There is an important feature that distinguishes XRP developed by Ripple from other cryptocurrencies: Simply put, XRP is not mined. While mining is the basis of almost all crypto money transactions, especially Bitcoin, there is a “consensus mechanism” instead of mining in XRP. To understand the reason for this, it is necessary to look at the founding purpose of XRP.
People around the world have closer relationships than ever before. The biggest factor in this is that technology has developed infrastructures in forms that were hard to think of 10 years ago, and extremely quickly. However, despite all these changes, being able to transfer money between countries is still one of the most troublesome and costly processes. Ripple was also founded with the aim of ‘making a revolution’ in international payments and remittances.
There are reasons behind the fact that these transactions are still very laborious and costly today, such as the use of old methods that have to be in harmony with financial systems and the slowdown of transfer transactions due to the lack of communication between payment channels.
SWIFT transactions can still present some difficulties today. Photo: Freepik.For example, SWIFT (The Society for Worldwide Interbank Financial Telecommunication), which was established in 1973, is not considered efficient enough by some segments today. Because in SWIFT, multiple layers of processing are required before reaching the final destination. Blockchain technology has a suitable infrastructure for making cross-border payments and remittances more practical. Ripple has also entered the industry with the claim of being a distributed ledger technology that can replace traditional financial procedures by offering a fast, efficient and economical payment network. That is, a cryptocurrency established for cross-border payments in the traditional financial system.
How is mining done in XRP?
Mining is a distributed verification system used by many blockchain-based cryptocurrencies. It both facilitates transactions and provides the mechanism that determines how the new currency will be included in the crypto money system, with the rewards it offers to the validators that support the network.
For example, Bitcoin has a supply of 21 million coins, and more coins are released as they are mined. XRP, unlike Bitcoin, is a “pre-mined” cryptocurrency. XRP Ledger has set the supply at 100 billion. This 100 billion XRP is also being released in stages. Some of the circulating XRPs belong to Ripple. The company does this to control the growth and success of XRP over time.
Of course, this also raises concerns about the simultaneous release of large amounts of XRP. While articles on XRP list the advantages and disadvantages of this cryptocurrency, the large supply of previously mined XRP is among the disadvantages. Unused coins are moved to an escrow account, which is then re-circulated. Because the sudden and massive distribution of XRP can directly affect the value of the cryptocurrency.
Steps to resolve mining uncertainty
Tim Enneking, head of Digital Capital Management, points out that Ripple has implemented various mechanisms, such as predictable distribution, to reduce uncertainties in this direction.
There are comments that the mining-pre-extraction separation may be one of the reasons behind Ripple’s conflict with the US Securities and Exchange Commission (SEC).
At the time of writing, the circulating supply of XRP was 51 billion 402 million 267 thousand 34.
Also, the Ripple network does not work with proof-of-work (PoW) systems like Bitcoin or proof-of-stake (PoS) systems like Ethereum. Transactions in XRP are replaced by a consensus protocol that validates account balances and transactions in the system. The consensus aims to increase the integration of the system by avoiding double payment.
XRP is also used in remittances and investments like other cryptocurrencies.How can XRP be used?
It is possible to use XRP in remittances or investments like other digital currencies. The Ripple network can also be used to buy and sell other currencies. For example, when you want to buy euros for yuan, you can convert your yuan to XRP on the Ripple network and then buy euros with these XRPs, without contacting the bank or the exchange office. In this way, it is possible to perform your transaction more economically and quickly.
Sources: Forbes, XRP Ledger, Coin Telegraph, Investopedia.com
