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Will Ripple Make a Superior Payment System?

Will Ripple Make a Superior Payment System?

Ripple is already making waves in the banking world and may be poised to become the #1 option for cross-border settlements between banks worldwide.

Ripple is described as giving cross-border payments a protocol as universal as Http does for the web. The current default system for communicating cross-border payments, SWIFT, has been around since the 1970s, but transactions can take nearly a week to settle. This is because SWIFT only provides secure messaging services for the requests from different institutions, but each transaction still requires several intermediaries who each might take a day to negotiate or complete their part in the deal. Ripple offers a revolutionary way to complete transactions in a matter of seconds, by directly linking banks around the world and cutting out the middlemen wherever possible.

Ripple is fast, secure, and transparent, minimizing counter-party risks and potential double-spending problems. Ripple can serve as its own decentralized currency exchange using its blockchain technology. The protocol interfaces with the ledgers and accounts at different banks and updates them all simultaneously. If there are more than two nodes involved, the system will only use nodes that the interested parties trust, when trust is required and will use the market makers with the smallest spread when necessary. Ripple has gone from being a new version of Western Union to potentially becoming the most important payment system in the world.

If Ripple continues to establish itself as the default inter-bank payment system, some speculate that the market cap of XRP, Ripple’s token currency, could reach the trillions in the next few years. The question that has many in the cryptocurrency community scratching his head is how is everyone supposed to trust a central authority for this coin, who only recently agreed to lock up several billion of their coin to assuage fears that the company could dump $55 billion worth of coins into the market (even though it is unclear why they would want to do such a thing): they are using their new Escrow feature to lock up $55 billion worth of XRP and are releasing $1 billion per month for 55 months. So that takes care of that problem, but for certain transactions, a real-world trust may be required of certain institutions which constitute legs in the international transaction, but clients will specify which entities they trust. So this is not entirely like the non-profit decentralized cryptocurrencies that we are used to, but that is part of what makes them competitive in this space.

Keywords: SWIFT, XRP, cross-border payments,