Book Image

Ripple Quick Start Guide

By : Febin John James
Book Image

Ripple Quick Start Guide

By: Febin John James

Overview of this book

This book starts by giving you an understanding of the basics of blockchain and the Ripple protocol. You will then get some hands-on experience of working with XRP. You will learn how to set up a Ripple wallet and see how seamlessly you can transfer money abroad. You will learn about different types of wallets through which you can store and transact XRP, along with the security precautions you need to take to keep your money safe. Since Ripple is currency agnostic, it can enable the transfer of value in USD, EUR, and any other currency. You can even transfer digital assets using Ripple. You will see how you can pay an international merchant with their own native currency and how Ripple can exchange it on the ?y. Once you understand the applications of Ripple, you will learn how to create a conditionally-held escrow using the Ripple API, and how to send and cash checks. Finally, you will also understand the common misconceptions people have about Ripple and discover the potential risks you must consider before making investment decisions. By the end of this book, you will have a solid foundation for working with Ripple's blockchain. Using it, you will be able to solve problems caused by traditional systems in your respective industry.
Table of Contents (7 chapters)

Inefficiencies in payment systems

Speed and cost is an important factor in any payment system. In traditional banking, system money needs to move through several intermediaries before it reaches its destination. Each of these intermediaries adds to the transaction fees. Settlement happens slowly, since manual work is involved.

Consider John, who's a US account holder and wants to send money to his friend, Peter, in Germany. Here's how the money would flow from John's bank account to Peter's account:

Here is how the transfer happens:

  1. John places a request to transfer money.
  2. John's bank is a small bank and doesn't have an EU banking license. Hence, it needs the help of a large US bank to make the transfer. It sends money to the bank, which possesses an EU banking license.
  3. However, the small bank cannot transfer funds directly to the large bank; it has to route funds through a federal reserve.
  1. Once the money reaches the large bank, it transfers money from its nostro account to Peter's bank.
  2. However, the transfer doesn't happen directly, since the funds need to be routed through the European Central Bank.

Each of these intermediates adds to the transaction fee. If $5,000 needs to be transferred, around $250 is charged as transaction fees.

International money transfer through Bitcoin

Let's understand how international transfer can be simplified using Bitcoin.

Here's how the money would flow from John's bank account to Peter's account:

Here's how international money transfer happens through Bitcoin:

  1. John exchanges his USD for Bitcoin
  2. He directly transfers Bitcoin to Peter's account without any intermediaries
  3. Peter exchanges his Bitcoin for Euros

Disadvantages of Bitcoin

Though this process reduces intermediaries and reduces the transfer time to almost 60 minutes, it brings in new issues. Let's take a look at the disadvantages of Bitcoin:

  • Bitcoin's system doesn't plug in to existing banking systems or currencies
  • Users need to create bitcoin wallets and exchange it with their native currency
  • Its market prices are highly volatile
  • Bitcoin is not widely accepted as a currency; in certain countries, it's illegal
  • It could handle only a limited number of transactions per second
  • Its transaction fees are high
  • Its proof-of-work mechanism demands an immense amount of energy

The key disadvantage of Bitcoin is that it doesn't work with existing currencies and forces the user to make transactions in Bitcoin. Since the currency is not widely accepted and some countries have banned transacting in Bitcoin, it brings in new risks to its users.