In order to deeply understand how the system works, let us consider a money transfer structure which incorporates two parties. Both the parties on either end of the transaction take into account an intermediate to obtain their money.
David needs to send $500 to Emma who lives in another country. By including the middleman named Jacob - the money is sent with a password that Emma needs to answer correctly in order to receive the funds. Jacob alerts Emma`s agent - Mason of the transaction details, including the recipient, funds to be reimbursed, and password. If Emma provides Mason the right password, Mason gives him $100. Though, the money comes from Mason’s account, resembling Jacob would owe Emma $100. Emma can track either a journal of all Kate’s debt or IOUs which Mason pays on a mentioned day, or else make it through counter transactions that balance the debt.
In case, Mason is also an agent of Olivia and Olivia wants to transfer $100 to William whose agent is Jacob. This balances the $100 owed to Mason since William will be paid from Jacob`s account.
As explained in the example above, Ripple network is a little more complex. However, the example just validates the basics working of Ripple system. The above example completely depends on trust to initiate a transaction – trust between David and Jacob, Jacob and Mason, and Emma and Mason. Using a medium called as Gateway, Ripple serves as a link in the trust chain between two parties wanting to make a transaction. The gateway acts as credit intermediary - over the Ripple network it sends and receives currencies to public addresses. Any individual or business can register and open a gateway, allowing the registrant to act as the middleman for - exchanging currencies, maintain liquidity, and transfer payments on the network
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