What Is Ripple?
Ripple is the fastest and most scalable digital asset, enabling real-time global payments anywhere in the world. Ripple is a cryptocurrency that allows banks and other institutions to send payments on a global scale without the usual friction of exchange rates, red tape, etc.
The Ripple cryptocurrency has a global network that’s growing by leaps and bounds every single day. It works through the technology of blockchain. Ripple aims to modernize the global payment infrastructure.
When financial institutions become a part of this burgeoning network, they stand to ease up their payment processes.
In short, such institutions, of which banks are the most common example, can then have their customers’ payments processed just about anywhere around the globe. If the area supports Ripple as well, the processes would be much more reliable, cost-effective, and quick.
Any payment provider or banking institution can utilize Ripple (symbolized by XRP) for cost reduction and access to new markets. The Ripple offices are currently located in Luxembourg, Sydney, London, San Francisco, and New York. It’s used in around 27 countries as of now and is used by more than 75 institutions to date.
What Is the Problem That Ripple Solves?
Ripple mostly solves the main problems which usually cause friction in banking processes. These problems usually arise from the inefficient state of banking payments, especially with regards to bank infrastructure. We’ll be taking a look at the issues banking institutions face and how Ripple can handle them when applied correctly.
The state of banking payments right now is highly inefficient. It may have served the needs of transactions, both corporate and retail, in the past, but these needs have now seen great changes and have evolved to have a number of new requirements, which necessitate the use of more evolved infrastructure.
Transaction banking is quite complex, and attending to it is one of the main priorities and functions of any banking institution. Transaction banking customers now need to send high-value payments along with sending and receiving low-value payments on an international basis. They also need to send these payments in real time or as close an alternative as possible.
These payments should ideally be sent not just across the networks of banking institutions but also on the latest kinds of financial networks. These could be a mobile app, a digital wallet, or a digital payment service such as PayPal.
Unfortunately, the banking infrastructure of the past is quite limited and force financial institutions to operate through a batch infrastructure. This means that the processing costs are quite high, the settlement times become very lengthy, and the customer experience plummets downward.
All of this results in a highly inefficient system that can cost every participant quite a lot, both financially and emotionally. It’s estimated that the total cost for everyone involved could go up to around $1.6 trillion every single year. Along with incurring these costs, the current system doesn’t meet the requirements or needs of the modern banking customer.
This is where Ripple comes in with its blockchain solution for global payments.
How Does Ripple Solve the Problem?
The Ripple cryptocurrency is making waves in the world of online transactions mainly because it presents a solution to the problem outlined above. Ripple basically provides a way for banking institutions to give their transaction banking customers an efficient infrastructure for payment purposes. When used properly and efficiently, Ripple could manage to give customers the on-demand payment service they require for global and online transactions.
The software that Ripple runs on achieves this solution by connecting the siloed banking networks with a protocol that is both open and neutral. This is known as the Interledger Protocol or ILP. With this connection, a fresh aspect is brought to financial settlements that promotes efficiency and trust.
This efficiency is brought about by the enabling of real-time settlements. With such an assurance, settlement risks are significantly reduced and transaction certainty becomes the norm.
With the same Ripple software, there’s also a real-time messaging feature that is provided to all the parties involved in any kind of transaction. This messaging is data-rich and delivers a payment experience for users that is convenient and highly coveted.
What Makes Ripple Better Than Its Competitors?
Ripple is far from being the only player in the cryptocurrency market. It has a lot of competitors, of which Bitcoin is probably one of the strongest.
However, there are several benefits involved in using Ripple and its range of software. Looking at these benefits in detail would help you realize what kind of a competitive advantage Ripple offers over other kinds of cryptocurrencies.
First off, Ripple seeks to enhance the process of customer acquisition as well as retention. It does so by assisting in the delivery of new and in-demand products and services to customers all around the globe. These could be customers in the corporate sense or the retail sense.
Ripple does this by making on-demand, traceable, rapid, and cost-efficient global payments possible. Whether the channels are assisted or not, Ripple can work toward making them a more integrated and useful part of the global market.
With the ease of such transactions, Ripple is giving vendors all over the world a chance to retain and re-engage their existing customers as well as attract new ones. Plus, the payment experience provided by xCurrent (one of the tools provided by Ripple) is free of friction, meaning that non-bank payment providers and online payment providers are less likely to face disintermediation.
With such solutions on the table, Ripple has quite an edge over its competitors and has several advantages to offer its customers.
Another solution that Ripple provides is efficiency of information exchange. This could be information about rates, senders, fees, payment statuses, receivers, and delivery estimates.
When banks have access to the bidirectional messaging provided by xCurrent, they can stand to control their costs of operation. Since the costs of international payment processing are quite high, lowering them could mean a lot of saving to any banking institution as well as the customer.
These costs are significantly reduced due to the ability of xCurrent to lower or do away with SWIFT fees and increase STP rates at the same time. It also manages to decrease the cost of treasury operations by lowering liquidity costs, compliance costs, counterparty risks, and in-flight requirement for capital.
Another cost reduced is that of reconciliation since xCurrent provides real-time monitoring of liquidity and the option of immediate confirmation.
How Can Ripple Be Categorized?
Ripple can be categorized in two ways. One category is that of network members, while the other is that of network users. Looking at each category separately would help determine its roles and definitions.
Network Members or RippleNet Enablers
These network members are mostly banking institutions looking for solutions to payment processes for their customers. Some banks may also provide liquidity for other institutions and process payments for them as well. Such institutions can make use of RippleNet to improve their existing services as well as enhance their drive acquisition.
These are also payment providers that want to expand the payout reach for banks as well as supply liquidity to them. This would enhance their payment volumes.
Network Users or RippleNet Originators
The network users of RippleNet are usually platform businesses seeking a solution for sending high-volume, low-value disbursements to their global customers. The latter would include merchants, suppliers, employees, etc.
Another example of such users is the treasury departments in corporations that want to send out large disbursements along their global supply network. This would help them enhance their visibility, control over payments, and capital efficiency.
RippleNet also caters to payment providers and banks that are just looking for payment transactions, not for processing purposes. Ripple helps such institutions rescue their previously high costs and make their correspondent baking more efficient.
The final category of RippleNet network users are those consumers who want to send out global payments through a payment provider or their own bank. This would provide them with a real-time, cost-effective, and traceable manner of conducting such payments.
What Is Ripple’s Vision for Security?
The Ripple network is very much concerned with privacy and security for its customers and the transactions they need to make. To this end, the people behind this cryptocurrency have implemented certain procedures that would help enhance the security system of Ripple transactions and payment processes.
Payment Data Separation
The payment system provided by xCurrent offers a separate and secure layer between the data required for payment and settlement data needed for ILP transactions. The validator would also only have access to cryptographic cases that it can utilize to verify condition fulfillment in a mathematical manner.
These two concepts would mean that data is bounced around banks less than before. The payment data would be encrypted if shared and is guaranteed to only be shared between institutions when absolutely necessary for transactions. Hence, the data will usually only be read by those it is meant for.
Certain kinds of payment data are maintained and updated within internal databases that only their respective banks can access. This data includes:
- Identifiers for beneficiaries and originators
- PII/CIP information that’s required for both originators and beneficiaries
- Invoice numbers or any other payment information that’s required
- Any other required metadata
Secure Communication
The internal systems of banking institutions use secure HTTP connections to communicate with the xCurrent software. They also utilize OAuth 2.0 in other to maintain authentication.
xCurrent also has ILP components that use HTTPS for securing the communications between themselves and Messenger. They use CA certificates to assure each other of their authentication. The use of HTTPS is prevalent in the following aspects:
- Communication before transactions between Messenger instances within corresponding partner institutions
- Any kind of communication between FX Connector, ILP Ledger, or Messenger
Examples of Ripple’s Use Cases/Applications
Messenger
This is a messaging module based on the API system. It ensures that RippleNet banks would have bidirectional communication. It would also connect to exchange risk information, KYC, FX rates, and applicable fees along with the expected delivery of funds and any other payment details required. This information is packaged and presented with the cost structure to the originator bank.
This gives a previously impossible level of visibility to the transaction cost. Any incorrect or missing information would be communicated before the transaction is initiated, increasing STP (straight-through processing rates). Once transaction approval goes through, Messenger would use ILP to settle any funds and notify all parties involved in the transaction.
Validator
This confirms whether the payment was a success or a failure. It would coordinate fund movement along the relevant ledgers to do away with settlement risk and avoid delays.
FX Ticker
This is an xCurrent component that makes the exchanges among ledgers easier by facilitating the FX rate provision by liquidity providers. This means that the exchange rate is configured between the ledgers and the authentication credentials, currencies, and accounts are tracked for every ILP ledger.
The ticker also coordinates IPL ledger transfers for settlements, transfers the payment to the beneficiary’s ledger, and ensures that the FX quotes are valid.
ILP Ledger
This is a subledger that compiles the general ledgers of transacting banks. It’s used to track credits, liquidity, and debits for all transacting parties. This allows such parties to settle their funds atomically, meaning that the transaction would either settle instantly or be rejected instantly.
Fund settlements of millions can, hence, be settled in a manner of milliseconds. Low-value offerings can also be enabled in real time.
Furthermore, settlement risk becomes a thing of the past when all the payment processes are conducted instantly. The transacting banks would have on-demand, round-the-clock availability in this manner. They would, hence, be able to offer on-demand, low-value payments for goods and services.