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Ripple is a technology that acts as both a cryptocurrency and a digital payment network for financial transactions. Ripple was released in 2012 and co-founded by Chris Larsen and Jed McCaleb. The coin for the cryptocurrency is premined and labeled XRP.
Ripple is more known for its digital payment protocol than its cryptocurrency, XRP. Ripple operates on an open source and peer-to-peer decentralized platform that allows for a seamless transfer of money in any form, whether USD, Yen, litecoin, or bitcoin.
To understand how the system works, consider a money transfer structure where the two parties on either end of the transaction use their preferred middlemen to receive the money. Lawrence needs to send $100 to David who lives in a different city. He gives his local agent, Kate, the money to send to David with a password that David is required to answer correctly to receive the funds. Kate alerts David's agent, Rose, of the transaction details - recipient, funds to be reimbursed, and password. If David gives Rose the right password, Rose gives him $100. However, the money comes from Rose's account which means that Kate would owe Rose $100. Rose can either record a journal of all Kate's debt or IOUs which Kate would pay on an agreed day, or make counter transactions which would balance the debt. For example, if Rose was also Martin's agent and Martin needed to transfer $100 to Itios whose agent is Kate, this would balance out the $100 owed to Rose, since Itios will be paid from Kate's account.
Although the Ripple network is a little more complex than this example, the example demonstrates the basics of how the Ripple system works. From the example above, one can see that trust is required to initiate a transaction - trust between Lawrence and Kate, Kate and Rose, and David and Rose. Ripple uses a medium known as Gateway that serves as the link in the trust chain between two parties wanting to make a transaction. Gateway acts as the credit intermediary that receives and sends currencies to public addresses over the Ripple network. Anyone or any business can register and open a gateway which authorizes the registrant to acting as the middleman for exchanging currencies, maintaining liquidity, and transferring payments on the network.
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