Ripple (XRP): Start of the XRPL sidechain test

While the legal troubles that hovered over Ripple seem to be dissipating and the title XRP is resisting the Bear Market relatively well, this is an opportunity to look at the operating principles of this crypto which aims to become the reference for exchanges of cross-border currencies.

Ripple is the company behind the XRP cryptocurrency. Its creators developed it to facilitate exchanges in any other currency. They present it as a real alternative to slow and expensive Swift transfers.

The consensus mechanism with Ripple

It is based on a different principle than Proof-of-Work and Proof-of-Stake: With XRP Ledger Consensus Protocol, each participant is tied to a set of overlapping “trusted validators” that effectively agree on which order must take place the transactions:

• Participants agree on the latest state describing the order of transactions that have taken place;

• The ledger can progress even if some participants join, leave, or behave inappropriately.

Each participant chooses a set of validators, which are expected to behave honestly. Crucially, chosen validators must not be able to band together to break the rules in a coordinated fashion. They are selected by Ripple, which may raise questions about the degree of decentralization of the system.

As the network progresses, each participant listens to their trusted validators. As long as a sufficiently large percentage of them agree that a set of transactions will occur with a concurring outcome, the participant declares consensus. Otherwise, the validators modify their proposals to better match the other validators. Repeating the process until they reach a consensus. As long as less than 20% of trusted validators are flawed, consensus can continue unhindered. If more than 20% of trusted validators are faulty, the network simply stops progressing.

Clearly, the main task of the consensus protocol is to agree on a set of transactions to apply to the previous ledger, apply them in a well-defined order, and then confirm that everyone got the same results. When this happens, a new version of the general ledger is considered validated and final. From there, the process continues the same way.

Block generation

Each new version of the general ledger contains three elements:

  • The current status of all balances and items stored in the general ledger;
  • The set of transactions that were applied to the previous ledger to result in this one;
  • Metadata about the current version of the ledger, such as its index, a cryptographic hash that uniquely identifies its contents, and information about the parent ledger on which it was built. This forms a public history of all transactions and their results. However, unlike Bitcoin for example, each new “block” in the XRP Ledger (XRPL) contains the entire current state. It is therefore not necessary to collect the complete history to synchronize a new server.

The supply of XRP

From the start, nearly 100 billion XRP were generated. No more XRP can ever be created. The available supply of XRP slowly decreases over time as small amounts are destroyed to pay transaction costs.

The Ripple company holds a large reserve of XRP in escrow. Regularly, a large amount of XRP is released from escrow for Ripple to use for its purposes. It should be emphasized that the conditions for the release of XRP by Ripple are opaque. This is another of the criticisms expressed by its detractors as to the degree of effective decentralization.

Direct XRP Payments

In the XRP Ledger, receiving addresses are permanent and must have a small amount of XRP in reserve (currently 20 XRP). This is an anti-spam measure to prevent registry data from taking up too much space. So, and unlike some other blockchains, using a different disposable address for each transaction is not necessarily a good idea. Best practice is instead to reuse the same address for multiple transactions. If used often, keys should be proactively changed regularly to reduce the risk of compromise.

The sender should not assume that their recipient uses the same address every time. He must therefore ask him again for his reception address for each transfer.

Specific features

What sets XRP apart is its unique payment capabilities. For example, we can decide who can send us money and who cannot. There are also payment channels that allow asynchronous balance changes.

Checks

The Checks feature of the XRP Ledger replicates the way paper checks work: the sender creates a check that specifies an amount and a recipient. No money moves until the recipient cashes the check. Since the funds are not blocked, the cashing can fail if the sender no longer has enough funds at that time, just like traditional checks.

Held captive

Escrow is a feature of the XRP Ledger that allows conditional XRP payments to be sent, optionally with an expiration date. These conditional payments, called escrows, set aside XRP. They deliver it later when certain conditions (based on time or encryption elements) are met. Engagements can also be set to expire if not completed on time.

XRP Ledger Ripple currencies
Ripple, the champion of multi-currency transfers

Multi-currency transfers

The currencies issued can also be digital tokens which are only issued in the XRP ledger, without external support. Of course, the parties involved must be willing to send or receive these tokens and treat them as something of value.

There must be at least one path between sender and receiver, and the total liquidity on all paths must be sufficient to facilitate payment. Cross-currency payments are converted from one currency to another by consuming bids in the decentralized exchange of the XRP Ledger.

With the XRP crypto, Ripple intends to provide the best possible solution for currency transfers and wants to send Swift into the oblivion of the past. XRP does not allow decentralization and resistance to censorship as strong as with Bitcoin (BTC), but offers characteristics more likely to appeal to financial institutions. It is certainly for this reason that it is not very popular among Bitcoin maximalists…

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