Every day, people and companies around the world send money transfers worth more than $ 76 billion over banking network. Over the past six years, Ripple, a San Francisco technology company, is working to change the global money cycle due to implementing of blockchain technology.
This situation is interesting as the history of business formation. However, by the end of 2017, Ripple had become part of a grand cryptocurrency boom. The company owns a large number of tokens, called XRP. From the end of September to the beginning of January, the cost of XRP soared to an incredible 1300%, leaving behind its competitors – bitcoin and ether – and turning platform executives into billionaires.
One of the reasons to buy XRP is the fact that, unlike bitcoin, these tokens are issued with a well-defined purpose: to help banks spend money faster and cheaper from point A to point B, particularly across borders.
But banks have not interest into using XRP. The real and former heads of seven world banks, some of which have become Ripple’s business partners, argue that the chances that they will ever trust their corporate cryptocurrency clients ‘ money are negligible. The names of managers are not subject to disclosure.
“I do not understand a thing. It’s actually a completely useless token – the company is just using it to earn a lot of money and finance its activities”, said ConsenSys co-fonder Joseph Lubin.
100 billion XRP were issued, and, according to the Ripple website, the company owns about $ 61 billion worth $ 1.23 each (as of January 28), which is equivalent to $ 75 billion. Most of them stored on escrow accounts. According to data published by the company, since September 2016 Ripple has sold more than 185 million dollars in XRP.
CEO Brad Garlinghouse says that Ripple is cooperating with more than a hundred banks in order to change the system for conducting customer payments.
However, there is a difference between Ripple and XRP. XRP “completely underlies what Ripple does,” says Garlinghouse, but at the moment the company’s main product, the RippleNet network, does not involve it.
“Ripple wants to become a catalyst for the development of the whole industry. The current system is fraught with conflicts, and is also characterized by lack of transparency and low speed”, he says.
The Ripple project was founded in 2012 with the goal of creating a streamlined decentralized system of payments with the use of technologies based on the blockchain. Initially, there was a hope that XRP would become an integral part of this project. For example, a token could be used as a transition currency: Mexican pesos can be converted to XRP, and then received in the baht in Bangkok.
The implemention of lingua franca into the payment system could help banks avoid the hassle and costs of converting money to different currencies on the accounts of other banks. Banks, however, abandoned XRP, explaining that they will not be able to use a tool that, perhaps, will never get approval from regulators.
Moreover, the real power in the sphere of cross-border transfers belongs not to banks, but to large companies that use the payment system to meet their financial needs around the world.
Thus, Ripple shifted course with XRP and focused on RippleNet, which is similar in functionality to SWIFT and is a messaging system that signals banks where to send money. It also includes a service that helps banks process transactions.
The total cost of XRP in the ownership of Ripple is $ 75 billion.
Ripple has introduced many banks into its network and sold stakes in its capital to Standard Chartered Plc and Banco Santander SA.
Ripple is not the only company that tries to upgrade payment systems. London-based Earthport Plc, which manages the payment network in 65 countries used by TransferWise Inc. and other major clients, has been steadily gaining momentum. SWIFT also does not give up without a fight. He recently released his own update called Global Payments Innovation, or GPI. It allows corporate clients of banks to make payments for a couple of hours and monitor the progress of transactions in the same way, in the courier service FedEx Corp.
“This is a giant leap forward,” says Harry Newman, head of SWIFT’s banking Department. — “Can anyone else boast of similar progress? I don’t think.”
Head of correspondent banking solutions at Standard Chartered Shires of Wadivkar notes that the network RippleNet became a pioneer in the provision of services, tracking of payments. However, GPI also allows it.
As a consortium owned by banks world, SWIFT takes advantage of in his field. The GPI system was launched a year ago and it relies on cloud computing rather than blockchain. At the same time, 36 banks are already working with it, making cross-border payments worth more than $ 1 billion a day.
Arlinghaus said that compared GPI with the it company is trying to compare a wagon with horses and car:
“GPI tries to speed up processes using the existing architecture. But no matter how much the horse is quilted, it will not go faster than the car.”
As for XRP, they are used by at least one financial company — a provider of credit and payment services Cuallix with offices in the United States and Mexico. According to Nicholas Palacios, CFO, since October last year, it has involved XRP in 10-12 transactions ranging from $500 to $1000 when sending money between the two countries. On January 11, Ripple announced that MoneyGram International will start testing XRP for money transfers. Since then, two more money transfer services have expressed their readiness to cooperate with Ripple.
Now the XRP exchange rate has decreased more than twice compared to $2,92 in early January. Harry Newman of SWIFT, says that such volatility discourages bankers and their clients:
“If the price of the cryptocurrency jumps up and down like yo-yo, then it can not be considered a serious means for exchange. When a solution to a problem creates new difficulties, it is hardly better than the problem itself.”
Garlinghouse says that the first users of XRP will be not large banks, but companies that send money in less common currencies.
As an investment XRP yet attracts not only lovers of international payment technology, as wanting “to feel a part of cryptomelane”.
Michael Jackson, partner at Luxembourg-based Mangrove Capital Partners and cryptocurrency investor estimates the growth of XRP differently:
“I don’t know anyone who accepts them.”
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