Ripple (XRP) is a payment network for banks with the aim of making international payments between banks more efficient and cost-effective. It is a system dedicated to payment traffic between different currency areas and tries to make inefficient payment corridors more efficient. This is why Ripple is often referred to as the „Bitcoin of banks“.
What is the reason for Ripple?
Banks or payment service providers face two problems with transactions across national borders (in different currency areas): On the one hand, liquidity must be available in all currencies involved and on the other hand, it must be ensured that payment functions properly. Ripple has developed very innovative solutions for this over the past few years. If you would like to take a closer look at this topic, you can look at the so-called nostro and loro accounts which banks have to hold in any currency in order to remain liquid.
Roughly described is a nostro account (nostro, ital. „our“) an account of a bank with another bank. A Loro account (loro, ital. „your“) is the same account, but from the point of view of the bank where the account is held. If a bank wants to make a payment between different currency areas, it must first instruct the other bank to debit the nostro account accordingly. These accounts are associated with immense costs and risks (inflation), since the money (several trillions worldwide) is only parked there, but not normally used. Furthermore, nostro accounts must function in a foreign currency, i.e. one is exposed to the risk of inflation. Banks therefore face major problems and challenges in international payments. These problems and challenges cannot be completely solved with Ripple, but costs can be greatly reduced.
Ripple is therefore not just a conventional crypto currency, but has a comprehensive system with several products. RippleLabs“ are used to research and develop Ripple’s various systems. These include xRapid, xCurrent and xVia.
What is XRP currency required for?
Since Ripple only wants to support the current financial system and does not fully share the basic idea of the blockchain, critics argue that Ripple should only run a startup and should not abuse the crypto currency market with its XRP coin.
Since Ripple only wants to support the current financial system and does not fully share the basic idea of the blockchain, critics argue that Ripple should only run a startup and should not abuse the crypto currency market with its XRP coin.
Who already uses the Ripple Network?
There are already several companies that started testing Ripple in late 2017 or early 2018. These include numerous banks or payment service providers such as Western Union, Moneygram or Santander. Ripple already has more than 100 partnerships – including banks, payment service providers and exchanges for digital assets. This shows that Ripple can gradually offer a mature solution for payments in international currency areas and that large companies have already become aware of Ripple. Many companies are likely to wait and see what the testers have to say about Ripple. If this is positive, Ripple may quickly be used not only across borders, but also across institutions.