It’s no secret that the reputation of crypto currencies has greatly improved: some of the world’s banks have moved closer to Ripple.
Crypto currencies are no longer seen as a threat to banks and governments – they are now referred to as „digital assets“.
More and more financial companies are getting used to the blockchain technology – which is known to be the technological basis for these crypto currencies. This development leads to an open discussion about a future in which these crypto currencies would be another financial tool in the financial industry.
Ripple stands by the Bitcoin formula
Twelve banks from the R3CEV blockchain consortium have therefore joined forces in an initiative to test a possible use case for crypto currencies. Today these twelve banks announced that they have completed a series of tests using XRP, the currency of the startup Bitcoin formula.
The test series was conducted in R3’s laboratory and was designed to show banks how they could save money and generate new revenue streams through XRP. XRP would help them provide liquidity to their many bank accounts around the world.
Nilesh Dusane, Sales Manager at Ripple, said the venture not only showed how banks could reduce delays in the transaction process, but also how money could be saved by using the technology that underpins Ripple. „Ultimately, it’s all about the return on investment. The project aimed to maximize ROI by reducing costs.“
Turning Nostro Accounts into Profit for Bitcoin trader
In a nutshell: Instead of making Bitcoin trader obsolete, the aim of the experiment was to show Bitcoin trader how they could profit from crypto currencies.
So that banks can do business worldwide, they open accounts – so-called nostro accounts – whose balance is filled with money in local currencies. According to Ripple, this results in a huge waste of capital.
First, according to Ripple, values are lost because the local currency that must be in the accounts is ultimately capital – which could also be invested elsewhere. Increasing the liquidity of these accounts costs a lot of money. Secondly, there may be delays in the transaction process, which can grow to several days. These delays can come when a customer wants to trade with a monetary value higher than the value of the nostro account.
The tests were designed to show that banks could use XRP to create markets for fiat currencies – and ultimately make nostro accounts obsolete – with the help of the Ripple network.
The tests included Barclays, CIBC, Intesa Sanpaolo, Royal Bank of Canada, Santander and others. They were given control over their own wallets and the ability to move funds from one virtual location to another.
According to Dusane, there were no real cross-border transactions within the experiment.
„Because our system works in real time, banks can buy euros or any other currency if needed – their capital is not tied to any currency. In cases where they need more money than they currently have, they can act quickly.“
Ripple’s ability to ultimately work without a currency is appealing to many financial companies who otherwise flinch at the word Bitcoin.
This assessment motivated Ripple to produce a report in which they describe in more detail the cost savings associated with using a crypto currency.
In the February report, Ripple estimates that distributed ledger technology can lead to savings of 33% in international transactions. If crypto currency were also used, this saving would rise to 42%.
The rampant use of Ripple without a crypto currency actually led to some confusion about what the company actually wants. In an interview with Ripple’s CEO Chris Larsen, he said:
„We should have done a better job in explaining XRP’s role on the Internet of Values.
Ultimately, there are several reasons why Ripple was reluctant to do so. XRP, like so many other crypto currencies, is extremely volatile. In 2014 XRP once had a market capital of 800 million dollars – since May 2015 this has been around 300 million dollars.
The current value of Ripple is around 0.8 cents. 35.4 billion tokens are available to the public, while 64.5 billion tokens are under Ripple’s control. When they started Ripple, the company distributed the entire 100 billion tokens among 25,000 beta users.
Against the stigma
Of course, in the run-up to the ex