Ripples in the banking industry.
It is no news that the banking industry has been in a state of change over the last decade driven by crypto and blockchain startups. Although the changes in banking are slow, their lack of pace should not be mistaken with a lack of innovation. Instead of waiting to be disrupted, financial institutions are jumping the crypto train in the hopes of a more profitable future. One of the drivers of that train is a company called Ripple.
Ripple’s technology makes interbank transactions fast (4-seconds fast) and low-cost (est 60% lower).
In this series, focused on cryptocurrency, I want to shed light on the Ripple’s technology stack and how it is helping to solve problems in the banking vertical without disrupting [latin disruptus: to break] the industry.
While the focus will be on the cryptocurrency XRP, we will also look under the hood to discover the underlying protocols and other parts that make up the Ripple ecosystem. Topics like RippleNet, xCurrent, ILP, Xpring, xRapid/ODL, and of course XRP itself will be covered.
Starting off, we will cover Ripple and its technologies on a high level. Going forward, we will go more into detail about the tech behind Ripple’s XRP as well as write code using the RippleAPI and Xpring SDK. We will also break down how and why to invest in XRP safely.
This will be a technical series meant for people who are curious, interested in learning programming in the crypto space or for those wanting to understand details about the technology when investing in XRP.
Who is Ripple?
Founded in 2012, Ripple’s vision is to realize the Internet of Value. IoV means to use the Internet for monetary transactions the same way as it is used today to exchange information- quickly. The main reason this technology is being developed is that the current international payment systems (e.g SWIFT) are slow and expensive. more about IoV here.
It is slow because there is no direct connectivity between transacting parties so factors such as tractability and timing are a black box to the participating banks, businesses, and consumers. There is also the lack of standards between different networks that need to be connected for a single global payment to work.
It is expensive because of the above reasons but the key burden comes from the need for pre-funded accounts. Simply put, banks need to hold a lot of cash in different currencies to be able to support transactions between currencies.
Ripple is changing that and offers technology that makes interbank transactions fast (4-seconds fast) and low-cost (est 60% lower).
Instead of sending fiat currencies, banks will exchange XRP, the Ripple’s crypto, without the user ever knowing what happened.
An example is MoneyGram. They use XRP for US/Mexico remittance payments. This requires smaller pre-funded accounts while being exposed to 1/10th the volatility of a typical fiat SWIFT payment.
It all happens in the background, so for the person sending money to Mexico, the only noticeable difference is the lower time and cost of the payment.
Ripple is a company building enterprise distributed financial technology meant to be used by financial institutions and banks to enable instant transactions.
Who will benefit? This technology will lower the cost of international payments for businesses. The current high price of payments is being carried by the end-users so the cost-saving of the company will also be passed down to end users making cross-border payments fast and cheap.
If you put these financial institutions on a single network and have them transact using the Ripple’s technology, you have what is called a RippleNet.
What is RippleNet?
RippleNet is a single connected global payments network.
Rather than a constellation of disparate technologies, unstandardized
communications and centralized networks, RippleNet is a single, global
network of banks that send and receive payments via Ripple’s distributed
financial technology — providing real-time messaging, clearing and
settlement of transactions. — Ripple’s Whitepaper
RippleNet is a decentralized network based on a consistent set of payment rules and standards. All the participants, including Ripple itself, utilize the same technology and agree to follow these rules.
The participants on the RippleNet are banks (looking to process payments), Payment providers (looking to supply liquidity), Businesses (looking to send disbursements) and Consumers (looking to send global payments).
The actual mechanism that carries out these real-time transactions is called xCurrent.
What is xCurrent?
xCurrent is the standardized technology through which all the players on RippleNet are connected.
It is Ripple’s real-time gross settlement system (RTGS), software that provides API-based messaging and transaction settlement based on an open and neutral protocol called ILP.
xCurrent is installed within the bank’s infrastructure and is built to interface with the bank’s systems using an API interface or through a translation layer that can consume traditional payment message formats.
It is similar to X-Road data layer which is the digital backbone for the country of e-Estonia. You can read more about X-Road here.
Coming Up Next
In the next episode, we will see look under the hood of the xCurrent product and the underlying ILP protocol.
If you enjoyed reading this and would like to see more, leave clap or XRP, or both :)
