What is Ripple?

0

Why they hype behind this coin is growing

The International Payment Problem

In the original Bitcoin whitepaper, Satashi Nakamoto wrote

A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.

While Bitcoin and many other cryptocurrencies have taken this direction, making it easier for people to send money to each other without intermediaries, the company called Ripple has been using the technology of the blockchain to go in the completely opposite direction – making it easier to move funds between financial institutions.

How Banks Currently Move Funds

To understand this use case, it helps to understand how banks move funds when a customer wants to send a money to another country. Before a bank can transfer funds to another country, it first has to establish an account with a bank in the destination country denominated in the local currency.

Nostro Accounts and the XRP Solution

Called a “Nostro” account, this account makes it easier to settle international payments. You can imagine how difficult this would be for most small-to-mid-sized banks – having to create a Nostro account in every possible country your customers may want to send money to. Instead, most banks of this size rely on correspondent banks to fuel their liquidity overseas. Each step in the process introduces delays and increased fees.

What is Ripple?

A bank transfer from the Ripple Cost Model Paper

The system grew during the 20th century as the need for an international banking system arose – and it has all the bumps and fees you can expect from a system developed long before the internet came around. Because of the high fees and delays, there’s not a lot of banks that compete for the cross-border payments or remittance business.

The Ripple Network

The Ripple Network aims to disrupt this dated, decentralized system with a streamlined, centralized model – with Ripple at the center. Instead of holding many nostro accounts and needing to maintain liquidity in many different currencies, a bank on the Ripple Network can maintain one account, with Ripple itself, and hold just enough XRP (the currency of the Ripple Network) to cover it’s largest expected transfer.

What is Ripple?

The bank then needs to maintain a much smaller liquidity pool, free up those funds for other, more profitable uses. In addition, XRP transactions are typically settled in 4 seconds, as opposed to the 3 days needed previously. Ripple claims that banks can save up to 30% in fees by using their network over the traditional system.

Growing Hype

Earlier this year Ripple announced that they’ve added more than 100 partners to their distributed network. They recently announced several new partners, including banks in Japan and South Korea, and that they have partnered up with American Express to work on a cross-border payment solution. Additionally, Ripple recently cryptographically locked up 55 billion XRP, proving the company’s intention to use its stockpile of XRP in a judicious manner. Some had been concerned that the company could sell that XRP to raise money quickly, potentially shocking the price of XRP on exchanges.

How to Buy Ripple

Unfortunately, Ripple isn’t as easy to purchase as Bitcoin. You can’t buy Ripple with a credit card, so you’ll have to use one of the cryptocurrency exchanges to buy Ripple using Bitcoin.

We recommend  Binance to buy Ripple

 

Disclaimer: this is not investment advice and should not be interpreted as such. All views are that of XBT.net and its authors. Always conduct thorough research or consult a professional before making any kind of cryptocurrency purchase or investment. Cryptocurrencies are highly volatile assets and may not be suitable for all users.

Leave A Reply

Your email address will not be published.