Does this blockchain platform have what it takes to transform the global payments industry?
Both XRP and the XRP Ledger are used by US technology company Ripple, which is developing a range of solutions designed to transform the global payment industry.
This guide takes a closer look at Ripple’s global payments network, how XRP works, and what the future may hold for this ambitious project.
|Consensus algorithm||Proof of Correctness|
|Notable team members||Brad Garlinghouse, David Schwartz, Stefan Thomas|
|Notable partnerships||Accenture, American Express, Deloitte, Royal Bank of Canada, MoneyGram, National Australia Bank, Western Union, Westpac|
Where to buy XRP
What is Ripple?
Ripple is a San Francisco-based technology company with more than 200 employees. With a focus on providing cross-border payment solutions, Ripple also has offices in New York, London, Sydney, India, Singapore and Luxembourg.
Ripple’s main aim is to create a global settlement network that ensures more efficient transactions between the world’s financial institutions. The platform is designed to allow users to transfer money from any currency to any other currency in a matter of seconds, anywhere in the world. This is an ambitious goal meant to eliminate the need for older systems like Western Union or SWIFT.
Before going any further, we should point out that the term Ripple is often used interchangeably, and often incorrectly, to refer to a few different things:
- XRP. XRP is the name of the digital currency that facilitates transactions on the Ripple network. It effectively acts as a bridge between the two currencies being transferred, and also serves as a source of liquidity when necessary. XRP is the native asset of the XRP Ledger, an open-source blockchain that runs on a network of peer-to-peer servers.
- Ripple. This is the American technology company that develops the Ripple payment protocol and network. Originally known as OpenCoin, it later traded as Ripple Labs before rebranding to Ripple in 2015.
- RippleNet. This is Ripple’s network of payment providers around the world. It connects the different payment networks of banks, payment providers, digital asset exchanges and corporate entities, and can accept both fiat and cryptocurrencies.
The term “Ripple” is often used to describe the XRP cryptocurrency, but this is in fact incorrect. Ripple is the California-based tech company that aims to make it faster, easier and more affordable to send cross-border payments. XRP (XRP) is the independent digital asset that facilitates transactions on the Ripple network, acting as a bridge between different fiat currencies and as a source of liquidity.
XRP vs Ripple: What’s the difference?
The term “Ripple” is often used to describe the XRP cryptocurrency, but this is in fact incorrect.
Ripple is the California-based tech company that aims to make it faster, easier and more affordable to send cross-border payments.
XRP (XRP) is the independent digital asset that facilitates transactions on the Ripple network, acting as a bridge between different fiat currencies and as a source of liquidity.
How XRP works: The technology behind Ripple
Current methods of sending money internationally are outdated and slow. This is best summed up in this excerpt from Ripple’s cost model paper:
“Today’s global payments infrastructure moves money from one payment system to another through a series of internal book transfers across financial institutions. Because these book transfers occur across different systems with a low level of coordination, funds settlement is slow (often 3-5 days, trapping liquidity), error-prone (error rates run upwards of 12.7%), and costly ($1.6 trillion in system-wide costs for global cross-border transactions).”
Despite the fact that the global remittances industry is huge, there’s currently no streamlined and well-organised international network to handle cross-border payments. This is the problem Ripple aims to solve. However, rather than going toe to toe in competition with the banking Goliaths that currently control this sector, Ripple’s plan is to partner with major financials around the world to offer a blockchain-based solution.
By joining Ripple’s global network, Ripple says that financial institutions can process their customers’ payments anywhere in the world instantly, reliably and cost-effectively.
Payments using XRP settle in four seconds, and the current minimum transaction cost required by the network for a standard transaction is 0.00001 XRP. The network is also currently capable of consistently handling 1,500 transactions per second.
Using Ripple to send money overseas
Consider this scenario: Alice and Bob need to send some money to each other. Alice uses Jamaican dollars (JMD) to conduct her business, while Bob operates in Bangladeshi taka (BDT).
While it might not be evident to end users, the process behind Alice sending Bob money involves converting the JMD to a common currency like USD, then transferring the money between Alice’s bank and Bob’s. Finally, the USD in Bob’s bank is converted back to BDT.
This incurs a lot of fees at every exchange and wastes a lot of time. The Ripple network and the XRP currency aim to fix this problem.
The alternative Ripple proposes is the use of XRP as a common currency underlying all money transfers between different currencies (USD is currently the most common currency). Not only are transaction fees much lower to convert from one currency to XRP and back, but transfers take a maximum of 4 seconds to execute and verify.
xCurrent vs xRapid vs xVia: What’s the difference?
Ripple offers three products to banks and payment providers around the world:
Ripple vs Stellar
Ripple’s key competitor, at least in the cryptosphere, is widely considered to be Stellar. Stellar offers a distributed payments network to provide fast and affordable cross-border transactions, and also relies on its own native currency, Lumens (XLM).
There are plenty of similarities between the projects – Stellar was actually created by Ripple co-founder Jed McCaleb – but some key differences as well. Perhaps the biggest difference is a philosophical one, as while Ripple is focusing on banks and the corporate end of town, Stellar’s goal is to provide low-cost financial services to people in the world’s developing countries.
Check out the table below for a closer look at some of the key differences between XRP and Stellar.
|Stellar (XLM)||XRP (XRP)|
|Date established||30 July 2014||1 January 2012|
|Native asset||Stellar Lumens (XLM)||XRP (XRP)|
|Total supply||100 billion XLM initially
(approx. 103.9 billion XLM as of May 2018 due to inflation)
|100 billion XRP|
|Inflationary?||Yes, increases at a rate of 1% per year||No, decreases based on variable burn rate|
|Consensus mechanism||Stellar Consensus Protocol (SCP)||Proof of Correctness (PoC)|
|Transaction time||2-5 seconds||4 seconds|
|Target market||Individuals||Financial institutions|
The maximum supply of 100 billion XRP has already been created. However, as of July 2018, the circulating supply sits at less than 40 billion.
This is because Ripple, the company behind the cryptocurrency, owns some 60% of the total supply of XRP. At time of writing (May 2018) most of Ripple’s holdings (around 55 billion XRP) are locked in an escrow account, with up to 1 billion XRP to be released every month for a period of 55 months.
Which wallets support XRP?
While you can store your XRP on an exchange if you wish, for security reasons it’s recommended that you store them in a private wallet. There are many popular wallets that support XRP, including the Ledger Nano S hardware wallet and Toast Wallet for desktop.
Ripple, the San Francisco-based fintech company behind XRP, was founded in 2012. Though the project has roots dating back to 2004, it wasn’t until Jed McCaleb and Chris Larsen joined forces in August 2012 that the Ripple we know today truly began to take shape.
Today, Ripple is led by CEO Brad Garlinghouse and notable team members like chief cryptographer David Schwartz and CTO Stefan Thomas.
The list of financial institutions and organisations that have partnered with Ripple is an impressive one and stretches to more than 100 customers. Some of the recent highlights include:
- May 2018: Ripple announced that RationalFX (UK), FairFX (UK), Exchange4Free (UK), MoneyMatch (Malaysia) and UniPAY (Georgia) were joining xVia.
- April 2018: Santander launched a blockchain-based foreign exchange service, called Santander One Pay FX, using Ripple’s technology.
- February 2018: Two banks, Itaú Unibanco (Brazil) and IndusInd (India), and three remittance providers – InstaReM (Singapore), Beetech (Brazil) and Zip Remit (Canada) – announced that they were joining RippleNet.
- February 2018: It was announced that Western Union was trialling transactions using Ripple technology.
- January 2018: MoneyGram announced that it would pilot the use of XRP in its payment flows through xRapid.
What to watch out for
The biggest obstacle to Ripple’s quest for global domination is its adoption (or lack thereof) by banks and financial institutions around the world, and that’s where the focus of the people behind Ripple probably needs to be.
If more banks join the network, this could encourage demand for XRP and entice other banks to join the platform, but Ripple may also face stiff competition from Stellar.
And that’s before we even get to the established players in this space. Why would the banks use an external company and a new cryptocurrency when they could just launch their own private blockchains?
SWIFT currently connects more than 11,000 of the world’s financial institutions through its own network, and has been working on its own trials of blockchain technology. Credit card giant Visa is exploring its own blockchain-based cross-border payment options, so Ripple won’t be able to just waltz in and take a big chunk of market share without a fight.
Another key challenge that could hamper the price growth of XRP is its inability to gain listings on popular US exchanges like Coinbase and Gemini. The Coinbase listing was heavily rumoured in early 2018 but never eventuated, and reports from April 2018 suggest that XRP is unlikely to feature on either of these platforms any time soon.
In the meantime, Ripple will need to focus on securing further lucrative partnerships with banks around the world. By shoring up its market position, maybe it’ll be able to put together an argument that the exchanges simply won’t be able to ignore any longer.
With partnerships galore and strong financial backing, Ripple is a major player in the crypto world. It’s designed with a focus on bridging the gap between the traditional banking industry and the new age of digital currencies, and as anyone who’s ever been gouged while sending an international money transfer will agree, it’s targeting a market sector that’s crying out for disruption.
But whether or not Ripple has the product to challenge the old guard of the world’s financial industry remains to be seen, so research the project thoroughly before deciding whether or not you should buy any XRP.
Disclosure: At the time of writing the author holds ADA, ICX, IOTA and XLM.