The company Ripple and its cryptocurrency XRP are changing the way the world conduct payments and banking services. Their sights are on reshaping how money moves across borders. The company and its cryptocurrency are in a love-hate relationship with the crypto community. Let me tell you the story.
Ripple has been around the block and can be seen as a tie and shirt dressed, energetic, outspoken, and rich grandfather in the crypto community. It launched in 2012 as an alternative to Bitcoin and Litecoin and has captured the attention of the financial sector across the globe.
The standout feature of Ripple's technology is its ability to process 3,400 transactions per second, but, it usually ranges between 500-700 transactions per second. Who cares right? Well compare that to Bitcoin that has an average between 3.3 and 7 transactions per second. In short, this means that when banks use XRP to transfer money between countries they can do it much faster than by using Bitcoin or most other cryptocurrencies. It only takes 3,5 seconds to confirm transactions using the crypto currency XRP. Speed equals money. This is an enticing proposition for businesses and financial institutions seeking efficient cross-border remittances. This is perhaps the most apparent positive use case with cryptocurrency. Moving ordinary money across borders can take days. It’s also expensive. Let me tell you why.
Swift (Society for Worldwide Interbank Financial Telecommunication) is the global messaging network that facilitates secure communication between financial institutions, enabling them to conduct various financial transactions internationally. While Swift's messaging system operates swiftly, the time taken to process transactions through its network is influenced by several factors. When we send money the old school way the transaction involves multiple intermediary banks, compliance checks for anti-money laundering and other regulatory requirements, time zone differences across different countries, and banking personnel to intervention in certain cases. It’s a costly business which leads to a longer processing time. Additionally, the verification and authentication processes required for ensuring the security and accuracy of international transactions is also complex.
Do you see the business model of Ripple and XRP and its use case? They are making transaction between friends and business partners and organizations quick and secure via the use of blockchain technology.
Ripple's services are working with over 100 financial institutions worldwide. For example, Bank of America, Santander and American Express. There are reports that Ripple have partnership with over 300 financial institutions in 40 countries. So yes, blockchain technology and Ripple are changing the banking system.
Lately Ripple has been focusing more on having an eco-friendly approach to production and has initiated various environmental projects and has a lower energy consumption compared to conventional mining-based cryptocurrencies. I almost forgot, they are also going public in the USA, and they are also heavily involved with CBDCs across the world. So far, this cryptocurrency sounds promising.
But…
What does the critics say?
Ripple hasn't been without its fair share of challenges. It has struggled with a major lawsuit since 22 December 2020 and part of the industry and mainstream media grew skeptical of the future of the company. I was too. Who would believe in something that the government sues? But Ripple have recently won the case and the process has positively impacted the entire crypto community. In short the lawsuit have made in clearer what the US deems as a security or a commodity. Let me tell you! The crypto community has had difficulty in understanding the legal jargon of the US judicial system and rumors and misunderstandings have been frequent throughout the process. During the lawsuit Ripple have focused on building their business across the world and they even had plans to leave the US if they lost the lawsuit. But the fat lady has basically sung in the case.
So far Ripple and XRP seem to have a limited adoption in developing countries and they are facing stiff competition from other cryptocurrencies. But the crypto industry is mostly concerned over the centralized control of the XRP Ledger which is the heart of the blockchain. There are rumors that it only benefits the top 1% of the users. Reports claim that Ripple Labs owns about 60% of the available supply of XRP. The two founders themselves own a total of 23% of Ripple. In fact, the founders are the biggest holders of XRP. The top 10 holders of XRP control almost 75% of all XRP coins available. It's like 10 people owns a part of the future of banking…
A true cryptocurrency should be decentralized, and critics claim that XRP is an evil digital banking coin. In many ways the ownership structure is a reminder of the fact that the richest 1% of the world’s richest own 45% of all the world’s wealth. This is bad news.
The centralized nature of Ripple's control over the XRP network has sparked debates in the crypto community. However, I pose the question why everything needs to be bad because it’s controlled by a few? Is the entire world bad because the richest own the world? We need to be levelheaded. By the way, where do we draw the line when a blockchain is centralized or decentralized? Someone needs to start the d… thing and steer it right. The CEO of Ripple continues to argue that financial institutions want to remain in control to conduct business with Ripple and XRP and a centralized control is crucial for network efficiency and security. I guess they have a point if you look at banking in traditional eyes.
XRP may not be the ultimate cryptocurrency, but banks are taking a liking to it.
Furthermore, Ripple claim that they are working on an increase in XRP's decentralization over time.
What does the future hold?
Looking ahead, Ripple envisions a future where financial transactions are as simple as sending an email. They are working to open new opportunities for global trade and financial inclusion. To be precise, Ripple is trying to transform every eCommerce company into a crypto-centric entity. Brad Chase, Ripple's head of liquidity products, highlights the advantages of digital currencies in eCommerce. Basically, it means enhanced customer acquisition and retention, reduced transaction fees, and expedited and secure payments.
The business model is straight forward. With the elimination of geographical barriers and currency exchange restrictions, cryptocurrencies have emerged as an appealing option for contemporary eCommerce businesses. Crypto is cost-effectiveness, speedy, and secure. With web3 taking over our existence, eCommerce will explode, and the old fiat system is being replaced. Major online retailers like Microsoft, Home Depot, Whole Foods, and Tesla have already integrated cryptocurrencies within their online stores. Ripple has a crypto wallet called Xumm that is being integrated in ecommerce platforms and report say that it now has potential to be used at over one million online stores.
Societal change is a process, and the fourth industrial revolution is exponential in speed. Ripple have decided on creating a coin that is aligned with the traditional fiat system as much as possible. They are evolving how traditional banking is done and they are friends with the banking community. Let me tell you, generally the crypto community dislikes banks. At the same time, Ripple have fought a battle for crypto adoption that no other cryptocurrencies have. The court case has brought some needed clarity in the regulatory swamp. At least in the US. I have not heard of XRP having regulatory problems overseas but correct me if I am wrong. Sure, Ripple will likely make the founders insanely rich but Ripple and it token XRP seem to be what the banking world needs today. They need to know who is in control and who is making the money. I love and hate XRP at the same time.