Ripple; Part 1: The world’s fastest money laundering network.

New to cryptos? Into : Terms

In the crypto world, people that got in on XRP early like to brag that its value has hit the moon. Compared to other cryptos, within a year it has increased a lot more, but that ignores the fact that it hit a high near $0.50 USD, and went back down to $0.16~ on any given day (circa summer ‘17). But what no one seems to understand is that Ripple has two crypto networks, and all the adoption has been seen by the Ripple, not the XRP, network. Why? Why have many Asian banks adopted Ripple, but XRP sits around gathering dust and everyone is trying to brag about it? The reason that’s so hard to answer is because hardly anyone knows what the Ripple network is, aside from also being the name of the company that birthed XRP. Most people don’t have a clue that the Ripple network is antithetical to a cryptocurrency, but acts as a centralized blockchain trying to look like a crypto-utility. And so far no one seems to be asking, has Ripple devised the fastest money laundering network the world has ever seen?

Ripple, the company, has two networks: Ripple & XRP.

First, let’s start with how a cryptocurrency works when a bank uses it (waiting on this still). The cryptocurrency, as you may well know, is an immutable ledger. If Bank A wants to send Bank B X value in crypto form, it can skip the clearing houses because the actual asset value changes on the ledger all at once. Now Bank B has X amount of the crypto on the network for the cryptocurrency, and Bank A does not. There is no IOU, there is no need to check for double spending — Bank A cannot skip removing the balance of X from their ledger. The true value was moved and it cannot be changed or manipulated in anyway whatsoever so long as the cryptocurrency is a blockchain that is well decentralized — ideally all over the globe. Because of this process, we refer to cryptocurrencies as being “trustless” since it’s a yes or no question whether something on the blockchain was moved, with no gray area of any kind. Bank B doesn’t have to trust Bank A, because either it happened or did not; either the value moved or it did not.

Here’s an analogy that might help: If Person A hands Person B a gold coin, the value was transferred like it is with cryptocurrency. If person A hands an IOU carved in stone to Person B, which says see my banking software for our agreement, it is like Ripple.

The Ripple network, while operating as a blockchain, is not a cryptocurrency. Ripple is a settlement network that saves all the settled agreements into a blockchain. The validators on the network vote/confirm consensus on everything; from daily blockchain records to server updates. The servers process the work that is tied with interminglings of existing bank systems. It is lightning fast. It costs very little. And the defining feature is a ‘Ripple’ protocol for extending trust between different entities that haven’t established trust directly, but are able to through a third mutual entity. Compared to clearinghouses the ‘Ripple’ protocol is nearly the exact opposite, because MSBs don’t require trust when transactions are affirmed through a clearinghouse. That is not a problem for Asia entities that have flexibility in regulation and can opt out of using a clearinghouse to get all the benefits of the Ripple network.

In Asia where there are numerous countries and even sub-countries like Hong Kong, the banks often get to choose in certain participation with clearinghouses. In general, there’s a mix of different requirements from country to country for the variety of business they conduct, where some things are only required to be cleared domestically, others are optional, others are in conjunction with clearinghouses and business with the West, etc. It’s hard for Asia to compete with Western clearinghouses that are well established and efficient, but in general, they like to take steps towards Asian-centric banking such as the AIIB*. Their desire for Asian-centric autonomy has made their regulators much more flexible, and evolving, compared to Western countries. It makes more sense to establish trust than to try and make sense of their jumble of different regulations and inefficient clearinghouses if they want to keep Asian business Asian & profitable. And that is what Ripple with its trust extensions and cheap costs facilitate, so it’s not a surprise they’ve jumped on so quickly.

Despite all the adoption, Ripple is nothing more than some really fast software, that masquerades as being safe due to utilizing blockchain technology. It keeps a permanent track record so there is added difficulty in things such as hiding double spending, but Ripple holds no authority to enforce or prevent it. The banks are in the same position as before: they have to simply trust or use Western clearinghouses that hurt profit.

Ripple’s blockchain has addresses, they have Tx hash, etc., but there is no hard-coded value. Every settlement, every record, has the ability to be unique. Because of that, every recorded settlement is of alleged assets that are supposedly valued by markets — as opposed to the actual immutable value of a cryptocurrency. There is no oversight toward the legitimacy of what’s being agreed to move more than before Ripple was implemented. It’s just happening a lot faster. It’s as if the banks became more bank.

As much as this ledger adds a level of immutable records, it adds opportunity. You can look at better record keeping as added transparency, or a better shield for illegitimate activity. In no way does simple record keeping force banks to represent real value — they can do all the back-door agreements they please, and they have an immutable record saying they didn’t. And it all happens in the blink of an eye, seemingly literally. All the difficult parts of fraud & laundering are taken care of, and instantly, by skipping actual trustless asset movement and/or clearinghouses. There is no lag time between what’s happening that otherwise can expose questionable actions. Sounds great if you’re a bank. Why would you use, for example, XRP (a cryptocurrency) that nullifies your autonomy of doing whatever you want, when no one is going to question the Ripple network?

No one is using XRP yet. There’s a lot of talk about excitement for it, but no adoption. The repetition sounds a lot like a political campaign of empty promises.

Another big problem is that the Ripple network doesn’t provide any incentives to run nodes (validators and servers). For all intents & purposes, it is an internal system. Only those using it have a reason to run nodes — a case for centralized. There is no POS/POP* and there cannot be without an actual cryptocurrency involved. While it appears like the Ripple network has benefits similar to other cryptos, it falls short unless people all over the world voluntarily waste resources to provide oversight to a network that banks are using. The likelihood of an actual change on the network ledger is probable, if it serves the majority of banks. It is also more susceptible to security flaws if less people are running nodes — the most likely scenario once the hype quells to zero incentives. It might as well be seen as a change in data storage that circumvents oversight.

Asian banks and the media have been touting this lightning-laundering network as the answer to all their problems; as if a new form of data storage has revolutionized banks out of needing clearinghouses & regulations but under examination it looks like trouble.

I am certain some of you believe that this article shows a misunderstanding of Ripple in some way, shape, or form. That might be true, because let’s be really blunt, Ripple’s website information doesn’t tell you a damn thing about what it even really is. Blame them for any misunderstood information — they are the ones that took public funding then clam-shelled up away from the public, shut down public wallet accessibility, and walked right into the arms of any bank trying to scrap ahead.

Part 2.


*POS/POP: Proof of stake/Proof of processing. Any kind of ledger keeping where the computer doing it either stakes X amount of cryptocurrency for a certain percentage of returns on processing changes to the ledger, or simply getting a reward for processing (POP) in some way.

*AIIB: Asian Infrastructure Investment Banking (Little step-brother to the World Bank)



Lobbying for cryptocurrencies & crypto-utilities.

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