It’s fair to say that blockchain technology is revolutionising the finance sector in many ways, with Ripple – a blockchain-based, streamlined and decentralised global payment system – making it easier and safer to make worldwide transactions. It seems blockchain is in its infancy with more to be expected, but for now let’s take a closer look at Ripple as a payment processor.
Ripple was established in 2012 and is designed to connect banks, payment providers, digital asset exchanges and corporates via RippleNet.
The Ripple protocol is based on a distributed, open source internet protocol, consensus ledger and a currency called Ripple or XRP. A major feature of this protocol is that it not only supports cryptocurrencies but can also be used to send any fiat currency, asset or commodity.
Although Ripple is a blockchain company and has its own currency, cross-border payments can be made using a subset of the blockchain technology. Ripple uses a public ledger (Inter Ledger Protocol), with a consensus process for validation of encrypted hashes to secure the messages. It does not hold the ledger and has open sourced it to a public domain.
The main components of the Ripple protocol are:
Apart from these highly useful components and features, Ripple is now in the process of building Internet of Value or IoV, by establishing an Infrastructure Innovation initiative. The project envisions instant transfer of money across the world. The basic aim of this initiative is to help central banks and regulators to pilot real world blockchain solutions. The aim is to connect networks or payment systems without fundamentally changing their way of functioning and therefore allowing any bank or institution to use it.
The Ripple protocol is finding favour with more and more institutions because of its focus on speed and cost per settlement, while providing the security associated with traditional financial payment protocols. Another indicator of the network’s popularity is its average daily payment volume of around US$500 million, a figure that is expected to grow in view of the expanding market.
However, the lack of stability of the cryptocurrency market is acting as a deterrent and restricting many financial institutions from adopting this network fully. So, once there is a clear and definite regulatory path for the cryptocurrency segment, banks and financial institutions are likely to start using xRapid and XRP for cross-border payments.
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