Disclaimer
I am not a financial advisor & this article does not provide investment advice & is for educational purposes only. Before making investments of any kind it's important to do your own research & seek the advice of a certified financial advisor.
What is Ripple Labs?
To keep it simple begin to think about remittances to effectively understand Ripple
Now let's take it a step further. When sending a cross border remittance you can use a brick and mortar bank or a specialist online remittance company such as Wise, PayPal or Western Union among many others.
XRP Token
XRP is the native cryptocurrency token of Ripple Labs similar to Apple being a multinational corporation & an iPhone a product of Apple - Ripple Labs is the company & XRP is the product.
XRP cryptocurrency runs on the XRP Ledger which is a blockchain.
Jed McCaleb, Arthur Britto & David Schwartz are the founders of Ripple & they used XRP to facilitate transactions on the Ripple Network & according to an article published by Forbes.com, XRP is among the top 5 cryptocurrencies by market capitalization. If you're familiar with a Satoshi the smallest amount of XRP is called: "a drop".
There are options in relation to XRP purchase:
1. XRP can be purchased as an investment: this is simply a bet that banks will adopt XRP similar to a sportsbook bet placed on an NHL game betting on a win for the Toronto Maple Leafs.
2. XRP can be purchased & exchanged for different cryptocurrencies
3. XRP can be purchased with one fiat currency & then can be exchanged for another fiat currency.
SWIFT Explained
If you happen to be a traveler you have options: you can fly directly using a low cost budget airline or you can opt to fly with a higher cost airline, you can fly domestically or in Europe you can travel within Europe from one nation to another nation by train on the Eurostar, you can fly internationally from one continent to another continent, you can fly directly non-stop, you can fly directly with a stop for aircraft refuelling, if you're located in a specific geolocation & want to get to another geolocation you have no direct non-stop & direct with a stop for aircraft refuelling option which means you need to use two different airlines, fly with one airline to a specific geolocation & from there board a different airline which takes you to your destination & you can travel internationally by sea which takes longer to get from one destination to another. With this understanding of travel you now get an understanding of how remittances work.
The best way to think of the Society For Worldwide Interbank Financial Telecommunications or SWIFT is to think about a social networking instant messaging app such as Telegram & now of course the concept of Social Fi & Message-to-Earn (which is a different subject): you as the user have your contact list on your mobile device based domestically & internationally & you use the text editor to compose & send an IM or even share a YouTube video, an online blog article, meme or even make a video call to communicate with your domestic contacts & international contacts.
Financial institutions use SWIFT to communicate with each other using predefined messages & instructions. So SWIFT for financial institutions such as banks is what Telegram is as a social communications app for social networks such as personal contacts to communicate with each other. Every financial institution using SWIFT is assigned a unique 8 or 11 character transaction code:
• First 4 characters - Institution Code: Identifies the financial institution
• Second 2 characters - Country Code: Identifies country of origin.
• Third two characters - City Code: Identifies the city location of financial institution
• Last 3 characters - Identifies individual branches.
If a bank in Germany has a commercial account with a bank in Japan then the bank in Germany will send a SWIFT message or instruction to the bank in Japan within a few minutes, the funds in the account in the bank located in Germany will be deducted, the bank account located in Japan will be credited & lastly the personal account of the account holder in Japan will be credited with funds but transfer fees are subtracted. But if the bank account in Germany & the bank account in Japan had no commercial relationship then there is no direct line between the two banks & they need to find a trusted intermediary bank who has a commercial relationship with both banks & the trusted intermediary bank acts as the middleman handling the transaction, the bank in Germany notifies the intermediary bank to debit the account & credit the bank account in Japan with the same amount of funds, the bank in Japan now credits the money to the personal account but in this case more steps were involved in the international money transfer & more fees are incurred, more processing time is required & that's why international money transfers are delayed, additionally we need to consider currency conversion which requires extra processing time & extra fees. Financial institutions who are SWIFT members pay a one-time joining fee & annual charges & the sender pays SWIFT a small fee per message using SWIFT & different financial institutions are placed in different "charge tiers" based on annual message volume but SWIFT also generates extra revenue from additional SWIFT services offered to member financial institutions & most people sending an international cross border remittance which is a large amount of money stay clear of a brick and mortar bank & opt for a specialist online remittance company which is cheaper but when using a specialist online remittance company you still need to consider their fees.
Fair Market/Mid-Range Price
If you are selling a currency then as a seller you're looking to sell at the highest price possible but on the other hand if you're buying a currency then as a buyer you're looking to buy at the lowest price possible, the sell price is also called the bid price & the purchase price is called the asking price, the difference between the bid/sell price & the purchase/asking price is called the spread, the narrower the spread the more liquidity & the more buyers & sellers in the market & that's why sellers lay out the minimum sell/bid price which is the absolute lowest the seller is willing to sell the currency & no lower and the buyer & seller need to meet halfway or midway in the middle of the spread to reach an agreement, if the buyer agrees to purchase at the minimum asking price of the seller then this is regarded as mid-market rate or fair market rate but also called the interbank rate or wholesale rate because banks buy currencies from other banks at this rate & when sending a cross border remittance whilst it's imperative to find out the real interbank rate keep in mind that when using a bank you are not paying fair market price or wholesale rate but you're paying retail plus high fees & if the cross border remittance is less than $1000 then a bank is an option but if the cross border international remittance is for $5,000 it makes sense to avoid using banks so most opt to use specialist online remittance companies some promising users fair market rate but now this is why when using specialist online remittance companies you need to consider fees which in comparison to banks the fees are lower & you pay wholesale rate versus paying retail rate & high fees using banks but what you need to keep in mind is that different specialist online remittance companies charge different fees & the problem occurs when making a credit card payment, for instance credit card payments for online remittances using PayPal incurs an additional surcharge of a 2.9% fixed fee dependant on currency & remittances using Western Union & credit card payments incurs charges of higher fees & this is why people opt for bank transfers so they can avoid these higher fees.
Is Ripple Labs Centralized?
There is no clear answer to the question: is Ripple Labs centralized? The issue of Ripple Labs being centralized is a subject of ongoing debate in the cryptocurrency world.
But to gain insight the transaction ledgers & verification processes of cryptocurrencies are open to anyone but this is not the case with the Ripple Network which uses a Unique Node List. Ripple Network has a list of trusted Ripple Network-approved validators but users can remove Ripple Network-approved validators from their transactions this is why it's not easy to provide an answer to the question of whether Ripple Labs is centralized. It's better to say that Ripple Labs is partially centralized but since users can remove Ripple Network-approved validators from their transactions users have partial control & to describe Ripple Labs as being part centralized & part decentralized makes sense. But to be a little more accurate XRP is pre-mined whereas other cryptocurrencies can be mined & now we can present a question which there is a simple answer to & the question is: can XRP be mined? The answer is: no because XRP is pre-mined. In my opinion which is of course just an opinion instead of asking whether Ripple Labs is centralized or not because there are valid opinions stating that Ripple Network is not centralized one of them being that Ripple Labs does not control the protocol which is a valid opinion but the correct question to ask is can XRP be mined? But regardless of the opinions in the ongoing debate of Ripple Network being centralized or not the underlying fact of the on-going debate is that this on-going debate highlights one of the cons of the Ripple Network.
But is Ripple Labs centralized? A better way to approach this question is to think of Ripple Labs as the central bank of the Ripple Network due to the products & services Ripple Labs offers the financial services industry being owned by Ripple Labs but to qualify as being centralized Ripple Labs needs to meet the prerequisite of a single centralized individual which Ripple Labs does not meet but in comparison to other cryptocurrencies Ripple Labs is more centralized but does not meet the prerequisite to qualify as being centralized.
Pre-Mined XRP, Token Release & XRP Value
XRP is pre-mined which is one of the cons of Ripple. The XRP Ledger created 100 billion tokens & these tokens are then publicly released periodically, 6% are owned by Ripple to assist the growth of XRP & 48% are in reserves in order for release into the market via sales & the rest are sold to companies & individuals. Ripple Labs decides when to release XRP tokens & how much to release & whilst Ripple Labs do not control the RTXP protocol Ripple Labs does possess the power to influence the value of XRP & there can be no further creation of XRP. But in the event Ripple Labs ceases to exist validators can run the company which creates the on-going Ripple Network centralization - decentralization debate. But the concern raised by users of the Ripple Network is uncertainty whether validators are colliding in an effort to defraud the users?
SEC Lawsuit & Coinbase Removal of XRP Listing
The United States Securities & Exchange Commission (SEC) filed a lawsuit against Ripple Labs due to a decision that was made by Ripple Labs when to release XRP & since Ripple Labs made this decision the SEC stated that Ripple Labs should have registered XRP as a security and as an outcome Coinbase removed XRP listing & the case is yet to be resolved & as an outcome the mobility of Ripple Labs has taken a hit & has been slowed down
Ripple Net: A Potential SWIFT Network Replacement
Ripple Labs are the creators of Ripple Net & the purpose of Ripple Net is the creation of what's called: The Internet of Value. The idea behind the Internet of Value is just as information is communicated from one continent to another continent in seconds, money mobility or remittances can move around the world & be verified in seconds but imagine if you paid 5¢ in fees & that was the total cost.
The purpose of Ripple is the design of Ripple which is to serve the needs of the financial services industry such as banks & payment providers. Companies seeking to gain access to the Ripple Network can do so via gateways which are run by banks but act as a Ripple entry point for those outside the Ripple Network & this provides an alternative option for an e-commerce merchant who does not want to rely on the banking system & the aim of Ripple is to ultimately replace the SWIFT network & to become a trusted intermediary verifying cross border international transactions. Ripple can process global transactions facilitating fiat currency transactions, cryptocurrency transactions & commodity transactions such as gold & silver.
The standard fee for transactions using Ripple Network is 0.000001 XRP & in comparison to fees charged by banks Ripple's standard fee is the minimal being just a fraction of a cent which makes Ripple Network advantageous given the pros & cons of Ripple, but this definitely is one of the pros of the Ripple Network.
XRP has gained large institutional market adoption, one example being Santander bank's use of the Ripple Network which definitely raises concerns in light of the Travel Rule & on-chain Anti-Money Laundering due to Ripple's commitment to surveillance & reporting suspect individuals to appropriate law enforcement authorities putting Ripple Network on a level playing field with South East Asia's Soramitsu as the new global surveillance cops on the blockchain.
In comparison to the SWIFT network, Ripple Network significantly lowers costs for SWIFT network member financial institutions & additionally cross border international remittance verifications generally takes seconds in comparison to taking days, hours & minutes to complete a wire transfer due to extra steps finding a trusted intermediary bank which creates extra processing time.
Is Ripple Network Better Than Online Remittance Companies?
As mentioned earlier in this article using online remittance companies you pay fair market rate or wholesale rate but online remittance companies charge different fees which are low in comparison to high fees charged by banks & paying retail rate which is nowhere near fair market rate in addition to taking days to process & verify the transaction, so what's wrong with low fees using an online remittance company if you're paying fair market rate after all you're not paying anywhere near fair market rate using banks? The problem is when using credit cards to pay online remittance companies for remittances because you then incur additional & higher fees but with the Ripple Network all the user needs to do is exchange fiat currency for XRP on the Ripple Network & with that XRP the user now just needs to buy another fiat currency without the need to use a bank, a foreign exchange at an airport or an online remittance company & the remittance is quicker due to the fast & scalable nature of XRP as XRP transactions take seconds & it's even cheaper than using a bank or an online remittance company & is definitely one of the pros of the Ripple Network.
Conclusion
Ripple Network comes with pros & cons just like anything else in life that features both the pros & the cons, if it's too good to be true the fact is that it is not which is life's reality but does that mean that you should throw the baby with the bathwater just because of the existence of cons among the pros? Make no mistake Ripple Network is paving the way forward towards the new destination of web 3 remittances as the age of web 2 ultimately heads the way of read-only web 1, the boombox & reel-to-reel tapes & the portable battery powered Sony Discman & compact discs outdated & archaic & the question is will there be a fully decentralized competitor to Ripple Network providing tokens which can be staked or mined & where users can earn staking or mining rewards? The answer is we will need to wait because the day this competitor to Ripple Network emerges sends remittances or money mobility into a new travel infrastructure of web 3.
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