Ripple: $2 Bln in Real Time International Transactions
Since the 18th of September the XRP rate has almost tripled, reaching $0.77 this Friday at 3 p.m. (UTC), which is the maximum currency value since the beginning of May. Ripple managed to displace Ethereum and take the second place in terms of the total market capitalization, which amounted to more than $30.6 trln - 23.4% more than the capitalization of ETH, which amounted to $23.4 trln. Ripple once already broke out on the second place at the end of December in 2017, but as then XRP soon returned to the honorable and already familiar third place. On Tuesday by 12 p.m. (UTC), the XRP capitalization fell to $17.87 trln while the currency price dropped to $0.45, which is still more than one and a half times higher than last week.
It is worth noting that the project consistently stays in the top-3 and the increased demand for XRP has a positive impact on the entire market. On the 21st of September at 3 p.m. (UTC) the total volume of all transactions for 24 hours exceeded $21.4 bln, which is $8.831 bln more than on the 18th of September. During this period of time the total capitalization increased by nearly 20%, reaching the level of $230 bln. In addition, the XRP growth provoked an increase of other virtual assets value - Bitcoin, which was the main engine of the crypto space during all this time, thanks to the Ripple jump was able to break the mark of $6.700, which is 8% higher than the rate of the 18th of September. Let's investigate why the currency value grew last week and what are the prospects for the project in the future.
XRapid new technology reduces the liquidity costs
Last Tuesday during his CNBC interview the Head of Regulatory Relations in Middle East and Asia-Pacific at Ripple Sagar SARBHAI announced the upcoming launch of a new payment technology xRapid, which will replenish the Ripple product line (xCurrent, xVia) and will become part of RippleNet. The new product is designed to help financial institutions minimize liquidity costs, increase transaction speed and improve customer service. For instance, cross-border payments to emerging markets often require Nostro accounts in local currencies, for which regional banks charge fees. Financial organizations annually spend about $12-21 bln to work with intermediaries. The new system will use the XRP digital asset, which will provide on-demand liquidity and enable real-time payments.
Ripple and its partners started to test the new technology around the globe making first pilot transactions in spring. On the 10th of May, they reported about a successful transaction between the US and Mexico. The new technology works as follows. If the payment is made from the US to Mexico, an American bank conducts a US dollar transfer via xRapid, which converts it to XRP through the Bittrex crypto exchange and within seconds clears through XRP Ledger. After that Bittrex sends XRP to the Mexican exchange Bitso, which has a liquidity pool of Mexican pesos. It converts XRP to pesos, XRP Ledger makes settlement again, and the exchange transfers pesos to a Mexican bank. It will take 1-2 minutes for a payment to cross borders under this scheme while the existing traditional financial infrastructure clears international transactions for 2-3 days.
In other words, Ripple's crypto exchange partners act as intermediaries and so does XRP for the fiat currencies conversion. Pilot transfers proved the xRapid cost-effectiveness for financial institutions as they managed to save up to 40-70% in comparison with Nostro accounts costs.
The preferred exchange for xRapid transactions with US dollars will be Bittrex, for Mexican pesos - Bitso, and for Philippine pesos - Coins.ph. The currency service Mercury FX has also examined xRapid and was impressed by the high payment speed the technology provided. The other project partners are the crypto exchange SBI, the payment operator Cuallix, the Canadian cross-border payment company Zip Remit. Many financial institutions are still testing xRapid, including IDT, MoneyGram and Cambridge Global Payments. High interest in the project from financial institutions encourages private investors to purchase XRP.
Moreover, unlike the previous product Ripple xCurrent, which does not incorporate XRP in its system, the xRapid implementation requires from banks and exchanges to have XRP resources and we can assume that last week they have already started buying the virtual currency, while the price has not managed to dramatically increase yet.
The American giant Western Union is also running a pilot program of the new technology. However, by now the money intermediary is pretty skeptical about xRapid. After 10 pilot transactions with US dollars and Mexican pesos in June the CEO Hikmet ERSEK concluded: “We are always criticized that Western Union is not cost-efficient, blah blah blah, but we did not see that part of the efficiency yet during our tests. The practical matter is it’s still too expensive".
The current results do not live up to expectations due to the fact that the test size of 10 transactions is too small for the scale of the corporation that conducts millions of transactions per month. In order to fairly assess the effectiveness of the technology and see transaction cost savings, the company will need to do more pilot operations using other fiat currencies. The Senior Vice President of Ripple Asheesh BIRLA stands by the same point of view predicting costs reduction by 50% for Western Union. In turn, Mr. ERSEK said that the corporation carries on testing.
SWIFT alternative: banks are joining RippleNet
Ripple actively works in social networks building close relationships with its audience. Only the official Twitter account has almost 900 thsd readers. Therefore, any positive news comes directly to potential and existing investors. The next event, which favorably affected the digital asset value, was Ripple's announcement dedicated to the beginning of a partnership with the Pittsburgh PNC. 19 offices across the country and 8-million customer base, consisting of individuals, small businesses and large corporations, put PNC in top 10 list of the biggest banks on the US market. Ripple technologies will help the bank to conduct and process international transfers in real time, which will allow PNC customers to manage their accounts receivable and working capital more effectively.
More than 120 financial institutions, including banks, payment operators and other financial institutions have already joined RippleNet. The Head of Strategic Accounts of Ripple Marcus TREACHER recently said that RippleNet has experienced rapid expansion throughout 40 countries: “RippleNet’s newest corridors have a combined potential market that totals over $2 Billion in inflows over the last year”.
There is an opinion that Ripple may become an alternative to the international payment system SWIFT, as the payment clearing takes seconds, and the cost of processing is greatly reduced by eliminating SWIFT fees and other shortcomings of the system, such as the liquidity costs, counterparty risks and compliance costs. The CEO and co-founder of Soar Labs Seth LIM suggests that the overall cost per payment can be reduced 60%, from $5.56 to $2.21.
However, in order for Ripple to become a real threat to SWIFT, and the RippleNet members to be able to take a full advantage of the network, a much more institutions and providers of fiat liquidity must join it. The SWIFT ecosystem involves more than 11,000 financial institutions, being 10 times larger than RippleNet.
Bitcoin vs Ripple
“Ripple allows for trusted relationships and consensus to be reached without the pure decentralization of bitcoin mining, which is extremely inefficient and expensive", - said Henry BERG, Principal Technical Program Manager at Amazon. Unlike bitcoin's proof-of-work algorithm, Ripple transactions are processed and controlled by financial institutional validators and nodes selected by Ripple. Thus, Mr. BERG believes that Ripple Labs offers banks and other financial organizations “internet of values”, which is much closer to the kinds of systems they are used to, and does not scare them as much as completely independent and decentralized Bitcoin. The expert calls Ripple “a kind of a middle ground between existing financial systems and pure cryptocurrencies".
Like any other digital currency, XRP is subject to volatility, which can be caused by speculation and fake news. But Ripple Labs saved up a tool to make sure that the range of price fluctuations can be minimized. The company stores 55 bln XRP out of 100 bln possible in the escrow, which gives Ripple Labs a weapon to control the XRP rate and prevent significant price spikes. It makes the RippleNet payment system more stable and reduces the risks of price changes for its participants. This approach attracts traditional investors and new participants to RippleNet, which in turn allows Ripple to embark on a decentralization strategy. More institutions holding XRP, doing transactions with it and generally interested in the stability of the asset, will lessen the system need for Ripple Labs to act as the supervisory authority. "Ripple is slowly moving towards decentralization (at least in the XRP Ledger) due to the fact that the current unique node list is soon to be less than 50% Ripple owned nodes which means they will be unable to manipulate the consensus in the XRP ledger”, - explains Mr. LIM.
However, due to the high degree of centralization for now, XRP is unlikely to compete with Bitcoin for the influence on the market, where the percentage of institutional investors is still relatively small, and private investors are adherents of the DLT basic idea of no control body. Ripple's scalability of 1500 transactions per second against just 7 by Bitcoin shows a huge potential of the technology, but does not undermine the authority of Bitcoin. "The Ripple Labs ecosystem is fairly complex, and lots of different payment and credit instruments are offered. Ripple Labs is certainly making a credible play to be the institutional suite of cryptocurrency offerings, but there are a lot of efforts underway to use bitcoin as a base settlement layer on which everything else is built, and it might turn out to be a winner-takes-all market”, - Mr. BERG believes.