XRP works as a digital currency designed to simplify and speed up financial transactions, especially international ones. Here are the main aspects of how it works:
1. XRP Ledger Blockchain
XRP runs on the XRP Ledger (XRPL) blockchain, which is different from traditional blockchains like Bitcoin or Ethereum. It uses its own consensus mechanism called the Ripple Protocol Consensus Algorithm (RPCA) instead of mining.
2. Bridge currency
XRP acts as a "bridge" between different currencies. For example, if someone wants to transfer money from dollars to euros, XRP is used for instant exchange without the need to hold liquidity in both currencies.
3. Consensus mechanism
Transactions on the XRP Ledger are confirmed by a network of validators (nodes). These validators verify and reach consensus on new transactions in about three to four seconds. This makes XRP one of the fastest solutions for transactions.
4. On-demand liquidity (ODL)
Ripple provides the ODL service, which uses XRP for instant transaction execution. Banks and payment systems can avoid the need to hold funds in accounts in different countries.
5. Low fees and high speed
The transaction fee on the XRP network is extremely low (usually less than one cent), and transactions are executed in seconds, making it efficient for large volumes of operations.
What XRP does NOT do:
It is not mined; all tokens were pre-issued (one hundred billion XRP), and most of them belonged to Ripple.
This is not a decentralized blockchain in the traditional sense, as validators in the network are most often associated with Ripple or their partners.
This makes XRP convenient for financial institutions, but raises debates about its centralization.