The ripple effect

Ripple runs on a peer-to-peer, open-source, decentralized infrastructure that enables smooth money transfers in any currency, including dollars, yen, euros, and cryptocurrencies like litecoin and bitcoin. Global payments network Ripple has a number of well-known banks and financial services organizations as clients. To enable speedy currency conversion between multiple currencies, XRP is used in its products.

How Ripple Works

The Ripple network doesn't operate on a proof-of-work (PoW) or proof-of-stake (PoS) mechanism like bitcoin or nxt. Instead, in order to verify account balances and transactions on the system, transactions rely on a consensus mechanism. By prohibiting double spending, the consensus seeks to increase the integrity of the system.

All but the first transaction will be erased if a Ripple user opens a transaction with several gateways but tries to send the same $100 to the gateway systems. Consensus among individual distributed nodes determines which transaction was created first. The instant confirmations last for about five seconds. The Ripple platform is referred to as decentralized since there is no central authority that selects who can establish a node and verifies transactions.

For any user or gateway, Ripple keeps track of all IOUs in a certain currency. The Ripple consensus ledger makes IOU credits and transaction flows between Ripple wallets available to the general public. Although the history of financial transactions is publicly accessible and recorded on a blockchain, no specific person or company's ID or account is tied to the data. However, the information can be de-anonymized because every transaction is recorded in a public ledger (the blockchain).