In times of volatility, it can seem like there really isn’t anything supporting public cryptocurrency networks. But that isn’t exactly the case. While they come in all shapes and sizes (so to speak), cryptocurrencies all use the same ingredients – peer-to-peer networking, private key cryptography and programming.
XRP, perhaps the breakout crypto asset of 2018, is no exception.
Created in 2012 and now securing $40 billion in total value, XRP is the third-largest cryptocurrency network today, one that has gained publicity as the company that manages its operations, Ripple, has inked a range of impressive partnerships.
One point of criticism that has emerged, though, is that most of the announcements don’t have much to do with XRP, but Ripple’s other financial products. At least some users have been unaware of the distinction (though CoinDesk has a guide for that).
But even those considering the market (or who may be watching from afar) can benefit from understanding more about Ripple’s technology and how it differs from yet another market segment, public cryptocurrencies like bitcoin and ethereum.
While all three do trade on public exchanges, XRP, as you’ll see, doesn’t exactly function like the other assets you’ll find on CoinMarketCap.
Ledger and consensus algorithm
To start, XRP is a cryptocurrency that rides on the XRP Ledger. (You can think of XRP as similar to U.S. dollars, and XRP Ledger like the Federal Reserve’s official database of bills, coins and notes.)
The part that governs how XRP moves over the XRP Ledger is called the XRP Ledger Consensus Protocol, or XRP LCP.
Like any distributed consensus protocol, a set of computers run XRP LCP in an effort to determine which transactions that have been sent over the network are valid and, as such, agree on the history of the ledger.
In this, the algorithm faces a similar challenge to bitcoin, ethereum and other more decentralized cryptocurrencies – the double-spend problem, whereby a user might try to send the same cryptocurrency transaction twice in an effort to game the system.
Whereas bitcoin and ethereum solve the problem with a consensus algorithm called proof-of-work (in which miners use specialized hardware to solve complex mathematical puzzles to verify transactions and earn rewards), XRP uses something different. Its construction hinges on a “trust-based alternative” to this, in which a handful of nodes are elected to make the ultimate decisions about the ledger’s history.
This group of nodes is called the Unique Node List (UNL), and currently, Ripple oversees which nodes get added to the list.
Following the guidance of the UNL, nodes broadcast a vote on which transaction history is correct, and the consistent majority will be chosen to advance the ledger. According to a recent white paper, 90 percent agreement across nodes is required to ensure the safety of the network.
Because the network does not rely on computationally intensive proof-of-work and a whole network of computers competing to verify transactions, XRP LCP can cope with a much higher throughput of transactions settled in around four seconds.
Still, even these details are under experimentation as the company seeks to improve the tech. Ripple researchers Brad Chase and Ethan MacBrough have even proposed a new algorithm named Cobalt as a replacement for the XRP LCP.
Instead of relying on 90 percent node agreement, Cobalt can function with a mere 60 percent.
Nodes and validation network
While the efficiency of Ripple’s system is a plus for many, others are turned off by its centralization of nodes.
Although users can individually define their own UNL, Ripple recommends its UNL based on its consistently honest performance over time. As such, because other nodes might fall out of agreement with Ripple’s UNL (which defines the transaction history), failure to follow the recommended UNL may result in a botched payment.
There are currently 70 validator nodes and five recommended validator nodes, with all the latter being maintained by Ripple.
This differs substantially from bitcoin and other public cryptocurrencies in that anyone (with the technical know-how) can spin-up a node and start helping secure the network, plus anyone (with the correct hardware) can begin mining.
But Ripple plans to add 11 more recommended nodes, run by trusted companies and universities, this year, and would also like to see all its nodes phased out in time.
“Right now, we see a certain number of third-party validators that are building up a history; they’re looking good but at the same time they’re still pretty new, so they don’t have the same … five years of run time that Ripple’s validators have,” Stefan Thomas, the company’s CTO, told CoinDesk.
On top of that, Ripple hopes that one day users of the network will be able to define their own UNL based on their own personal parameters…