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Within the cryptocurrency community, new projects are usually met with interest as well as scrutiny. However, when it comes to the blockchain-based company Ripple, many in the bitcoin community regard it with hostility. This is in stark contrast to the support the blockchain project has received from a significant number of traditional financial institutions.
What is Ripple?
San Francisco-headquartered Ripple is a company that seeks to harness the power of blockchain technology to develop a platform through which real-time payments can be made in a fast and secure manner. The company created the platform specifically for banks and other financial institutions. The project refers to itself as the “world’s only enterprise blockchain solution for global payments.”
The company has developed the payments network RippleNet, through which financial institution, such as banks and payment providers are able to stay connected to each other to engage in interbank payments. Through RippleNet it is possible to transfer fiat currency as well as access orders in an easy, fast, secure and cheap manner. There are three products available for interested parties, each with different capabilities and specifications. These are xCurrent, a banking payment solution, xRapid, a source of on demand liquidity, and xVia, used by businesses to plug into RippleNet to send payments.
RippleNet is based on the Ripple Protocol consensus algorithm (RPCA), which is a network of distributed consensus ledgers that are validated by trusted nodes. This differs from the blockchain that underlies the Bitcoin network. The native cryptographic token of the project is called Ripple and is denoted as XRP.
Why do banks work with Ripple?
Traditional financial institutions have demonstrated their support for the Ripple project. Currently, there are over 34 institutions, banks, and other financial service providers, such as Standard Chartered Bank and American Express, who are using one of the three Ripple products. This is a relatively large number with regard to adoption of blockchain technology in the traditional finance sector.
Financial institutions believe in Ripple because of a number of reasons. Firstly, it is fast and able to scale. The platform is among the fastest currently as it settles payments in a mere four seconds. Moreover, it is able to process up to 1,500 transactions per second (TPS). The settlement speed is a factor that banks see as an advantage because this results in greater customer satisfaction. Furthermore, the TPS value means the platform is able to support a large number of users which is where many digital currencies, such as bitcoin, are unable to effectively function and deliver.
Secondly, transferring money between banks is not a cheap affair with banks spending a large amount in fees. The use of Ripple platform can help them reduce the cost associated with these transactions through the use of its native digital currency XRP. Moreover, the platform supports cross-currency payments, which means that it is possible to change currencies within a transaction while still maintaining speed and cost-effectiveness.
Thirdly, the Ripple network provides financial institutions with the added security of a verifiable record. This reduces conflicts and other undesirable activities such as fraud. Lastly, the Ripple network can provide new revenue streams for the institutions as they may be exposed to new markets that they can conduct business in.
Why is the bitcoin community so hostile towards Ripple?
During the creation of Ripple’s native cryptographic token XRP, 100,000,000,000 units were created. While some of the units were distributed to individuals and institutions, Ripple currently owns and controls over 50% of the total unit supply. This fact has made the company come under fire with accusations of centralization. Due to the large amount the company controls, they are theoretically able to manipulate the price of the token, which is an undesirable outcome for investors within the community.
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