EUROs, gold, oil, airline miles and even cows.

For each asset we borrow, we will issue a new IOU.

Unlike other forms of debt that can be traded,

IOUs for the same asset type are not interchangeable

if they were issued by two different people.

For example,

if I borrow money from you and issue you a 20 USD.Nate IOU,

that IOU can’t be added to a 20 USD.Bitstamp IOU.

Since each IOU has a different credit line or trust line

you can only redeem the USD.Nate IOU from me.

It’s important to note that the IOU itself is not the asset,

it’s just a promise by the issuer to give you the asset back in the future.

This promise won’t do you any good if the issuer isn’t good for his word.

That’s why trust plays an important issue with IOUs.

In order for you to accept an IOU from someone

you have to trust that they will be able to pay you back.

In RippleNet this is known as a trust line.

A trust line is somewhat similar to a line of credit with the bank.

It’s an agreement to trust someone up to a limited amount of money.

Aside from IOUs

there is another currency the Ripple protocol supports - XRP.

XRP is a currency issued by Ripple Labs

to help transfer payments through the Ripple Network.

For example,

if a bank wants to move large amounts of money,

instead of needing to use multiple intermediary banks

to transfer the money,

it can just convert the money to XRP and send that XRP to the recipient bank.

It’s important to note that

two banks don’t have to use XRP to transfer assets between them.

Instead, they can choose to keep an ‘open tab’ using IOUs only,

without ever closing it.

Still, XRP is a form of payment that unlike an IOU is final

and is considered a tradable asset by anyone on the network.

Unlike IOUs, XRP is the actual asset

so there is no counterparty risk.

In other words, once you've received payment in XRP,

the transaction is made

and there’s no fear that the other party will not meet its obligations for payment..

So, if no trust is needed and no trust line needs to be opened

when sending XRP to other network participants,

why do we even need IOU?

The simple answer is that XRP, being a cryptocurrency asset by itself,

is relatively volatile and also not respected worldwide.

IOUs, on the other hand,

are treated and valued as the assets each represent.

XRP has additional advantages as well.

It’s fast and scalable.

Sending an XRP transaction through the network takes 4 seconds

as opposed to Bitcoin’s 10 minute average.

Also, XRP can handle 1,500 transactions per second

while Bitcoin can handle only 7.

So the upside of using XRP as a form of payment is pretty obvious.

One question people ask us a lot is

“if XRP is a cryptocurrency, can it be mined?”

The answer is - no, it can’t.

Mining in Bitcoin is done in order to confirm and determine

the order of transactions on the blockchain.

In Ripple

transactions are handled through a different process.

Let me explain:

When an XRP transaction is broadcast through the network,

the validators that maintain the network decide if it’s valid or not

through voting.

When a validator receives the transaction,

it consults with other trusted validators

and they vote on whether the transaction is valid.

If 80% or more vote it “valid” -

the transaction is updated in the Ripple ledger.

This list of trusted validators that a validator consults with

is known as a Unique Node List or UNL for short.

Each validator has its own UNL.

Deciding who will be included in the validaor’s UNL

is completely up to the person who runs the validator.

However, Ripple offers a default list of trusted validators.

Validators don’t get compensated for their work

like Bitcoin miners do with new coins.

When Ripple Labs started out

they actually issued, or “pre-mined”, a total of 100 billion XRP

and according to the Ripple protocol,

no more XRP can ever be created.

You might be wondering,

who owns all of these pre-mined coins?

20 Billion XRP were given to Ripple founders -

Jed Macaleb, Chris Larsen and Arthur Britto.

Ripple Labs holds around 7 billion XRP.

40 billion XRP have been sold to companies and individuals.

The remaining supply is sealed in a smart contract

that releases 1 billion XRP into Ripple Labs’ hands each month

until all of the 100 billion XRP cap will be reached.

XRP can be divided into 6 decimal points

with the smallest unit being known as a drop.

If you want to hold XRP

you will need a wallet that supports the currency

and a minimum deposit of 20 XRP in your account.

This is done in order to prevent people from spamming the Ripple Network

by opening a large number of accounts.

One last thing to know about XRP is that the XRP supply decreases over time

making it, in theory, more valuable as time passes.

This is done through destroying the transaction fees

attached to each XRP transaction.

For example,

at the time of shooting this video

we’re down to about 99.99% of the original 100 Billion XRP.

The “missing” XRP are transaction fees that have been destroyed

and can never be used again.

So, is it a good idea to invest in XRP?

When people invest in XRP

they are basically betting that in the future

banks and institutions will use XRP to move value

and will therefore buy XRP and drive up its price.

Of course, banks could always use IOUs instead

and that will keep XRP’s price rather stagnant.

Therefore, the question of “will XRP rise in value?”,

is mainly a question of whether a majority of banks and payment providers

choose to utilize it

instead of their current infrastructure.

Before we end this video

I want to touch upon one more subject

and that’s the criticism about Ripple being a centralized platform.

There are many arguments for both sides,

and while I clearly have my opinion

I will try to display some of the main points of debate.

Just like Bitcoin,

once Ripple’s protocol is published,

Ripple Labs has no control over it.

Validators run the code themselves.

This is pretty similar to Bitcoin’s core development team

maintaining the Bitcoin protocol

but having no real control over the nodes that run it.

But while Ripple Labs doesn’t control the protocol,

it does have a lot of influence since it is the organization maintaining it.

So, if for some good reason it determined to create more coins,

it might succeed.

Ripple Labs is sort of a central bank for RippleNet.

The Ripple protocol itself is open source,

meaning that if Ripple Labs ceases to exist,

the validators can still run the network themselves.

On the other hand,

products the company offers to banks and institutions

aren’t open source and are run solely by Ripple Labs.

The number of Ripple validators today is relatively small,

and is a fraction of

the number of Bitcoin nodes that maintain the Bitcoin network.

Since these relatively few validators

are ultimately responsible for maintaining the integrity of the network,

this raises the question:

how can we know the validators aren’t colluding

in order to defraud Ripple’s users?

Another attribute in Ripple that raises concern is that

you ultimately have to depend on trust in order to use the IOU tokens.

In contrast,

Bitcoin’s entire system is designed to work in a trustless environment.

Additionally,

while Bitcoin is free for all and censorship resistant,

Ripple is committed to monitoring and reporting

any Anti-Money Laundering flags across the network,

as well as reporting suspicious activity to relevant authorities.

On the upside,

since there’s no such thing as Ripple mining,

the network itself is much more energy efficient

compared to Bitcoin’s extreme energy consumption.

In the end,

there’s no clear answer to whether Ripple is decentralized or not.

Personally I think the real question of centralization arises

when there’s one key figure or company

that has implicit power over what the community thinks.

And in this case,

Ripple Labs undoubtedly has the most influence

on the entire Ripple community,

making it much more centralized in nature than Bitcoin.

It’s up to you to decide if you think Ripple is centralized or not,

or whether that even matters.

Ripple isn’t built on the same ideals as Bitcoin.

It’s a ‘for profit’ company, serving the banking system.

Perhaps this centralized solution

is a more efficient means of international transaction,

but is it the right one?

That’s it for today’s episode of Crypto Whiteboard Tuesday.

Hopefully by now you understand what Ripple is and how it works -

A network designed to move value around the world,

mainly aimed at banks and payment providers.

You may still have some questions.

If so, just leave them in the comment section below.

And if you’re watching this video on YouTube,

and enjoy what you’ve seen,

don’t forget to hit the like button.

Then make sure to subscribe to the channel

and click that bell so that you’ll be notified as soon as we post new episodes.

Thanks for joining me here at the Whiteboard.

For 99Bitcoins.com,

I’m Nate Martin, and I’ll see you… in a bit.