There are several blockchain projects in the cryptocurrency market. Two of the most important ones are Ethereum (ETH) and Ripple, which uses the XRP virtual currency for some of its products.
Ripple, represented by the XRP virtual currency, grew around 13% in the last days after rumors regarding a bank that wants to use Ripple’s services. Ripple aims at improving services provided by financial institutions and banks. The intention is to speed up cross-border payments and transactions between institutions.
It is possible for companies to start using RippleNet and the XRP virtual currency to reduce costs at the time of transacting and processing times.
However, there are just a few issues with Ripple’s plans. Banks could easily start to create a dollar token, replace XRP or another virtual currency and start transacting with other banks and institutions. Nevertheless, this is something that must be improved and that requires trust from other companies. How is it possible to be sure that behind each tokenized dollar there is a fiat dollar?
Indeed, banks do not trust each other. This is why banks work with the monopoly clearing system known as SWIFT. But there are public blockchains that can replace that system. Banks could improve their systems in some aspects by embracing XRP or other blockchain solutions but they will also rely on traditional systems until a new product enters the market.
Banks do not want to lose control. They want to remain in charge of everything as they are doing now. This is why they are working with private networks that are based on Ethereum and take a decision on whether Ripple and XRP are better than these permissioned networks. It can also be a possibility for financial institutions to fork Ripple and use another token that depends solely on the banks rather than in a company such as Ripple.
These banks can still embrace virtual currencies if they offer services related to them. For example, they can provide crypto-related bank accounts. Bank applications show national and foreign currencies, but it could be profitable to start offering virtual currency-related services.
For example, a financial company could display users’ funds in Bitcoin, Ethereum and also in US dollars or Euros. However, banks would not need to be physically avialable. They can just be online banks. Or let’s go even further, a bank could be just a smart contract where the user holds all the funds. But this can take long years to become reality.
About Ripple improving its presence in the virtual currency market and in the financial world, a few hours ago, XRP was able to surpass ETH as the second most valuable virtual currency. At the time of writing, Ethereum was able to recover its second place in the market. Ethereum has a market capitalization of $22.51 billion and XRP $21.31 billion.
Ripple could eventually replace the SWIFT system in the future allowing the financial industry to work smoothly than what currently does. Some banks might use US Dollars for local transfers in the US, or another fiat currency depending on the nation. Nonetheless, cross-border transfers could be performed using XRP and RippleNet.
However, as mentioned before, the banks will not allow XRP and Ripple to take part of the market that banks currently own.