Ripple is the company that should be on everyone’s lips, but not getting the attention it deserves.
In the flurry that is cryptocurrency, digital assets and distributed ledger technology (DLT), only Ripple; a young California start-up, has a clear use-case in mind. Whereas Bitcoin aims to disrupt traditional banking by offsetting the need for banks altogether, Ripple thinks the opposite needs to happen for blockchain-tech to take off.
In less than a year, Ripple has been growing exponentially with Japan becoming their prime market. In Japan; the world’s 3rd largest economy, a consortium consisting of 61 banks or 80% of the country’s bank assets is now spear-heading the use of DLT for cross-border transactions. All thanks to the Ripple protocol, which allows banks to transfer funds instantly and on the cheap.
Traditionally, for banks to settle the transfer of funds, a network of IOUs between banks needs to be established. Bank A deposits assets with bank B. Then, when a customer in bank A wants to send money to someone with bank B, bank A must tell bank B to use funds deposited earlier by the bank and give them to the recipient. Naturally, not every bank has an IOU with every other bank, meaning correspondent banks need to act as middle men to get funds across borders or when using different currencies. This keeping of ledgers hasn’t changed since the Romans invented the banking system and it gets increasingly complicated with distance. The longer it is between the sender and recipient, the more banks have to ask their correspondent banks for their IOU deposits. Every jump becomes a fee, a risk and a delay of the total transaction time that typically takes between 3-5 business days.
With Ripple essentially eliminating both the need for correspondent banks and IOUs, capital can be spent elsewhere. The costs of bank transfers are lowered beyond comparison to today’s systems. With consumers around the globe becoming accustomed to on-demand services, it is a shame that the banking industry hasn’t caught up yet. Hopefully Ripple can change the future of payments altogether, bringing the world closer by creating what they call, an Internet of Value.
So, how does this compare with Bitcoin? Ripple has its own cryptocurrency, know as XRP. It’s rising and falling together with the rest of the cryptocurrency market. In some use cases, XRP has been used as an intermediary asset for cross-border transactions. Ripple claim they want to increase liquidity of XRP so that it can readily be converted between the world’s major currencies with miminal transaction fees. Bitcoin is highly liquid, however the scaling problems Bitcoin faces makes it unsuitable for mass payments. Bitcoin can handle roughly 7 transactions per second whereas Ripple now reportedly handles more than 1,500 transactions per second. Next step is to take on VISA which handles 2,000 transactions per second on average.
What are your comments on this? Is the world moving toward an instant settlement system? If so, is Ripple the future of payments? Let us know below!