Ripple is a payments company that helps banks and financial institutions send cross-boarder transactions using their technology: xCurrent, xRapid, xVia, and the interledger protocol. XRP allows for financial institutions to source liquidity on demand removing the necessity for pre-funded nostro accounts.

What is XRP


xrp logoXRP is a decentralized cryptocurrency created by the company Ripple. XRP is used to source liquidity on demand for banks and financial institutions needing to send cross-border payments. For example, lets say a bank in the United States needs to move a large amount of money to the Philippines. Using traditional systems such as SWIFT this could take anywhere from 5-7 days, not to mention the high fees associated with this transaction.

With XRP, this same transaction is ~4 seconds1 because XRP serves as a bridge between the two currencies. In this example, USD is converted to XRP then to Philippine Peso.

Being utilized as a bridge currency isn’t the only use case XRP has. Recently, Ripple announced Coduis, a peer-to-peer hosting platform for smart contracts making XRP a viable competitor to Ethereum.

XRP’s Utility


XRP’s utility lies in its scale-ability and extremely fast transaction times. Sending XRP to someone takes ~4 seconds which makes it among one of the fastest cryptocurrencies to date.

ripple 4 second transaction

The XRP ecosystem can scale to great lengths. Currently, Ripple claims XRP can handle up to 1,500 transactions per second with the ability to scale to levels equivalent of VISA1.

ripple 1,5000 tps

Ripple’s Products & Innovations


Ripple offers a range of different payment products for financial institutions. Some of them use XRP, others do not. Below is a list of the Ripple product suite:

Interledger Protocol

The interledger protocol (ILP) is not a product but rather, a protocol for how payments are communicated between networks. Invented by Ripple and developed by W3C (World Wide Web Consortium), ILP is the future of how money will be transmitted across networks and a major backbone of Ripple’s product suite.

Current payment networks are siloed and do not allow for interoperability.

siloed payment networks

The same can be said for major blockchains. The bitcoin blockchain cannot talk to the ethereum blockchain which cannot talk to the litecoin blockchain (or any blockchain in this regard).

What is needed is interoperability between these siloed networks and the ILP provides the protocol to do so.

interoperability between networks

This allows for a global transfer of value and a means to produce Ripple’s vision of an internet of value.

xCurrent

xCurrent is one of Ripple’s enterprise payment solutions. It uses the ILP to send cross-border payments with added on benefits of bi-directional messaging and end-to-end tracking. Note that xCurrent does not source liquidity through XRP.

xRapid

xRapid is an enterprise liquidity solution for financial institutions who need to source liquidity on demand. This is done using XRP.

What is Liquidity?

Liquidity is the ability to easily convert an asset to cash. In the case of cross-border transactions, liquidity is needed in order for one currency to be quickly converted to another.

What is a Nostro Account?

Financial institutions that needs to make payments to a foreign country frequently have what is called a nostro account. A nostro account is a pre-funded bank account in a foreign country that holds that countries currency so when they have to make a payment to said country, they can withdraw from their nostro account instead of having to go through the arduous process of fiat conversion.

The issue is nostro accounts are very inefficient for the following reasons: (1) You have a large amount of money that could otherwise be used to grow the business sitting stagnant. (2) Cross-border transactions in this manner are timely and expensive.

According to the 2016 Mckinsey Global Payments report:

“The average cost for a bank to execute a cross-border payment via legacy correspondent banking agreements remains in the range of $25 to $35, more than 10 times more than for an average domestic ACH payment.”

Ripple solves this issue via their products xCurrent and xRapid. xCurrent issues and manages the transaction while xRapid sources the liquidity needed for the transaction to settle in 4 seconds.

So this begs the question: How much does it cost to transfer money using XRP?

Recently, in an interview with TechCrunch and Brad Garlinghouse, Michael Arrington disclosed that his hedge fund Arrington XRP Capital moved $50 million in 3 seconds for their first close. The cost was ~30 cents10.

xVia

xVia is Ripple’s third product allowing corporations and payment providers to send payments across networks with a standard interface with API access. xVia also provides the ability to attach invoices and other payment information.

Ripple The Company


Ripple vs XRP

Understand that there is a distinct difference between Ripple the company and XRP. Ripple is the company, XRP is the cryptocurrency. If Ripple the company were to disappear for whatever reason, XRP would still exist as its existence isn’t tied to Ripple. You cannot buy Ripple as it is privately owned. You can however, purchase XRP the cryptocurrency which is what people are actually referring to when they speak of buying Ripple.

Ripple is the primary driving force behind the utility of XRP which is why some argue that XRP should be considered a security of Ripple. Many argue that XRP should NOT be classified as a security but rather a utility token because subjugating it to securities law would stifle its utility.

Leadership

Ripple is based out of San Francisco with over 300+ employees. They have offices all around the world including: Singapore, Luxembourg, and India. Here is some of the key employees that play a major roll within the company.

Brad Garlinghouse

CEO of Ripple

Chris Larsen

Executive chairman of Ripple’s board of directors

David Schwartz

Chief technology officer at Ripple and former chief cryptographer.

Ben Lawsky

Board member dealing with law and financial regulation.

For a full list of leadership see: Ripple Leadership & Board of Directors

Ripple’s Clients & Partnerships


Ripple is working with over 150 different financial institutions around the globe gaining major traction within the space signing on average, two production customers a week.

Below is three significant partners of Ripple.

SBI Holdings

SBI Holdings and Ripple have teamed up to form SBI Ripple Asia which is aimed at, “providing a next-generation payment platform powered by DLT (Distributed Ledger Technology) to financial institutions and remittance transfer providers in Asia17“.

American Express

American Express is a multinational financial services corporation and major bank. Their partnership with Ripple means their foreign exchange payments could potentially be routed through Ripple’s technology.

Santander Bank

Santander is a national bank with over 650 offices around the globe. Recently, Santander launched One Pay FX which is the first blockchain-based mobile banking app that allows customers to make same-day international payments. This of course, is using Ripple’s technology xCurrent. One Pay FX is currently available to customers in Spain, UK, Brazil and Poland with the intention of rolling to other countries in the future.

blockchain-based mobile app one pay fx

XRP Compared to Bitcoin


The main difference between bitcoin and XRP is how coins are mined. The bitcoin token is mined. The XRP token is pre-mined. Bitcoin has a max supply of 21 million. In order for new bitcoins to be introduced into the ecosystem, computers must participate in a process called bitcoin mining. Every time a computer successfully mines a block, it is rewarded bitcoin in the form of a block reward and mining fees. The block reward is how new bitcoins are introduced into the economy. After 21 million bitcoins are created the block reward will cease to exist and bitcoin miners will be compensated only through mining fees. This is expected to happen around May of 2140.

On the other hand, XRP has a max supply of 100,000,000,000, it is a pre-mined which means all of it was created at its inception. Ripple holds 55% of XRP’s supply in escrow. Every month one billion XRP is released into the market for sale, whatever is not sold goes back into escrow. This is done to ensure that Ripple cannot crash the price of XRP by flooding the market as they do not directly hold the majority supply.

Final Thoughts, Conclusions


XRP is definitely one of my favorite cryptocurrencies. They have a solid team, foundation, and clear vision for the future. They have real partners, and a legitimate list of clients that’s growing every week. I have no doubt they will be able to deliver on the goals they set out to achieve as a company, but maybe I’m delusion? I could be entirely wrong, which is why you shouldn’t take my word for it, do your own research and come to your own conclusions just as I have.

As always, thanks for reading!

Sources


  1. XRP overview
  2. Codius
  3. Ripple product suite
  4. Interledger Protocol
  5. Internet of Value
  6. xCurrent
  7. xRapid
  8. 2016 Mckinsey Global Payments report
  9. Arrington XRP Capital
  10. 30 cents to move $50 million in 3 seconds
  11. xVia
  12. List of Ripple employees
  13. Ripple leadership
  14. Ripple board of directors
  15. List of Ripple clients
  16. Ripple signing on average two clients a week
  17. SBI Ripple Asia
  18. One Pay FX
  19. When all bitcoins will be mined (2140)
  20. 55% of all XRP held in Escrow