The development of blockchain technology has led to the development of products that deliver a range of services and benefits to customers, majorly through the use of cryptocurrencies. These cryptocurrencies have found applications in fields like agriculture, medicine, peer-to-peer transactions and in financial institutions among others.
Sending money globally is a process that takes at least a few days and charges some substantial service charge. This is because many countries have a different currency and, in most cases, different banks are involved in the sending and receiving process. What happens is when you send the money in your currency; your bank tries to go through different financial service providers to help convert the money to the currency of the receiver.
For example, when sending Ghanaian Cedis to someone in Japan, where Yen is the currency. Also, the bank has to find mutual institutions that would facilitate this transfer from theirs to that of the receiver. This process is usually why global money transfer is not instant and relatively high service charges are incurred. It is in this application to payment providers that Ripple comes in.
So, What Is Ripple?
Ripple is an open-source network that is designed to allow fast and cheap global financial transactions and exchanges. It works with the aid of Ripplenet, which is a network of payment providers like banks that use RTXP (Ripple Transaction Protocol); to develop a smooth, fast, and cheap experience to sending and receiving money globally.
Ripplenet consists of different computers, known as validators, all over the world which have a common ledger that stores information about who owns what. These validators help to ensure that every transaction that takes place on the network does not counter the RTXP rule.
Essentially, they help to ensure that the process of value transfer is seamless. There are also gateways which serve as entry points for people who are outside the network but want to be a part of it. These gateways are run by banks.
The IOU And XRP Tokens
Ripple supports two different currency type: IOU and XRP
These are tokens on the Ripple network. Like they sound, IOU, I Owe You, represents something you owe not something you own. They are liabilities, promises not assets.
Also, they represent an obligation to pay back something of value you have gotten from the other party, the issuer who issued this IOU.
Trust is an important factor here; as asides from this, there is no other guarantee that the issuer will indeed return what you are owed. For each asset borrowed, a new IOU is issued. That each IOU is unique means that they are not interchangeable, irrespective of how similar their name seems.
This is the currency that allows the transfer of money through Ripplenet and is useful by banks in the network. A bank that wants to send money to another bank first converts this to XRP.
This XRP is then sent through the network to the receiving bank which reconverts this to money to give the beneficiary of the transfer. This simple transfer method is fast and incurs next to no transaction fee. Unlike the case with IOU, once payment is received in XRP, the transaction is final. XRPs are assets, not liabilities.
To Wrap It Up
While many other cryptocurrency platforms are targeted at individuals, Ripple seeks to serve banks, payment providers, and other financial institutions by allowing them to carry out a global transfer of values in a seamless manner. This will indeed revolutionize the way value transfer occurs. And, it will be a welcome change.