So many of you are probably aware of Wall Street’s favorite cryptocurrency…Ripple (XRP). Here we briefly go over some vital differences between Ripple and the other, more prevalent digital currencies BTC (bitcoin) and ETH (ether).
So why do the banks love XRP so much?
1) Ripple is CENTRALIZED
Ripple Consensus Ledger (RCL) is a centralized “record book” that keep tabs on Trustlines and IOUs (and more). Here’s some important tidbits about Ripple Labs’ currency XRP:
- XRP is Ripple Consensus Ledger’s (RCL) native token
- Has a finite quantity of 100 billion; no more XRPs will ever be created again. The number of XRPs will decrease over time as it is consumed for every single transaction that is made
- 80% of the XRP supply has been kept away from public, locked up i Escrow
- Ripple is a system made for the banks based on a trustline consensus. A trustline is simply the amount in which you are willing to trust another party for. E.g. The amount in your bank account can be seen as IOU tokens, and what you have is basically a “trustline” of at least that amount extended to the bank. If you only dare trust your bank for a maximum of 10,000 USD. Then your trustline can be said to be 10,000 USD extended to your bank. And you would never hold more than that in your account.
- Ripple has been likened to an alternative to SWIFT, the Society for Worldwide Interbank Financial Telecommunication
2) Using XRP for International Bank Transfers in lieu of wiring will save Banks BILLIONS of dollars per year
As the Ripple team reports, “Instead of holding local currency in nostro accounts around the world, banks (or third-party market makers on their behalf) can consolidate their liquidity for global payments into one XRP account, held on their own balance sheets. This singular XRP pool then allows respondent banks to allocate less total liquidity to service the same volume of international payments in three ways:
They only have to hold domestic currency and maintain one account with XRP versus many, expensive nostro accounts around the world.
They only need enough XRP on hand to service their largest expected payment obligations, freeing previously trapped liquidity idling in nostro accounts around the world. XRP allows banks to access liquidity on demand.
By making markets directly between their domestic currencies and XRP, banks minimize the number of intermediaries involved and their markup on spreads.
As a result, respondent banks that use Ripple with XRP as a bridge currency can save up to 42 percent on costs today and up to 60 percent as XRP gains usage and volatility decreases. To accelerate market thickness and reduce volatility for XRP, Ripple will soon introduce an XRP incentive program to algorithmically rebate market makers who provide liquidity through XRP.”
3) Ripple’s Market Cap is FALSE
Because Ripple is withholding a large percentage of its XRP token, limited supply is inauthentic — it is completely fabricated. This naturally “increases” demand, which increases the cost — inflating the market cap.
What are your thoughts on Ripple? Let me know!
Robert Greenfield is a Certified Bitcoin Professional, Cisco Software Engineer, and Blockchain specialist with work experience @Goldman Sachs, American Express, and Teach For America. Follow him on Twitter @RobTG4