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Does the money stay in the wallet or is it used to pay for something?

If it's used to pay, who does it go to?

If it stays in the wallet, am I allowed to take it out and drain the wallet later without any consequences?

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Unlike a bitcoin receiving address, a funded Ripple wallet is a real thing on the ledger that has properties. This has advantages and disadvantages, but one of the disadvantages is that there's a cost associated with having one. To cover the costs imposed on the network, the XRP Ledger has a "base reserve" that is XRP that is not spendable or transferrable. You can use the reserve to pay transaction fees and, if the reserve drops, you can transfer out XRP to the new reserve level.

Some of the advantages of this scheme include:

The ability to change the key protecting an account without changing the receiving address.

The ability to configure an account for multisign and change the keys, signers, or quorum, again all without changing the receiving address.

Addresses can configure what assets they're willing to accept as payment and payments to them can automatically route through intermediary assets to find the cheapest path.

Accounts can place offers to trade one asset for another on a distributed exchange that follows deterministic rules.

The reserve goes up (currently by 5 XRP) for every additional object an account owns in the ledger (such as a trust line, offer, or escrow). You can reduce your reserve by eliminating these objects, but current rules do not allow the base reserve to ever be transferred or spent -- it covers the cost associated with recording the fact that the account has already performed certain transactions and without this recording, those transactions could potentially be replayed.

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  • What dos this statement mean in the post above "The reserve goes up (currently by 5 XRP) for every additional object an account owns in the ledger (such as a trust line, offer, or escrow)" Dos this mean you loose more than 20 Ripple when sending somewhere ? It is not clear what a additional object is / trust line ? Thankyou if you are able to clarify
    – John Bengal
    May 14, 2018 at 7:40
  • You never really lose anything, It's just XRP that can't be transferred, though it can be used to pay transaction fees. So if you have three offers on the books, your reserve would be 35 XRP, and if you had 50 XRP, you could only transfer or trade 15 XRP.
    – David Schwartz
    May 15, 2018 at 17:00
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In order to activate the wallet, you need to send 20 XRP to it. You don't lose this money in any way, it's yours to use after you get 20 XRP. Note that you can send 20 XRP over multiple transactions, but you're wallet will show a balance of 0 XRP until all transactions are confirmed. Then the true balance of the wallet will show up.

You can go below 20 XRP anytime, but your wallet will become temporarily disabled. This means you cannot send any more transactions from that wallet. You would need to send it more XRP to reactivate it.

This is analogous to a bank account with a minimum deposit. This documentation goes more in-depth about the purpose of the threshold.

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  • You can send transactions from a wallet whose balance is below its reserve. You just can't spend or transfer out XRP.
    – David Schwartz
    Dec 30, 2017 at 9:29

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