What’s XRP? How investing in Ripple’s cryptocurrency works

Sending money across borders normally relies on traditional banking infrastructure. Yet international wire transfers can take several days to settle and include high intermediary fees. And while blockchains like Bitcoin let investors move value across the web almost instantly, transaction speeds and fees often limit crypto’s usefulness as payment infrastructure.

The XRP token was created to address this problem; this cryptocurrency powers the XRP Ledger, a network designed to move value quickly between financial institutions and payment providers. Instead of replacing traditional options, XRP acts as a settlement asset that can bridge transactions across currencies with fewer intermediaries.

In this guide, we’ll explain what XRP is, how it works on the Ripple network, and why it continues to attract attention from both financial institutions and crypto investors.

What’s Ripple? The backstory behind the XRP cryptocurrency

The history of XRP begins with RipplePay, a platform founded in 2004 to enable credit-based exchange. In 2012, a new team of developers acquired this concept because they wanted to create a faster, more efficient ledger that could handle the demands of global finance.

Today, Ripple is a financial tech company that builds payment infrastructure using blockchain technology. XRP is a digital asset that operates on the XRP Ledger, a network created to support fast value transfers. While Ripple uses XRP in its liquidity products to help financial institutions move money, this crypto functions independent of the company’s operations.

What are the key features of XRP?

XRP's design can make it a good choice for international payments, thanks to its:

• Speed and scalability: XRP is fast, with transactions usually settled in three to five seconds. This speed remains consistent even when the network handles high volumes, so payment providers can move funds quickly between currencies and across borders.
• Low transaction fees: Sending XRP costs a tiny fraction of a cent, because the network requires minimal computing power to validate transactions. Fees exist mainly to prevent spam on the network, which keeps transaction costs predictable and low.

How does XRP work?

The XRPL functions using a consensus mechanism, relying on a group of trusted servers known as validators. These validators compare transaction records to make sure the entire network agrees on the order and validity of XRP payments.

The XRP token works like a bridge asset within the XRPL. Here’s a typical transaction flow:

1. Sender initiates a transfer using a supported currency
2. Network converts that value into XRP at the current market rate
3. XRP moves across the XRPL within seconds
4. XRP converts into the destination currency, and the payment completes

This process means banks have less need to hold reserves in multiple foreign currencies. Instead of maintaining pre-funded accounts across countries, institutions can use XRP as a temporary settlement asset during transactions.

How can you buy XRP?

While Ripple focuses on institutional clients and cross-border payments, XRP has a dedicated following among crypto traders and investors (aka the XRP army). These traders believe in XRP’s potential as a medium of exchange, even if they aren’t all engaged in international transfers.

XRP’s consistent position among the top 10 cryptocurrencies by market cap reflects its robust liquidity and wide accessibility on numerous trading platforms. You can find the latest exchanges offering XRP pairs by visiting crypto price aggregators, such as CoinMarketCap and CoinGecko. There, you’ll find lists of centralized and decentralized exchanges that support XRP trading, along with information about each platform's liquidity, accessibility, fees, and reputation.

From there, you can select an exchange like Kraken or Binance, set up an account, and deposit funds to start trading the XRP token.

Is XRP a good investment?

XRP’s greatest potential strength lies in its utility – Ripple Labs has built partnerships with payment providers like American Express and financial institutions such as Santander to explore using this technology for international transfers. While much of that work is still in development, these partnerships might provide a level of real-world adoption that crypto enthusiasts often hope for.

Also, a long-running lawsuit between Ripple and the U.S. Securities and Exchange Commission led to a court ruling stating that XRP isn’t a security when it's sold on public exchanges to retail investors. While there are some nuances to that ruling, it still provides XRP investors with a level of regulatory clarity that’s rare for digital assets.

However, utility, partnerships, legal guidelines, and an army of supporters don’t guarantee a positive price outcome. The XRP token faces stiff competition from other payment-focused blockchains like Stellar (XLM) and Solana (SOL), as well as central bank digital currencies. Additionally, this asset remains subject to the high volatility that’s common across the entire crypto market.

Joining the XRP army? CoinTracker can monitor your crypto

The XRPL allows blockchain payments to settle within seconds, supports high transaction throughput, and serves as a bridge asset for currency conversions. But like any other crypto, this network’s functionality and uses shift often. If you decide to hold or invest in the XRP token, be sure to track every transaction carefully, so you know what’s happening with your portfolio at all times.

Managing your crypto assets shouldn't be complicated. CoinTracker lets you track your entire portfolio across multiple exchanges and wallets, all in one place. Join the three million users who rely on CoinTracker for a seamless crypto experience – start free today.

Disclaimer: This post is informational only and is not intended as tax advice. For tax advice, please consult a tax professional.

FAQ

What’s XRP used for?

XRP primarily works as a blockchain bridge cryptocurrency that helps move value between different financial systems. Payment providers can convert funds into XRP and settle transfers across borders in seconds. Developers also build applications on the XRPL network – projects that involve token transfers, decentralized exchange features, and payment integrations.

Is XRP centralized or decentralized?

The XRPL operates as a decentralized network of validators that confirm transactions and maintain the blockchain. While the Ripple company is a central contributor, the XRPL is open source and independent.

Can XRP be mined or staked?

XRP can’t be mined or staked, since the total supply of 100 billion tokens was created when the XRPL network launched. New XRP coins only enter the market through controlled releases from an escrow account held by Ripple.

Is XRP taxable?

In many jurisdictions, including the United States, tax authorities treat XRP the same as other cryptocurrencies. This means that selling XRP, trading it for another asset, or using it to purchase goods can create taxable crypto events.

Is XRP legal?

XRP trading is legal in many countries and listed on some major crypto exchanges.