Those following me on Twitter will have seen me tweeting quite a lot recently about Ripple and XRP. These are a payment network, and cryptocurrency respectively that I have been working with and supporting a lot in recent weeks.
In the past month the value of XRP has soared, from around $0.24 a few months ago to hitting a peak around $2.50 last week. It is currently settling around the $2 mark. With this sudden increase in value has come a lot of attention, both from mainstream media and the financial press, but also between supporters of other technology in the fintech space.
There are a number of very vocal and vitriolic critics of Ripple and XRP out there on Twitter, most of whom have been mis-informed of some of the key facts. There has been a strong group of Ripple community members trying to educate people and stop the FUD (Fear, Uncertainty, Doubt) and mis-information from being spread. I have to say, in all my time working with online communities, the Ripple/XRP community seem to be the most level-headed and calm I've seen in the face of criticism.
Most of the critics of Ripple are Bitcoin fans who seem to see things in a very binary, zero-sum way. They think that the growth of Ripple is somehow bad for their community or investments and want to shoot it down. Often with mis-information.
However, most of them don't realise what exactly Ripple is, and the fact that is it a network for realtime transmission and settlement of payments in any currency. Including cryptocurrencies such as Bitcoin.
So let me put a few scenarios to you.
Currently to buy Bitcoin, or most other cryptocurrencies you have to send some Fiat currency (US Dollars, Euros, etc) to an exchange and then exchange them for Bitcoin. If you are looking to buy one of the other cryptocurrencies, e.g. Cardano or Monero you generally have to buy Bitcoin and then exchange that for the currency you want. This is due to Bitcoin being the most popular cryptocurrency so most others have exchange paths with it.
Sending that Fiat currency to the exchange is a pain. It currently takes several days for that payment (ACH, SEPA, SWIFT) to process before you money turns up on the exchange, and you generally get charged a €15 or so fee by your bank. Or you can pay by Visa/Mastercard and generally get hit by a 5% fee. What if that payment could be quicker and cheaper?
THAT IS THE PROBLEM THAT RIPPLE ARE TRYING TO SOLVE
The transfer of funds cross border. Fast forward a year, and it might well be that your bank is using Ripple under the covers to do that transfer for you and that is why your dollars get to Bitstamp the same day for you to buy Bitcoin.
Too far fetched? How about another scenario that doesn't involve the dinosaurs of the banking world moving so quickly. As I said above, often you buy Bitcoin with Fiat and then change that to your desired currency. So you might buy Bitcoin on Coinbase (being one of the quickest and easiest places to buy it). Then you transfer that Bitcoin (BTC) to a more diverse exchange, such as Kraken to exchange it for Cardano (ADA). To move that Bitcoin you have to move it from one exchange-hosted wallet to another. From Coinbase to Kraken. To do that, a transaction happens on the Bitcoin blockchain. That can take hours to complete and can be quite high in fees (currently fees are tens of dollars). What if there was a cheaper, quicker way?
...you know what I'm going to say, right? ;)
Ripple! Yes, as I said before Ripple can be used to transfer any currency, including cryptocurrencies. Coinbase and Kraken could both implement Ripple and you could use that to transfer between them. There are actually ~~two~~ three ways this could happen, with varying levels of involvement.
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Both Coinbase and Kraken allow you to exchange/buy XRP. This would mean you could buy XRP on coinbase directly, and transfer it to Kraken and then exchange it their for ADA. This is pretty much the same scenario above, just replacing 'Bitcoin' with 'XRP'. The difference being a transaction on the XRP ledger takes 4 seconds and costs thousandths of a cent.
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Both Coinbase and Kraken become gateways on the Ripple network and start offering Bitcoin IOUs on the network. This would mean that you could exchange 1 BTC on Coinbase for 1 BTC.coinbase IOU on the Ripple network, and then redeem that 1 BTC.coinbase on Kraken's exchange for 1 Bitcoin. You don't even touch XRP at all. That however requires Kraken to agree to redeem an IOU from Coinbase. And Kraken and Coinbase might have differing opinions at any point in time on the value of a Bitcoin. So a 3rd way...
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Both Coinbase and Kraken become gateways on the Ripple network and start offering Bitcoin IOUs on the network. This would mean that you could exchange 1 BTC on Coinbase for 1 BTC.coinbase IOU on the Ripple network, same as above. However Kraken issue their own Bitcoin IOUs, BTC.kraken. Now you use the Ripple network and the market makers on there to exchange from BTC.coinbase to BTC.kraken before then redeeming 1 BTC.kraken for 1 bitcoin in Kraken's exchange. In theory 1 BTC.coinbase == 1 BTC.kraken but they don't have to. It could be 0.9999. They can work out their relative value.
Option 2 or 3 above could actually happen completely transparently to the user. They could just have a form on Coinbase that says "Send to another exchange". They select "Kraken" from the list, and fill in their account number of Kraken. Hit send. And low and behold their lovely bitcoin has moved from one to the other in 4 seconds.
But the Bitcoin itself never moved?! Well no, but you never actually owned a Bitcoin in the first place. When you bought 'a bitcoin' on Coinbase, you bought a promise to pay you one Bitcoin. When you transfer it to Kraken it becomes and actual bitcoin on the Blockchain for a brief period, and then becomes again a liability in Kraken's system. Now Kraken owe you 1 bitcoin instead. All we are doing above is using a system specifically designed to move assets and liabilities about to do this in a much faster and cheaper way. All we are doing is moving the liability of Coinbase owing you 1 bitcoin to Kraken.
Just don't tell them it was Ripple that did it ;)
PS. Bitstamp already offers Bitcoin and USD IOUs on the Ripple network. But until another exchange does, it is not that exciting.
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