Overview
Ripple has had one of the most drastic price increases of any cryptocurrency, even by the meteoric standards of the markets today. Rising from a market cap of just $200M to over $12B in a matter of months. So, what is all the fuss about Ripple?
o Ripple is the enterprise solution for blockchain payment processing.
o Ripple is a major disruptor in the financial technologies sector, enabling near-instant, cost-effective international transactions.
o Ripple is innovating the way banks send money. This an industry that has seen little change since the 1960’s – meaning the potential market for the technology is huge.
How to think about Ripple
o You can think of Ripple as more of a payment processor than an actual cryptocurrency. It's function is to serve at a tool to mediate international settlements between banks. (A function is serves quite well)
o Ripple is a document, smart contract repository than can instantly access and disseminate information through the Ripple blockchain without ever sharing the information. After sorting through the information, a transaction in which Ripple is used as a settlement option between two banks, customers from either bank can send money to one another within seconds and without losing any money in exchanging the currency for another foreign currency.
· Ripple is not your typical cryptocurrency, it serves a vital function in today’s economy in which international bank settlements are an arduous and expensive process.
· Ripple set out to solve the issues of payment infrastructure in banking – a system which has been in place since before the internet existed (with shockingly few updates since).
Background
The concept behind Ripple was brilliant but could not gain traction before the cryptocurrency markets became more viable. Banks are typically risk averse, especially when it comes to using new products. Ripple and cryptocurrency as a whole was not appealing to mainstream institutions until 2017. The infrastructure to support Ripple was simply not there prior to the institutional investment that flooded the crypto markets in 2017. Without enough banks accepting Ripple as an end-to-end solution, it served no purpose except as a tool for speculation. However, because there are enough banks using the network now, it is becoming an increasingly useful tool for settling international transactions.
How it works
"Banks, payment providers and digital asset exchanges process and provide liquidity for payments on RippleNet, creating new, competitive cross-border payments services for their customers." - Ripple website.
Ripple has three key features: xCurrent, xRapid, and xVia.
xCurrent
xCurrent is an end-to-end solution that simplifies the process of payment routing. Two banks use a correspondent bank to route payments, xCurrent enables the process to be much faster, safer, and easier.
o xCurrent employs “Messenger” which coordinates information exchange between the banks. Then the “ILP Ledger” coordinates fund movement between istitutions to settle the payment.
o xCurrent then uses existing messaging formats and sends them through a translation layer.
· The translation layer parses the message and collects necessary information to initiate the payment.
· Messenger communicates with correspondent and beneficiary bank to obtain their payment processing fees and total costs.
· Next it goes through pre-transaction validation – i.e. compliance screening and account verification checks.
o Since all banks have necessary facts, they have all the facts to prevalidate the payment to ensure high strength processing rate.
· Then they coordinate funds flow across the ILP ledgers.
o When the settlement process begins on Ripple all three banks involved hold the funds.
o ILP Ledgers cryptographically ensure all funds are committed to the transaction.
The key function of xCurrent: Ensuring no settlement risk – the transaction either executes or doesn't.
Benefits of xCurrent
· Greatly speeds up payment processing (takes only seconds instead of days)
· Transparency which offers clear end-to-end visibility.
· Increases processing completion rates (some transactions, about 4% on average, do not complete using previous processing systems)
· It also lowers operational costs significantly.
xRapid
xRapid provides low-cost liquidity. Normally in order to create liquidity between banks on international settlements is quite costly. xRapid makes the transaction very fast and therefore cuts out the excessive liquidity costs.
o The key functionality for xRapid is to serve as a liquidity provider in emerging markets. Payments into emerging markets often require pre-funded local currency accounts around the world, which greatly increases liquidity costs. xRapid dramatically lowers the capital requirements for liquidity by providing the digital asset, XRP, to offer on-demand liquidity. This lowers costs and enables instant payments in emerging markets.
o It is designed for enterprise use – XRP offers banks and payment providers an efficient, scalable, and reliable liquidity option for cross-border payments.
xVia
xVia is a standard payments interface tool.
o xVia is designed for corpoartions, payment providers and banks who want to send payments across networks using standard interface. It is basically a resource that provides simple API without requiring any software installations. It enables users to send payments globally with full transparency.
· Payment Tracking: Offers tracking and delivery confirmation for payments.
· Capital Efficiency: Frees up capital sitting idle in foreign currency transaction accounts.
· Data Transfer: Improves reconciliation process by providing invoices attached to payments.
Takeaway
Ripple is an innovative platform that has grown substantially already, but it still has a lot of room to grow. Banks that use RippleNet have shown great satisfaction with their services. Further adoption and more partnerships could bring Ripple even higher. However, Ripple is not a typical cryptocurrency - it is not decentralized. This is a centralized project, it is important to keep that in mind because that means a lot of the principals that apply to regular crypto investing do not (or at least should not) apply to Ripple.