Market Update: As of this writing, bitcoin is up to almost $10,800 with ETH at $962. Great news. What we saw this week was slow, consistent gains. It looks like most coins are gaining 3-10% daily, with not too much parabolic activity that would make me more nervous. We had a ton of tailwinds, too many to count. A White House Official said cryptocurrency regulation would not be in the immediate future, Wyoming & Colorado are trying to legislate crypto-friendly offerings/enforcements, and of course “Coinbase Merchant” was launched; which is a payment platform for businesses to begin accepting cryptocurrency payments. I couldn’t think of a better way to end the Chinese New Year.
Big players are announcing partnerships, and of course, Ripple leads the pack. A coin is only as good as their buyers, so I want to make sure that all of my readers know who those buyers could potentially be, and what they can buy. I want provide a background on Ripple & their 3 Products (Xrapid, Xcurrent, Xvia). Ripple is one of my largest holdings, so full disclosure here.
Ripple’s Market
Ripple’s products are all designed to work with businesses on sending and receiving payments instantly and securely. Their main competitor is the incumbent, the SWIFT system.
SWIFT facilitates money wire transfers, with many checks and balances along the way. Overall, it takes about 3-5 days to clear a transaction with the SWIFT system. That means if you want to send money from USA to Germany, you can either wait a long time or you can pay a high fee to get it there quicker (via Remittance company like Western Union). During your wait time, there is also security risk. Just recently, we saw hackers take SWIFT via a Russian Bank for $6M. When you don’t encrypt your transfers & information, there is always a possibility that someone is smart enough to hack in.
The SWIFT system, regardless of Ripple’s success, will phase out of existence. Their way of transferring money in the 21st century is outdated, and people should expect more out of their financial institutions than their money going through the equivalent of snail mail to get to it’s recipient.
Blockchain is a simple solution for payment processing, which is why you are getting so many people trying to enter the space altogether. There are trillions of dollars being moved back and forth each year around the world, and there are certain niches that will require different blockchain characteristics to serve them. One of them is banks & remittance companies. They need Anti-Money Laundering/Know Your Customer procedures built in, just like the SWIFT system. Ripple (and Lumens!) designed their chains/coins specifically for this purpose.
XCurrent
The product I hate to love. This is Ripple’s solution for bank cross-border transactions. Their system not only uses blockchain, but also validates the parties in the transaction and the transaction itself BEFORE it even takes place, so there is no wait time in between.
One bank wants to send money to another bank, with a “correspondent bank” (wire facilitator) in the middle. There is a message sent from the sending bank that will outline their intended transaction. Ripple will decode the message, and put it into ledger format for all 3 banks to read, compliance screen, and validate instantly (Inter-ledger Protocol). Sender, receiver, account information, and transaction details are all used to determine the fee that each bank will tack on for their services to determine total cost to sender for approval.
The next step is cryptographic hold of funds. This puts a hold on the transaction at all 3 banks, so that they can generate a cryptographic signature that will serve as evidence that funds are available and have been pledged for dispensing. In other words, the banks send each other “I’m ready” signals. Once all parties have provided their cryptographic signatures, Ripple automatically releases the transaction, which is sent and settled within seconds.
Communication and uniformity are the solutions that Ripple brings with this system. No longer should banks have inboxes and outboxes. Blockchain ledgers automatically validate participants in the transaction, and the blockchain itself can serve as the highway to transfer the funds instantly. Overall, this is expected to yield a 30% decrease in transaction costs for customers, while also providing instant settlement. No brainer.
Raiden, why do you love to hate it? This is the main side chain product culprit. You don’t need to use XRP in these scenarios, and banks aren’t. Sure, there is some trial periods, but I haven’t heard a major bank using XCurrent with XRP. This is when I wish I was a shareholder, not a coin holder. The best we can hope for is that XRP will become a base currency for banks once society has warmed up to the thought of virtual shells that encapsulate and mimic the value of fiat currency. Until then, I am not happy when I hear the word XCurrent.
XRapid
Our future hero. This is XCurrent, but with XRP being added in. Cross-Border/Currency payments are completely inefficient. In order for me to send dollars and someone to receive Rupees, Currency (USD) must be sent to a correspondent bank, and exchanged in a “Nostro-Account”, which serves as a liquidity pool of the foreign currency (INR). Then it has to be sent to the receiving bank in the foreign currency, going through the wire system. Long, expensive, and complicated. It is so troublesome, that most banks and remittance companies need to set minimums on transactions because it is so economically inefficient for smaller users.
Nostro-Accounts, what Ripple CEO Brad Garlinghouse calls “Dormant Cash” are just pools of sitting money that have to remain there in order to convert all of these cross-currency transaction requests. XRP can serve as the unified currency for all banks to transact with, and exchange into their intended currency. Ripple takes a multi-step/multi-party process, and eliminates almost of all it.
The U.S. dollar can eventually take the form of XRP, be sent anywhere in the world, and XRP will then take form of the intended foreign currency, and settle itself within the intended bank account. As coin holders, this is what everyone should be dreaming of prior to the Beta version launch in the Spring of 2018.
During my research, Ripple’s 2016 White Paper was the only source I could find to properly explain this system, and even my explanation may be lacking. This system is expected to free up massive amounts of Emerging Market liquidity through the lessening use of the “nostro-account” system, while also cutting transaction costs by up to 60%. I am trying to get my hands on more XRapid material, but this is very very new. I am going to keep you all posted on developments, as I have set up an RSS feed to give me anything related to XRapid as it comes out in the future.
Xvia
This system for is a platform for point of sale payments. There is not one piece of information on XVia. It is actually kind of scary how little information is available on any of these products. Here is my most educated guess based on the limited information. This is Ripple’s version of Coinbase Merchant. It is software that can be imbedded in E-Commerce sites that people can use XRP to pay for goods and services. Based on the level of information, XVia is not going to be used in the near future. If it is, then their customers must have more information on it than the public does.
Conclusion
This research was tougher than I expected. Ripple has provided good information on XCurrent, but the others are severely lacking. There also isn’t much interest in the Youtube community, with rocket ship memes being more important than content. As a coin investor, I am disappointed. Their main product right now is private labeling chains, which does not benefit coin holders. I want more information on XRapid and Xvia. You can go look at my Lumens article. There is enough information from Jed, IBM, and followers to fill a textbook. If Ripple wants to have products listed on their site, there better be some information for me to look at. We may not be owners, but we are investors. I think it’s time for them to start treating us that way.
None of what I am saying is an offering to buy or sell coins. Full disclosure, this author owns XRP. You certainly wouldn’t think it based on this article! I wish you the best of luck on the exchange. Please do follow me @raijincrypto on Twitter. I try to send out thoughts throughout the week.