The Real Ripple Effect
Towards the end of 2017, financial news was swamped with stories about bitcoin’s surge to become an asset bubble on the fringes of busting into oblivion. Analysts were calling for anyone who invested in the cryptocurrency to be aware that their investment could dive to zero and anyone invested in the coin to lose 100 per cent. At the same time, the Chicago Boards of Options Exchange and the Chicago Mercantile Exchange were filing to become the first bitcoin traded futures market. It is no doubt that there is confusion among the financial community about cryptocurrency and the legitimacy of the coins. Regardless of which side of the coin the investment community is on, cryptocurrencies were brought before the spotlight and the media was establishing a conversation among societies of what the cryptocurrency trade was.
During this same period, a lesser-known cryptocurrency has been flying high even as Bitcoin’s bubble seemed to rupture. Ripple was trading in November just under 25 cents. On December 28, Ripple’s price increased to a dramatic two dollars and 75 cents. The economic model for bitcoin might not be seen as long lasting with a market capitalization of 250 Billion. Questions ponder over whether the block-chain is an established database that can serve as transactional transparency, or if it is simply a decentralized spaghetti model that few corporations can enhance for purposes related to day to day operations by businesses of any kind. Ripple though has some nuts and bolts behind the cryptocurrency, and speculators are beginning to see the benefits.
Ripple was founded in 2012 under the name Opencoin. It was renamed to Ripple in 2015. The difference between Ripple and Bitcoin is that Ripple is controlled by a company located in San Francisco, California. It is still unknown who created Bitcoin. Ripple serves as a legitimate processor of inter-fund bank transactions between two different banking institutions. From an economic theory perspective, the company’s fundamental technology replaces a legacy process that is tied to intermediary transaction fees which can pose as an opportunity cost for both banks involved in the inter-bank process.
For example, individuals wire currency between banks around the world frequently. Banks normally hold nostro and vostro accounts between their respective banking partners. The difference is sent from one institution to the other institution based on the due to and due from accounting guidelines. If an inter-bank transaction occurs, there could be a party in between the settling of the transaction. Fees could be incurred to transfer the payments to the intermediary. The wire transfers typically take a period-of-time and most banks only are open for business during normal business hours.
Ripple’s technology avoids the settlement time and brings confidence in the solvency between the inter-bank transfers. If a bank is insolvent, the Ripple technology preserves the confidence to the bank receiving the funds. Wire transfers can now become Ripple transfers and the Ripple code completes a transaction in a fraction of the time that a typical inter-bank transfer would take. An additional game changer on the side of the court for Ripple is the constant confirming of transactions. Ripple does not follow the traditional banking set of rules, and a bank in Switzerland could send a payment to a bank in Australia in a short period.
Headquartered in San Francisco, California, Ripple can promote its legitimacy and instill confidence in the market of banking. Regardless of whether the existence of Block-chain is a sufficient argument to the future of bitcoin and other cryptocurrencies that copy the underlying technology, Ripple’s case in the making is about the legitimacy of Ripple and not of the block-chain. A company like IBM could simply copy the block-chain model. Ripple’s place in the market is defined and the organization serves a distinct purpose with a framework that could adapt to regulation in multiple countries.
Central Banks around the world use economic indicators to establish their currency’s competitiveness to combat inflationary and deflationary outcomes. This is known as monetary policy. Ripple publicly stated recently, the company would be placing close to 70 billion coins of the 100 billion in supply to an escrow account. It would release one billion coins a month. The company is staking its claim to controlling the Ripple Coin and combatting the currency woes that has been placed on cryptocurrency.
The speculators have clearly shown an interest in Ripple most recently and it is difficult to say exactly why the price of Ripple has increased dramatically in two months. In this period of human existence, technology is moving rapidly at a pace that seems to be exponential. The Ripple effect on banking could rip across the waves. With no lighthouse in sight, we are only at the beginning of the voyage on the S.S. Ripple.