When you hear talk of Ripple, you’re more than likely hearing about the cryptocurrency (designated as XRP on exchanges). But the entity behind XRP is Ripple–a company that has been around since 2004 (longer than Bitcoin!) and has quietly and steadily made in-roads where few dare to tread.
Ripple has developed three primary innovations, which they hope will make international currency transactions as smooth as triple cream Icelandic yogurt. Here’s how it all works.
XCurrent is Ripple’s Interledger Protocol-based payment & messaging solution. Basically, it can connect any ledger to any other ledger that supports the Interledger Protocol, which was developed as an international payment standard.
is Ripple’s liquidity solution for XCurrent, using their custom cryptocurrency, XRP
. According to Ripple’s blog
, “XRP offers banks and payment providers a highly efficient, scalable, reliable liquidity option to service cross-border payments.”
Finally, XVia is a corporate payments API.
Of the three, XRapid is the only one that requires the use of XRP. Because XRP is the native currency of the XRapid network, using it for currency transactions can save time and money, since you can conduct international cross-border value transfers in near real-time. This means no more waiting multiple days for SWIFT payments.
The reduction in cost in transaction fees is also a significant benefit. For individuals, this may not seem like too much of a big deal, but for corporate entities, especially any that rely on international payments transfers, this is huge.
But why would any institution use XRP to grease the rails when they could simply develop their own currency or use an existing one?
It appears that Ripple’s strategy is a one-two punch. Ripple is already well on their way to convincing a significant number of partners
to transact using their Interledger Protocol. It would naturally follow that companies would be encouraged to use XRP, which is already well-integrated and seamless, rather than expending time and resources to develop their own liquidity solution, similar to being upsold on a product that works on its own but greatly benefits from auxiliary integrations.
This is the speculative part, and what seems to be driving the current price jump. Investors in XRP are betting that partners will readily adopt the native currency once they see how cool the XCurrent network is.
What makes XCurrent so interesting?
XRP Ledger can handle 1,500 Transactions Per Second (TPS), which far outstrips Bitcoin in terms of speed. There is also an underlying “payment channels” in which a transaction is summarized and transmitted to the network–but the originator of the transaction can process as many transactions as it would like before that summation occurs–a process known as “off-ledger.”
Tests of payment channels resulted in over 70,000 Transactions Per Second, and this can be scaled with computing power. Payment channels operates on a flat-fee basis, which means for vendors processing millions of payments, this solution presents tantalizing savings possibilities.
One thing Ripple seems especially poised to capitalize on is affordable micropayments. Right now the minimum transaction fee using XRP is 10 millionths of one XRP. I’m not aware of any system that can operate as cheaply or efficiently as XCurrent.