Satoshi Nakamoto has reshaped the way we view currency and will be credited for the inception of the cryptocurrency revolution. However, his idea of Bitcoin as a ‘peer-to-peer electronic cash system’ is looking less realistic as the cryptocurrency market matures. This can be put down to the lack of technological adaption of Bitcoins technology, but many would say that the rise of other, more capable cryptocurrencies have highlighted Bitcoins archaic mechanics. As Bitcoin has grown in popularity, it has become slow and more expensive to send. As of today, an average Bitcoin transaction costs roughly $30 and can take anywhere from 30 mins to 24 hours, depending on the network congestion. Hopes of Bitcoins resurgence are burdened on the lightning work development, although this doesn’t seem as if it will enable Bitcoin to be touted as the most technologically advanced cryptocurrency in the market. When I speak about ‘technologically advanced’ I am simply speaking in terms of scalability, speed and transaction fees seen as we are trying to determine the number one cryptocurrency for use as a ‘payment exchange’.
Bitcoins lack of scalability and high fees have hampered its ability to rival the likes of Visa. Bitcoin is increasingly looking like a popular choice as a store of value/asset rather than a preferred payment method. This is reflected in recent decisions by Steem and Stripe to drop Bitcoin as a payment method, citing ‘high fees’ as the main reason. Stripes product manager even came out and said: “Bitcoin has evolved to become better-suited to being an asset than being a means of exchange”. As Bitcoin struggles to fulfill its potential there is another cryptocurrency making the headlines for all the right reasons.
What is Ripple?
Ripple is the company that created the XRP token. Ripple refers to itself as the ‘fastest and most scalable digital asset, enabling real-time global payments and anywhere in the world’. Ripples software enables cross-border payments (from fiat to fiat / £ > $) to be made in 3-5 seconds, as opposed to 2-4 days through traditional banking methods. More importantly, Ripple will process these transactions for a fraction of a cent, this is significantly lower than the current bank rates. Its important to not confuse the use of the Ripple software with the use of the XRP token. Below I elaborate a bit on this.
Step 1 – xCurrent
Big names such as Santander, Axis Bank, American Express, BBVA and many others have joined ‘RippleNet’ to utilize the services Ripple has to offer. Ripple has reeled in these institutions with the promise of saving them money and time. This is done through the xCurrent system. xCurrent allows banks to interact with any other bank ledger that supports ILP (Interledger protocol). This allows banks such as Santander to use the xCurrent system to process cross-border payments without needing to commit to the XRP token. Santander can process fiat to fiat currencies using Ripple’s software and they can save a ton of money and time. Ripple has been nurturing their relationships with these big banking institutions through the successful use of xCurrent. My opinion is that this is their way of easing them into xRapid.
Step 2 – xRapid
Ripple has achieved its first milestone by developing working partnerships with major banks. Their next milestone is to convince their current partners (and non-partners) to integrate the xRapid software in their payment flow. xRapid interacts with XRP to provide liquidity to banks when moving money across borders. Using xRapid means banks can source liquidity on demand in real-time without having to pre-fund nostro accounts. This is an incredibly time and money-saving proposal. To understand the value of xRapid and consequentially, XRP, we must get to grips with the concept of nostro accounts. Nostro account refers to an account that a bank holds in a foreign currency in another bank. Here’s an example that’s easy to understand:
Bank A in (England) has an account with Bank B (USA). Bank A’s account holds US dollars as it is held with Bank B which is based in the USA.
This is done to ensure no friction with currency exchange payments. This system is a system that works, but Ripple is aiming to significantly improve the efficiency of this system with xRapid. Rather than funding billions of your currency in nostro accounts abroad, Bank A can purchase XRP tokens as a ‘source of liquidity’. Bank A can convert XRP tokens to US dollars in real-time. There is no longer a time-barrier (of several hours or even days) and high transaction fees. More importantly, Bank A will not need a nostro account for every currency, so rather than having a nostro account in Europe, Africa, and America. It will have one account that holds XRP tokens that can be converted to any currency of choice. xRapid software promises to save banks more than 60%.
xRapid is making progress
In 2017, only 1 out of a 100 Ripple partners took the leap of faith and started to use the xRapid software. That company being Cuallix, a financial institution based in Mexico. Their use of the xRapid software entailed cross-border payments from the US to Mexico. However, we want to know whether Cuallix actually saved money through the use of xRapid as this will determine the future success of the XRP token. On Jan 17th 2018, Cuallix officially confirmed the time and cost saving aspect of xRapid through a tweet:
“Costs and time dropped importantly. A cross-border payment between Mexico and US takes around 2-3 hours with an estimated fee of 30 USD. Through Ripple, it takes around 3-5 second with practically no fee”.
So the software works, but the Cuallix partnership isn’t exactly groundbreaking. However, MoneyGram is. Brad Garlinghouse, CEO of Ripple, announced on the 11th of January that they have partnered up with MoneyGram to “use XRP in their payment flows”. It seems as if these new partnerships are starting to pick up the pace with rumors suggesting that the current partnership between AMEX and Ripple could be further nurtured by the adoption of the xRapid software.
Along with Cuallix, MoneyGram and the potential of AMEX starting to use XRP, a few companies in 2018 have already jumped onboard to become early adopters of xRapid and XRP. MercuryFX and IDT are two respected companies that are integrating xRapid into their payment flows, meaning that the demand for XRP is only increasing.
In 2017 we witnessed Ripple announcing partnerships regularly, but this was only great for Ripple as a company, rather than the future of XRP. We are only a month into 2018 and we are witnessing more companies adopting the xRapid system, and using XRP in their payment flows. As partners in the RippleNet become more educated in the blockchain technology space through the successful use of xCurrent, they may feel inclined to jump onto xRapid to make further savings, especially once one of the big banks makes the first move. This will lead to big banks purchasing XRP in bulk, thus stabilizing and even increasing the market price of XRP as the tokens are purchased and held in accounts.
Ripple has come under a significant amount of scrutiny for ‘leading investor astray’ with the xCurrent partnerships due to them having no bearing on the XRP token. Fickle investors in this market have been unable to comprehend the mammoth task of reinventing the ‘banking’ wheel. What Ripple or any other cryptocurrency is trying to do is incredibly difficult. In this scenario, Ripple is aiming to convince extremely successful banking institutions that their structure of conducting payments is flawed as well as inefficient. On top of this, Ripple are bringing a solution to them that is relatively new and ‘untested’ in the market. Oh, and by the way, to boost their efficiency to the limit, they must utilize the XRP tokens. This is all a working progress, and it will take time to bring on these traditional firms onto a ‘futuristic’ banking protocol. After all, you don’t know how old and inefficient something is until something better comes along. Flip phones being a notable example.
I’ve made it clear in my other blogs that my feeling about the majority of cryptocurrency projects is mostly of skepticism. 90% of the cryptocurrency market is ‘air’ and only a few are building companies that will have an incredible impact on society and the economy. Some of these cryptocurrency projects such as Stellar, IOTA and Ethereum to name a few are building extensively to disrupt their respected industries. On the other hand, the Ripple revolution is unraveling in front of our eyes. Financial institutions are making significant savings through the use of XRP and 2018 will witness goliath-like financial organizations utilizing XRP to increase efficiency in its payment flows. As the cryptocurrency market matures, it looks like XRP is becoming the first token to disrupt an industry. Where Bitcoin has been met by skepticism and precautions by banks and other financial institutions, Ripple has been able to ease itself amongst this ‘conservative’ bunch. Ripple will be met with increasing skepticism by cryptocurrency libertarians, but as Satoshi stated, “we will not find a solution to political problems in cryptography”. We should embrace Ripple’s tremendous progression in revolutionizing the financial markets, a catalyst for XRPs inevitable journey to becoming the #1 cryptocurrency.