Blockchains Changing the Banking Game: How Ripple et al Have Improved Financial Transactions
When Satoshi Nakamoto published Bitcoin’s (BTC) whitepaper in 2008, the overarching goal was to create a new currency system. Although we’ve not reached a point where a singular, decentralized system is commonplace, this early idea is reshaping our current financial world.
Although the innovations may not be as dramatic or decentralized as some would hope, the way we process transactions is changing. Thanks to major institutions embracing blockchains, a symbiosis has occurred over the last five years. As traditional banking systems gradually merge with new technology, new ideas are forming, giving rise to a decentralized financial world.
The History of Blockchains and the Financial Industry
We can trace the connections between finance and blockchain technology back to 2009 and the first incarnation of Bitcoin (BTC). As developers discovered it was possible to exchange value through a decentralized network, the seeds of change were planted. Indeed, as more people started to understand that banks and governments weren’t needed to authorize financial transactions, those in the industry started to take notice.
Although diehard crypto fans still yearn for a complete overthrow of the current system, we’re still experiencing a financial revolution. The changes, however, have become a matter of survival for institutions. Put simply, banks have started to realize that if they don’t adapt and embrace blockchains, they’ll die out. Therefore, in that respect, Bitcoin has achieved what it set out to do.
If BTC started the revolution, Ripple (XRP) has taken the torch and is now lighting the way. Launched in 2012, Ripple is a distributed open-source protocol that supports a digital token known as XRP. Although Ripple didn’t create XRP, nor does it control it, the token forms the basis of its financial network. In simple terms, Ripple is a decentralized network that banks can link into and process local and international payments.
Although there are other similar systems out there, such as Stellar Lumens (XLM), Ripple has become the frontrunner in the crypto/banking integration revolution.
About Blockchain Technology and its Influence on the Financial World
The aim of Ripple is fairly simple. By turning fiat currency, other cryptocurrencies (altcoins), or commodities into digital tokens, transactions can be processed faster and cheaper. To facilitate this, the company has two financial platforms: xCurrent and xRapid. The former doesn’t use XRP, but it does act as a gateway into the blockchain sector. By sending “messages” across the RippleNet, banks in different countries can confirm the details of a cross-border transaction in real time.
Ripple makes banking more efficient
As well as speeding up the time it takes to authorize international payments, xCurrent has driven down costs. Because of this, financial institutions such as Santander, JP Morgan, and American Express have embraced the technology. From this, the price of XRP has improved dramatically since 2012. In fact, by 2018, Ripple had overtaken Ethereum (ETH) as the second largest cryptocurrency by market cap. That fact alone has made buying XRP an attractive proposition for users of major exchanges such as Binance and Kraken.
From successful trials with xCurrent, banks have taken the option to integrate XRP into their systems by moving onto the xRapid platform. Essentially the same system, xRapid turns a financial transaction into a crypto (i.e., XRP), which can then be sent to another user anywhere in the world in seconds. By encoding transactions in this way, Ripple is cutting out the need for manual authorization of a cross-border transaction on both sides (i.e., sender and receiver). The benefit of this is that it makes the process more efficient and, therefore, cheaper.
Not the perfect system, but the future is blockchain
The biggest criticism some people have of Ripple is that it’s not truly decentralized. Even though Ripple didn’t create XRP, it does have close ties to the creators. What’s more, Ripple owns the lion’s share of XRP tokens. Finally, it’s responsible for distributing new tokens. Based on this, many believe Ripple actually controls XRP, and that makes it a central authority. This issue has forced the company to explain the dynamic to US regulators. Although they eventually concluded XRP isn’t a security, some still feel it’s not truly decentralized like Ethereum or Bitcoin.
Regardless, the influence Ripple has had on financial institutions appears to be shaping the future of the industry. Instead of following the original aims of Nakamoto and completely overthrowing traditional currencies and banks, a sense of cooperation has emerged. In the future, blockchains will likely improve the ways we send fiats from one institution to another. Indeed, as Ripple, Stellar, and others gain popularity, blockchains will redefine the way we use money.
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