Because independent digital assets are uniquely universal and enable fast settlement finality, they can be applied to interbank settlement use cases to make liquidity provisioning less expensive and more scalable.
Although they have many differences, independent digital assets like Bitcoin (BTC), Ethereum (ETH) and Ripple’s XRP are lauded for these key benefits
- Distributed validation with a cryptographic guarantee of settlement.
- Increased settlement speed and reduced settlement risk.
- The immutability and auditability of transactions.
However, not all digital assets are created equal. BTC and ETH, in particular, may rank highest in market capitalization but are simply not designed to support the diversity of institutional use cases and the scale that global interbank settlements require.
This post discusses the advantages and disadvantages of these popular digital assets, in comparison to XRP, across three different categories: global reach, governance and settlement speed.
GLOBAL REACH
As independent digital assets, BTC, ETH and XRP all enable global reach and accessibility with fast settlement. Unlike digital assets issued by financial institutions and central banks, global accessibility of independent digital assets is not limited for geopolitical or competitive reasons. Moreover, because they’re not backed by cash, they don’t create liabilities as a bank-issued digital asset does.
GOVERNANCE
Governance of bitcoin and ether remains unstable, as the BTC supply, transaction validation and protocol are controlled by a few mining pools, and Ethereum experienced a fork in the aftermath of the DAO hack. Bitcoin also suffers from misaligned incentives as miners and users dispute block sizes to meet scalability needs. In contrast, the Ripple Consensus Ledger has proven governance with institutional validators run by MIT, Microsoft and leading global banks. In fact, 23 million ledgers have closed with no major issues.
SETTLEMENT SPEED
BTC settlement takes up to 60 minutes or longer, a period in which a payment can fail due to lack of confirmation by miners, creating further exposure and risk. ETH faces a similar problem, but settles faster than BTC (five minutes on average). Ripple, on the other hand, relies on a consensus mechanism without mining, enabling the most efficient settlement in just five seconds with XRP.
In the world of interbank settlement, Ripple and XRP create unprecedented cost-efficiency and global reach, making use cases like low-value corporate disbursements and retail remittances not just possible but profitable. XRP stands apart from other independent digital assets, such as bitcoin and ether, with its proven governance and fast settlement speed.
Banks can realize cost savings beyond 60 percent with XRP. Download our whitepaper “The Cost-Cutting Case for Banks” to read more about implementing Ripple for cross-currency payments and using XRP in FX flows.
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The point is that Ripple is not the same as decentralised permissionless open source cryptocurrencies. It simply serves a different purpose and that is payments, payments, payments.
Personally, I will not touch Ripple because I am not into coins that can be created by a central authority at will. We have tried that with fiat long enough.
Your argument is valid, though it is an emotional one. Though I own XRPs, I too have some reservations, mainly related to the fact that Ripple Labs has a huge number of XRPs locked up, which they eventually will place into the market, which will lead to dilution. In addition, I am worried about the already high market cap op Ripple. On the other hand, XRP seems to be(come) banks preferred blockchain pick to speed up their settlements, so there is a case for it.
There is most certainly a case for it. The ongoing integration in the existing financial system is a big plus because they seem the first to really bringing banks onboard. For consumers, getting faster and cheaper payments is always a plus.
I am also looking at Stellar which also seems to aim at integration in the existing financial system with an open source network governed by a foundation in Germany, accessible to all. Stellar will open an airdrop soon (Bitcoin account with a balance + Facebook login outside of USA/some other States) is sufficient to join. I guess Stellar needs more attention but I always welcome free entry.
I agree on Stellar (which is in fact a fork of Ripple (2014)). However, I sold off my STRs about a month ago, as I was getting some fear of heights after the sharp un up.
What I particularly like about Stellar is that it is built upon a distributed open source Internet protocol and that it does not allow freezing the currency (as far as I know).
What is also worth noting is that, over time (though very slowly), the amount of XRP will decrease, whereas STR has a 1% p.a. inflation factor.
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