Fast, Efficient Consensus Algorithm

The XRP Ledger's biggest difference from most cryptocurrencies is that it uses a unique consensus algorithm that does not require the time and energy of "mining", the way Bitcoin, Ethereum, and almost all other such systems do. Instead of "proof of work" or even "proof of stake", The XRP Ledger's consensus algorithm uses a system where every participant has an overlapping set of "trusted validators" and those trusted validators efficiently agree on which transactions happen in what order. As of early 2018, the amount of electricity the Bitcoin network uses per transaction is more than a family home in the USA uses in an entire day, and confirming the transaction takes hours. A single XRP transaction uses a negligible amount of electricity, and takes 4 or 5 seconds to confirm.

Furthermore, each new "ledger version" in the XRP Ledger (the equivalent of a "block") contains the full current state of all balances, so a server can synchronize with the network in minutes instead of spending hours downloading and re-processing the full transaction history.

Censorship-Resistant Transaction Processing

XRP is part of a new class of money which includes Bitcoin and other cryptocurrencies:

• These Decentralized digital assets exist in computer systems without a central administrator. As long as the system is sufficiently decentralized, no one can roll back transactions, freeze balances, or block someone from using a decentralized digital asset. These assets are natively digital, so they can be used online across any distance.

This combines qualities of physical and centralized digital money. Prior to the invention of Bitcoin in 2009, all currencies could be divided into those two categories:

• Physical coins and paper money, which individuals can use to do business without going through a central party. As physical objects, they cannot be used online, and doing business long-distance is slow and inconvenient.
• Centralized digital currencies, which need an administrator to confirm transactions. The administrator also has the power to censor or roll back transactions, or disallow some individuals from using the digital currency. If the operator of a digital currency decides someone has violated its terms of service, it can freeze or even confiscate that person's money. However, as digital balances, these currencies can be used online and are convenient across long distances.

Note:Users of the XRP Ledger can freeze non-XRP currencies issued in the XRP Ledger. The XRP Ledger's system of trusted validators uses a small amount of human interaction to achieve better distribution of authority than other decentralized systems. Fully-automated systems for reaching consensus from an unknown set of participants are vulnerable to concentrations of voting power. For example, Bitcoin mining is disproportionately concentrated in places with cheap electricity. As Ripple curates a list of distinct validators operated by different entities in different jurisdictions, the XRP Ledger can become more resistant to censorship and outside pressures than proof-of-work mining. For more information on Ripple's plan to decentralize the recommended set of validators, see the Decentralization Strategy Update.

Finite XRP Supply

Alongside war and political turmoil, hyperinflation is one of the leading causes of death for currencies. While the decentralized system of validators provides XRP with some resistance to political factors, the rules of the XRP Ledger provide a simpler solution to hyperinflation: the total supply of XRP is finite. Without a mechanism to create more, it becomes much less likely that XRP could suffer hyperinflation.

The supply of XRP available to the general public does change due to a few factors:

Sending transactions in the XRP Ledger destroys a small amount of XRP. Senders choose how much to destroy, with certain minimums based on the expected work of processing the transaction and how busy the network is. If the network is busy, potential transactions that promise to destroy more XRP can cut in front of the transaction queue. This is an anti-spam measure to make it prohibitively expensive to DDoS the XRP Ledger network. For more information, see Transaction Cost.

Each account in the XRP Ledger must hold a small amount of XRP in reserve. This is an anti-spam measure to disincentivize making the ledger data occupy too much space. XRP Ledger validators can vote to change the amount of XRP required as a reserve, to compensate for changes in XRP's real-world value. (The last time this happened was in December 2013, when the reserve requirement decreased from 50 XRP to 20 XRP.) If the reserve requirement decreases, XRP that was previously locked up by the reserve becomes available again.

Ripple (the company) holds a large reserve of XRP in escrow. At the start of each month, 1 billion XRP is released from escrow for Ripple to use. (Ripple uses XRP to incentivize growth in the XRP Ledger ecosystem and sells XRP to institutional investors. Ripple also sells XRP programmatically on exchanges, limited to a small percentage of overall exchange volume. Ripple publishes sales figures quarterly in the XRP Markets Report.) At the end of each month, any remaining XRP the company does not sell or give away is stored into escrow for a 54-month period. For more information on Ripple's escrow policy, see Ripple Escrows 55 Billion XRP for Supply Predictability. For more information on the technical capabilities of the Escrow feature, see Escrow.

Responsible Software Governance

Any piece of software can only be as good as the developers who code and manage it. Ripple employs a team of world-class engineers dedicated full-time to maintaining and improving the XRP Ledger software, especially the core server, rippled. The source code for rippled is available to the public with a permissive open-source license, as are many other parts of the XRP Ledger ecosystem. Ripple engineers follow best practices for software engineering, including:

• A famously strict and thorough code review process
• Comprehensive code coverage and unit tests
• Regularly running automated checks for potential vulnerabilities and memory leaks
• Regularly commissioning external reviews by professional organizations

As an entity that is obligated to hold large amounts of XRP for the long term, Ripple has a strong incentive to ensure that XRP is widely used in ways that are legal, sustainable, and constructive. Ripple provides technical support to businesses whose goals align with Ripple's ideal of an Internet of Value. Ripple also cooperates with legislators and regulators worldwide to guide the implementation of sensible laws governing digital assets and associated businesses.

Secure, Adaptable Cryptography

Cryptography is one of the hardest parts of any distributed system, and a mistake can lead to money stolen by malicious actors anywhere in the world. The XRP Ledger uses industry-standard schemes for signing and verifying transactions, algorithms that have successfully protected hundreds of billions of US dollars' worth of value for many years. The XRP Ledger also layers multi-signing functionality so you can use multi-factor authorization or split keys across multiple people as a backup, and provides new algorithms with a path to migrate the keys you use if a breakthrough in cryptography makes the old algorithms obsolete.

Modern Features for Smart Contracts

Besides simple value transfer with XRP payments, the XRP Ledger has several advanced features that provide useful functions for building applications that use the Internet of Value to serve previously unknown or impractical needs. Rather than running applications as "smart contracts" in the network itself, the XRP Ledger provides tools for settling contracts, while letting the applications themselves run anywhere, in whatever environment or container is appropriate. This "keep it simple" approach is flexible, scalable, and powerful.

A sample of advanced features in the XRP Ledger:

• Payment Channels allow asynchronous balance changes as fast as you can create and validate signatures.
• Escrow locks up XRP until a declared time passes or cryptographic condition is met.
• DepositAuth lets users decide who can send them money and who can't.
• A Decentralized Exchange lets users trade obligations and XRP on-ledger.
• Invariant Checking provides an independent layer of protections against bugs in transaction execution.
• Amendments provide smooth upgrades to the existing feature set, so the technology can continue to evolve without fracturing the ecosystem or causing uncertainty around times of transition.

On-Ledger Decentralized Exchange

One of the biggest features that sets the XRP Ledger apart from other cryptocurrency networks is that it also contains a full currency exchange that runs on the XRP Ledger. Within this system, businesses (typically called "gateways") can freely issue any currency they want to customers, and those customers can freely trade issued currencies for XRP or other issued currencies issued by any gateway. The XRP Ledger can execute atomic cross-currency transactions this way, using orders in the exchange to provide liquidity.