In Search of an Altcoin for the Public Sector (II): Ripple and Litecoin
Should governments and administrations work with Ripple and/or Litecoin? The pros and cons.
As already reported in the first essay to possible application scenarios of the alternative cryptocurrencies, which was dedicated to the Ethereum, in addition to the best-known cryptocurrency Bitcoin, alternative cryptocurrencies are gaining more and more importance.
The application of the blockchain involves the use of technology in various fields, including finance, supply chains, fashion retail, and voting. The blockchain creates security and validates and maintains a permanent public record of all transactions and keeps the user’s information anonymous. This essay discusses the peculiarities of the alternative cryptocurrencies Ripple (XRP) and Litecoin (LTC) and their use to simplify several processes.
Special Features of XRP and LTC and Their Differences to Bitcoin
What are the distinctive features of XRP and LTC compared to the other cryptocurrencies?
XRP was manufactured by Ripple but can work without it due to its shared ledger. In the beginning, 100 billion XRPs were created by Ripple. It is the upper limit for the currency according to the rules of the protocol. Of the $ 100bn that was created, the creators retained $ 20bn of XRP while the remaining 80% were transferred to Ripple Labs for sale.
Although cryptocurrencies and the possible applications of blockchain technology are known for their decentralization, in the case of the XRP questions arise in view of their central influence on the issuance of the cryptocurrency. So, it is because XRP was not distributed in a decentralized way, but for the most part, was held centrally by the developers themselves. Another point that speaks for the centrality of XRP is that it currently needs so-called validator nodes to confirm transactions in the network. There are now only a few such nodes. Ripple itself currently operates all validator nodes. There are presently several hundred nodes, but only so-called “trusted nodes“ can validate transactions. Ripple must centralize this validation of a node as a trusted node. This central authorization leads to a strong influence and thus a strong centrality of XRP. This “vulnerability” can be traced back to the fundamental idea of the XRP: if Ripple is against established institutions, such as for example SWIFT and wants to have a chance in payment transactions, there must be a central point of contact.
LTC is the “little brother“ of the best-known crypto-currency Bitcoin and was designed by US computer scientist Charlie Lee and launched in 2011. Their design is closely modeled on Bitcoin but tries to make the system leaner and lighter. Especially concerning the processing speed in the network nodes, Litecoin achieved noticeable improvements.
XRP´s Applications for the Banking World
The ripple network sees itself as an interface in the international payments of banks and payment service providers. Therefore, Ripple has developed a platform that is compatible with as many banking infrastructures as possible. The acceptance of Ripple and its products xRapid, xCurrent, and xVia are already massive. The technology behind Ripple, therefore, has the potential to assert itself as the “Bitcoin of the banks”. XRP also wants to distinguish itself from Bitcoin and other cryptocurrencies: while Bitcoin was created in response to the financial crisis of 2008 and wants to make banks redundant one day, Ripple sees itself as a partner of the banks. Banks and payment networks are increasingly using Ripple as a technology for settlement infrastructures. The reasons are payment speed in the system, stability of technology and function of the coin as a bridging currency.
The company Ripple relies on close cooperation with the financial institutions: the cryptocurrency has been further developed over time until finally, several well-known banks began to integrate the Ripple and the associated payment network in their systems. Ripple is continuously investing in the network and entering into more and more partnerships with countless global companies and financial institutions.
Banks or payment service providers face two problems with cross-border transactions (in different currency areas): on the one hand, there must be liquidity in all the currencies involved, and on the other hand, it must be ensured that the payment is working.
There are already several partnerships between the banking world and the ripple system, in particular with regard to the use of the xCurrent software. According to Ripple, more than 200 companies have now signed up to cooperate to use the xCurrent software for international payments. These include banks, payment service providers, and stock exchanges for digital assets. Since November 2017, major names such as the credit card provider American Express and the Spanish bank Santander have been cooperating with Ripple. With xCurrent, they want to accelerate transfers between the USA and the UK. For example, American Express business customers in the US can transfer money via Ripple´s network to Santander accounts in the UK.
According to a McKinsey study, 60% of cross-border B2B transfers still require manual intervention. It takes an average of 15 to 20 minutes, which could be done by Ripple in seconds. If this project is successfully implemented, the cooperation partners could also introduce the system to other countries.
Thailand´s largest commercial bank, Siam Commercial Bank (SCB), also intends to use the XRP unit and even the Ripple system. Siam Bank is the oldest and largest commercial bank in the country. It conducted a cross-border Ripple payment trial in the spring of 2019, reducing transaction times from 2 days to just 1 minute. Should the SCB decide to continue working with Ripple, this would be another big boost for Ripple.
The banking system and the public sector usually work closely together. The German state even has own banks or banks that are very close to the institutions of the state and play a role in the Public Sector system. It is from my point of view unlikely that decentralized cryptocurrencies like Bitcoin will put this role in question. Ripple seems like a valuable alternative for this banking system: Enter the crypto world without giving up the control as such (though of course the role or Ripple Labs remains in questions). This is why Ripple might actually have a chance to play a role in the Public Sector in Germany.
Technical Progress Through LTC
As already mentioned, LTC is a “little” brother of Bitcoin. What is technological progress behind it?
The Bitcoin network is notorious for long transfer times. On the one hand, this is due to the enormous transaction volume and, on the other side, the limited nature of the block size of 1mb. Litecoin was founded, among other things, to solve the scalability problems of Bitcoin. Thus, the processing rate of the blockchain has been increased (a new block every 2 minutes and 30 seconds, Bitcoin takes 10 minutes). Conversely, this means that Litecoin is also able to transfer more value to the network over the same period than Bitcoin. So, since Litecoin generates four times as fast currency units as Bitcoin, the total amount of litecoins that can be scored is four times as high, or 84 million.
The technological innovations also include the questions of security and implementation of confidential transactions. Based on the collaboration with Beam, it becomes open source. The purpose of this joint effort is to create an on-chain conversion of the regular LTC into a Mimble Wimble variant of the LTC and vice versa. The bridge between the two blockchains would be formed by extension blocks so that Mimble Wimble LTC can exist and be wound up. Thus, in the future, everyone will be able to replicate this type of privacy enhancement. Mimble Wimble is the more advanced privacy protocol that uses both Maxwellian Confidential Transactions and the Chaumiam Coin Join.
However, it is yet unclear which role LTC could play for the Public Sector that Bitcoin could not play. The Public Sector as such is not focused on speed in transactions, but on stability, trust and no volatility. LTC has proven to be very volatile and has so far not proven it could outrun Bitcoin in applications in the Public Sector.
Conclusion and Outlook
The possible use of the alternative cryptocurrencies XRP and LTC is not exhaustive. The applications mentioned above in the banking world as well as to speed up transactions serve the further development of blockchain technology worldwide. As these application scenarios become established in the transaction world over the long term, there is a possibility of transferring these scenarios to other areas of life. The public sector, and public-private partnerships in particular, which are also launched by the public sector, can benefit in the future from these alternative cryptocurrency applications. It remains only to be seen how the partnerships with the world-famous credit institutions continue to develop for the simplification of business processes.