Ripple is a venture startup from San Francisco. It has expanded with offices now in New York, London, Luxembourg and Sydney. The company specialises in providing financial settlement solutions and is increasingly expanding its customer base, leading to a huge increase in the number of individuals investing in Ripple.
FinTech start-ups typically provide solutions for banks or disrupt/compete with banks. Ripple aims to do both: provide an alternative for transferring money, but also provide solutions to banks cross-border activities.
What Is Ripple’s Technology?
Ripple has engineered a payment system like blockchain. It uses a shared ledger to process transactions. The network allows assets to move freely, directly and instantly therefore reducing time and cost of clearing. Ripple believes the costs of transactions will be 50%-60% lower for retail remittance and commercial payments using distributed ledger technology. In addition, a clear benefit is that it can work cross-border and with any size of payment.
Ripple allows clients to integrate it into their own systems which then allows their customers to use it. Recently the National Bank of Abu Dhabi started to use the technology for some of its transactions, specifically for cross-border transactions. It, therefore, allows its customers to transfer funds in real time and instantly.
Further to this, now over 60 institutions around the world use it, including Santander, RBC, UBS and UniCredit. The use of Ripple has helped them to realise faster settlements and gain efficiencies.
In addition to processing transactions, the ledger holds information, such as buy and sell offers for securities, therefore acting as an exchange, this enables retail customers to complete FX transactions and transfers without incurring expensive fees and spreads.
As with any solution there is a cost. One reason for the transaction cost when using Ripple is to combat fake accounts by making it too expensive for spammers to flood the Ripple network with transactions. If flooding occurred the ledger would be unmanageable and slower to clear.
Similar to blockchain using Bitcoin, Ripple uses its own cryptocurrency called XRP. Within the network XRP is used as bridge currency if there is no direct exchange between two currencies at a given time. There is no reliance on a third party, therefore, XRP has no counterparty risk. The currency of XRP is growing and has the 3rd largest market cap of the ‘cyber-monies’ behind Bitcoin and Ethereum.
Ripple vs. Bitcoin
Ripple has been seen as an up-and-coming rival to Bitcoin especially in the area of real-time international transfers. It has been reported that Bitcoin has had some issues such as clearing taking days to complete. The time to settle Bitcoin has increased and on March 27th reached 168 mins, whereas Ripple takes an average of 3.7 seconds. BBVA undertook money transfers between Spain and Mexico and found Ripple to take seconds whereas traditionally a transfer would take four days to clear.
Regarding cost, Ripple transaction costs are lower at $0.00031 per transaction whereas the Bitcoin equivalent is $0.48. Therefore, it provides a return on investment as well as a solution for clients.
What Does Ripple’s Coin Cost?
Ripple has seen huge growth recently and the price of XRP has risen sharply in the early part of 2017, in March and April, the value rose by 1000% over a 30-day period. The value of Ripple since the start of 2016 to its peak in May this year is a growth of nearly 6500%. In comparison, Bitcoin has seen its value grow by over 700% since the start of 2016 to its peak in June of this year. It is still early in the life of XRP, but many investors consider Ripple to be the next Bitcoin.
The value may have grown but Ripple holds a large supply of XRP and over the last year it has sold 300 million units a month. If much more is released into the market, it could cause the value of XRP to tank. Therefore, Ripple has said will freeze 88% of its XRP holding in contracts and each month unfreeze 1 billion XRP. This will ensure a sense of certainty for investors that the market will not suddenly be flooded as the supply is restricted.
Where Is the Future Headed?
Ripple continues to invest in the network and improve, this combined with a growing presence and partnerships with global firms makes it a candidate to be the next big disruptor.
Recently, partnerships have been established. MUFG in Japan is working to oversee creating payment rules and standards. Similarly, a Global Payments Steering group of banks formed to establish rights and obligations framework for the use of the technology. The group includes BAML, Santander and RBC.
A group of Japanese banks have piloted software and towards the end of the year plan to use the technology in commercial scale. This will mean 40% of banks in Japan will be in some way connected to Ripple technology. Then in 2018, RBS and BAML, amongst others will use Ripple to underlie the cross-border payment services for retail and commercial customers.
As the network grows and ripple begins to make a name for itself, it may well present a buying opportunity. Ripple has some way to go to match the exposure of Bitcoin with only five years under its belt compared to Bitcoin’s 8 years, but if it follows in the footsteps of Bitcoin, its value has the potential to surge further.