September 25, 2014
Ripple Lab wants to show that virtual currencies like Bitcoin are well tested and extremely secure and customers need to trust them in order to make the most of the upcoming technologies. Ripple Labs runs a bitcoin inspired payment network allowing institutions to conduct low cost international money transfer without bringing in banks as intermediaries. The company recently added two banks to its network: Cross River Bank and CBW Bank.
What is Ripple Labs all about?
Ripple Labs is known for services like ZipZap and SnapSwap, which claims to be able to send money in 5 seconds & virtually at no cost. Ripple with its Bitcoin solution is one of few bitcoin decentralized startups who are trying to disrupt this space. As a decentralized currency exchange that can accommodate multiple currencies, including Bitcoin, Ripple allows users to pay in one currency while the payee receives payment in another. The Ripple payment network enables a wide range of applications, including merchant payments, money transfers or remittances. Unlike Bitcoin, which can take up to 10 minutes to confirm transactions, Ripple network does it within seconds.
The two banks would use the Ripple protocol to offer international payments to businesses and customers between U.S. and Western Europe.
What is the Ripple protocol?
Ripple is an Internet protocol for making financial transactions. It runs on a network of computer servers around the world and uses Ripple’s mathematical algorithm to verify the accuracy of financial transactions. Most virtual transactions are controlled by an organization. Ripple transactions are controlled by the Ripple protocol.
It should be noted that bitcoin’s system for confirming transactions is based on a network of independent miners who compete for bitcoins and are adding more computing power in a bid to win that competition. The validators in the Ripple network contribute computing resources without direct reward and without the intense competition. They are motivated by an interest in maintaining the integrity of the Ripple network. Further support is provided by gateway institutions such as CBW and Cross River banks and by other firms providing products over the Ripple protocol. While anyone is free to download the software and play this role, these firms have a special interest in seeing Ripple succeed and so are expected to be especially motivated to freely act as validators of transactions.
Solutions by Ripple Labs and the Ripple protocol could pave the way for small scale banks to take control of cross-border commercial banking business. Such banks can further save on fees which were earlier imposed by bigger banks acting as intermediaries. Other savings can include the foreign exchange costs.