With XRP, transfers can be made to two types of wallet addresses, namely external wallet addresses and wallet addresses held at exchanges. In a majority of cases, what differentiates these two types is the so-called destination tag. External wallets don’t require destination tags, since each has their own, unique address. In contrast, many exchange-operated wallets use the same address for all users, and need destination tags to separate individuals.
When transferring XRP, destination tags play a vital role. Failing to provide the correct destination tag, whenever it is required, may result in a permanent loss of the XRP transferred.
XRP TRANSFER ESSENTIALS
- XRP transfers to external wallet addresses only require the sender to provide the recipient’s wallet address.
- XRP transfers to wallet addresses held at exchanges require the sender to provide the recipient’s wallet address and, in the case of exchanges that have a main deposit address, the destination tag.
- Each transaction in the XRP ledger demands a transaction cost of 10 drops, which amounts to 0.00001 XRP.
Wallet address and destination tag
When sending XRP, two or three obligatory pieces of information have to be provided. Firstly, you have to enter the amount of XRP you would like to send. Then, you have to enter the wallet address to which you would like to send the desired amount of XRP. Lastly, some XRP transfers require you to enter the recipient’s destination tag.
A destination tag is an additional identifier unique to XRP wallets. Destination tags are not always required. In fact, they are only important when it comes to wallet addresses held at exchanges that store all their users’ XRP at one main deposit address. Hence, a destination tag has to be provided to send XRP to an individual wallet. Without the correct destination tag, the transaction may be sent to the wrong user or, if no tag is specified, deposited directly into the exchange’s storage.
Another aspect to be taken into consideration before indulging in XRP transactions is the transaction cost. Transaction cost refers to a small amount of XRP that has to be burned (destroyed) in order for any transaction in the XRP ledger to take place. Currently, when sending XRP from an external wallet address, the transaction cost amounts to 10 drops, or 0.00001 XRP (a drop is a unit equal to one millionth of an XRP, i.e. 0.000001 XRP).
But things get trickier when sending money from an address held at an exchange. Some exchanges may charge additional fees to process transactions from their main address. Before you register with a crypto exchange, you might want to check the fees they charge for crypto transfers. Bitstamp, for instance, charges no fees at all for XRP deposits and just 0.02 XRP for withdrawals.
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Example of an XRP transfer
Imagine you would like to send 20 XRP to a friend – we will call him Alex. What you will need in order to initiate the transfer is Alex’s XRP wallet address. Additionally, because Alex stores his XRP at Bitstamp, you will also need his destination tag. This will make it possible for the transferred amount to be assigned to Alex once it reaches Bitstamp’s main XRP deposit address. Once you confirm the transfer, 20.00001 XRP will be deducted from your wallet – 20 XRP are sent to Alex and 10 drops are destroyed as the transaction cost.
Now, imagine you want to send XRP to a different friend – we will refer to her as Nancy. Nancy stores her XRP in her hardware wallet. Because Nancy’s hardware wallet is associated with an external wallet address, no destination tag is required when you want to send her XRP. All you have to provide is her wallet address and the amount of XRP you would like to transfer, and the funds transferred will pop up in Nancy’s XRP wallet.
If you do not have any XRP yet and feel like you are missing out, the first step you should take is to register at a crypto exchange. There are only a handful of exchanges in the world that allow you to trade traditional money for cryptocurrencies. Bitstamp is one of them.