What Is XRP and How Does It Work?
A plain-English guide to XRP: the digital asset created by Ripple Labs that is designed for fast, low-cost international money transfers.
XRP is a cryptocurrency designed primarily for use in international payments and currency exchange. It is different from most other cryptocurrencies in that it was created by a company, Ripple Labs, and operates on a network that does not use mining.
What is Ripple?
Ripple Labs is a fintech company founded in 2012. It developed the XRP Ledger as a faster, cheaper alternative to the SWIFT system used by banks for international transfers.
XRP is the native token of the XRP Ledger, though Ripple and XRP are separate things: XRP can be used independently of Ripple’s products.
How does XRP work?
Instead of mining (as Bitcoin does) or staking (as Ethereum does), the XRP Ledger uses a consensus protocol. A set of trusted validators, which include financial institutions, universities, and Ripple itself, agree on the state of the ledger.
This allows transactions to settle in approximately 3–5 seconds at negligible cost. A typical XRP transaction fee is 0.00001 XRP, a tiny fraction of a penny.
What is XRP used for?
XRP’s primary use case is as a bridge currency in cross-border payments. The idea is that a bank wanting to convert US dollars to Japanese yen can do so via XRP in seconds, rather than using the correspondent banking system which can take days.
Ripple’s On-Demand Liquidity (ODL) product uses XRP for exactly this purpose, and is used by a growing number of payment providers.
The SEC lawsuit
In 2020, the US Securities and Exchange Commission sued Ripple Labs, alleging that XRP was an unregistered security. This case caused significant uncertainty and led several US exchanges to delist XRP.
In July 2023, a US court ruled that XRP sold to retail investors on exchanges was not a security, though institutional sales were found to be securities. The case reached a settlement in 2024.
Is XRP decentralised?
This is a point of debate. Ripple Labs has significant influence over the network and holds a large portion of the total XRP supply. Critics argue this makes XRP more centralised than cryptocurrencies like Bitcoin or Ethereum. Ripple argues the XRP Ledger can function independently of the company.