Ripple is an entirely new kind of cryptocurrency. Instead of exchanging Ripple directly for goods and services, as with a traditional currency, the Ripple currency is a medium for converting any currency instantly into any other one, without relying on a central exchange. Because of this unique architecture, there are no retailers who directly accept XRP, but Ripple does have the potential to allow for more trade in many existing currencies.
Rather than relying on proof-of-work or proof-of-stake to verify transactions, Ripple uses a unique consensus system. In a consensus system, whatever the majority of computers on the network see happen is what gets recorded in the ledger. The advantages of a consensus system are clear: it requires relatively little energy to run and processes transactions more quickly than a proof-of-work system. This system is not perfectly reliable as it can be compromised by network lag or malicious users, but when an unreliable result is reported, the system is designed to reject it and start again, preserving the security of the system at the cost of a slight delay in service.
Ripple's most striking feature is that it doesn't care what currency you're offering or what currency you're looking for. Ripple supports token representations of almost every currency, including fiat currencies, like dollars and Yen, and cryptocurrencies, like Bitcoins, and specialized currencies like air miles and reward points. Because these tokens are essentially electronic IOUs, however, this system requires that users trust each other to actually pay the funds they owe. This is less risky than it sounds – users can specify who they trust on the network and exactly how much of each type of currency they trust them to handle. When a user attempts a transaction, Ripple then works to find a path between the parties where each step is a link between two people who trust each other.
To get non-Ripple currencies onto the Ripple network, users trust their real-world funds to special users called Gateways. Gateways work very similarly to PayPal: you give U.S. dollars to PayPal, and then the company acts as an intermediary to allow you to send your money over the internet. The difference is that PayPal is a centralized agent, charges a significant commission and is far less flexible in terms of what currencies you can trade in.
Ripple has already gained a significant following. It has the second highest market capitalization of any cryptocurrency, and its value seems to be increasing. Because of its design, Ripple will never completely replace analog currencies, but the payment network that supports it has the potential to change the way business is done globally.