If market cap is any indication for success, then one cryptocurrency is clearly on an upward curve. This fast-moving cryptocurrency has already moved into the top five cryptocurrencies, now in fourth place behind bitcoin, ethereum, and bitcoin cash in market cap. We’re talking about Ripple. But as Ripple is more than just a cryptocurrency, two of the FAQs we often come across is “what is Ripple” and “how is it different from bitcoin?”
What is Ripple?
Ripple is an online banking system that provides a smooth, frictionless experience when sending money globally. The goal of this system is to enable people to break free of the “clutches of the current banking system” (credit cards, banks, PayPal) that is notorious for fees, charges for currency exchanges, and processing delays.
Ripple is the name for both the open payment network (RippleNet) and the digital currency (XRP) used on the network. RippleNet connects financial institutions, who provide liquidity for payments, with corporates, payment providers, and digital asset exchanges, all of whom recognize the intrinsic value of Ripple.
Unlike with PayPal and credit card transactions, there are no transaction fees with Ripple. However, a small portion of a ripple (equivalent to ~1/1000th of a cent) is taken and destroyed from each transaction. This is a safety precaution to prevent against the system being swamped by any one individual trying to put through millions of transactions at once.
Ripple Intrinsic Value
RippleNet is a decentralized global network that uses ripple’s distributed financial technology that is secure and scalable. Built on the most advanced blockchain technology, the Ripple blockchain is being widely regarded as the vehicle that will help the existing, archaic global payments system catch up with the technology of today.
As one of the most important uses of Ripple is to facilitate quick and easy cross-border payments, it’s good that Ripple adopts real-time messaging, clearing, and settlement of financial transactions.
Thanks to this, Ripple offers increased speed, interoperability, lower costs and risks, and broader payment reach. Ripple frees up working capital, maximizes liquidity, and minimizes settlement risk. With such clear benefits, the time is not far off when global payments will depend completely on Ripple, just as information depends on the Internet today.
How Ripple is Useful – Ripple Applications
According to Ripple’s Chief Cryptographer, David Schwartz, the archaic payment systems of today are very much like what e-mail was in the 1980s, when every provider built their own system for their customers, and if people used different systems, they couldn’t easily interact with each other.
Ripple is designed to connect different payment systems together. It does this with the help of Ripple applications on the Ripple application programming interface (API), which is the how banks can use Ripple.
The Ripple API allows users to integrate the Ripple payment system and platform into third-party projects. Some Ripple API examples are Ripple API PHP, Ripple API Python, and Ripple API Fidor. Fidor, the German bank named as the most innovative bank 2013 by International Finance Magazine, is the first bank to officially implement decentralized payment technologies into its operations.
How Banks can Use Ripple
Ripple enables a bank that has a ripple api to send any currency to another financial institution without an intermediary. All members of RippleNet are connected through Ripple’s standardized technology, xCurrent.
xCurrent is the first global real-time gross settlement (RTGS) system that enables banks to message, clear, and settle their transactions with speed, transparency and efficiency. The system is also called Ripple Transaction Protocol (RTXP) or Ripple payment protocol.
This protocol helps banks to offer new cross-border payment services while lowering their total cost of settlement. The solution is specifically designed to fit within the banks existing risk, compliance and information security frameworks. Ripple’s software is installed within the bank’s infrastructure and is built to interface with the bank’s systems using the API interface.
The solution offers a cryptographically secure, end-to-end payment flow with transaction immutability and information redundancy. Because the software is designed to fit within the banks’ existing infrastructure, it minimizes business disruption. (Source: “Solution Overview,” Ripple, last accessed November 24, 2017.)
Once on board, Ripple facilitates all transactions with the help of a marketplace of liquidity providers. These providers compete to provide the best rates. Ripple automatically chooses the best rate while settling the payment. The entire transaction takes four to six seconds.
Currently, 75 banks and payments providers are active on Ripple’s network, and the company is partnered with about 90 additional banks across the globe, including the National Australia Bank, Axis Bank, Standard Chartered Bank, Banco Santander, Westpac, BBVA, and smaller players like Cross River Bank, Weir, and Kansas-based CBW.
There has been a lot of debate over why Ripple-adopted banks are using it, and for that the credit must go to the aggressive tactics employed by the Ripple team.
Why are Ripple-Adopted Banks Using Ripple (XRPs)?
Ripple has taken the adage “business is money” quite seriously and has made some very strategic moves to make it worthwhile for the banks to use XRP. The firm has set aside $300.0 million for the new RippleNet Accelerator Program, which includes a volume rebate and adoption marketing incentive.
The program enables members to get a license and interface-fee rebates if they hit their integration and volume milestones deadlines. These rebates can cover 50% to 300% of the integration fees and first year’s license fees. No wonder early reception of the program has been very positive.
The advantages that banks have with Ripple is that they can lower their costs and speed up transactions for cross-border payments. There is also no need to have a pre-funded account (money just sitting for the transaction to happen) at the destination. Cuallix was the first bank to use Ripple and XRP as a payment method between the U.S. and Mexico.
Obviously every bank in the world is not going to jump into this immediately, as many banks still see Ripple as a threat to their operations. But the Ripple team sees this as a temporary hurdle and they are optimistic that adoption will soon pick up, especially since they have gained a lot of traction over the last couple of months.
Is Ripple Protocol Limited to Banks/Financial Institutions?
Though Ripple has been created for banks, it is not limited to them. There is a lot of discussion on the Internet that the association with banks is one of Ripple’s limitations, but in the long run, as more and more banks join in, this limitation will turn into its biggest strength.
Can Individual Users Use Ripple?
Yes, they can. In fact, the RippleNet Accelerator Program is open to individuals as well. Individuals also can make the most of the adoption marketing incentives for people who promote Ripple. These incentives are in U.S. dollars or XRP.
Other Platforms Where Ripple Can Be Used
Ripple can be used on many other platforms, some of the popular ones being Changelly, Coinbase, and Bitstamp. In fact, rather than being seen as a competition to bitcoin, Ripple will actually help bitcoin stay relevant by opening up more gateways for bitcoin users and easier ways to bridge bitcoin with the mainstream world of finance.
In addition to giving bitcoin multiple ways to connect with people using other forms of currency, Ripple promises expedited transactions and increased stability. And as Ripple does not depend on a single company to manage and secure the transaction database, there is no waiting on block confirmations, which can go through the network rapidly.
2016-2017 proved to be a big period for Ripple and XRP. Not only did many banks and financial institutions buy into the idea of RippleNet, they also started embracing XRP. But this is just the tip of the iceberg.
This year is the launchpad from which Ripple’s future value will take off. And this bodes well for XRP’s potential value. One way for XRP to fulfill its incredible potential is for Ripple to expedite the process of adoption.
Another thing Ripple must do is start making XRP acceptable at retail outlets. Imagine what would happen if I can take a group of friends to a restaurant, pull out my phone, and pay with Ripple. Not only will it be uber-cool, but it would also arouse curiosity, and the ease of transaction will spur adoption. That day is just around the corner, and when it does happen, XRP’s potential value will be truly perceived.
But even when that happens, I predict there will not be any volatility associated with the rise. That’s because Ripple’s strategy is different from other players in the cryptocurrency market. Think of Ripple as the turtle in the story of the tortoise and the hare. It knows its goal, and it will reach there before anyone does. And once it gets there, it will dominate the online money payment market.