How does ripple work?
Ripple works as a decentralised peer-to-peer payment network of gateways (called RippleNet) that enables the almost-instant transfer of any currency – whether a traditional one such as USD, JPY or GBP, or a cryptocurrency such as bitcoin or litecoin. It does this by using its own digital currency (XRP) as a bridge that underpins the network.
A public ledger keeps track of all the payments made using RippleNet. Transactions are approved by consensus, so there’s no central authority slowing things down.
What are gateways?
Gateways are the intermediaries between banks (and other institutions) on RippleNet, which take money from one party and release it to another once the transaction has been approved. Gateways can also exchange one currency for another – if a gateway is prepared to accept dollars and pay out in sterling, for instance.
By chaining multiple gateways together, RippleNet can convert almost any currency in a transaction. You can even use it to transfer (and exchange) commodities like gold.
What about XRP?
Gateways will always price anything they deal in XRP. This means that you can use it as the basis for any transaction: converting currency into XRP, transferring it, and then converting it back at the other end. XRP is also transferred immediately and very cheaply (because it requires fewer gateways).