Why Open Protocols Are the First Step in the Distributed Ledger Movement

XRP	2018-6-17 22:34

In the 90’s, the Internet protocol (IP) caught on quickly. This standardized communications protocol along with a suite of others, such as HTTP and SMTP, allowed the Internet to interoperate and connect — making it possible, for example, for you to quickly send things like emails across different servers.

This adoption of common protocols spurred innovation and allowed the industry to continue to develop both new services on top of IP (web, streaming and IoT) and new technologies below it (faster Ethernet standards, 5G mobile and better WiFi).

In the same way IP became a universal format for sharing data across many different networks and beneath many different applications, the Interledger Protocol (ILP) — an open protocol suite for sending payments across different ledgers — will become the universal format for sharing payments across many different ledgers.

Standardization in Banking

For Ripple, ILP is an important component of our product strategy. We hear from many of our banking customers that it’s imperative to keep their transactions private, process thousands every second, and accommodate every type of currency and asset imaginable.

That’s why we integrated ILP into xCurrent so that it could help process instant and certain transactions across an infinite number of ledgers — including blockchains like the XRP Ledger. This approach takes the best of blockchain but addresses its key limitations, which separates Ripple from blockchain companies and consortiums still stuck doing experiments.

By connecting bank ledgers and existing infrastructure investments via ILP, banks are taking the first steps in improving global payments today — and in enabling a true Internet of Value.

Scaling Global Payments

But improvements to the current payments infrastructure alone are not enough. Many banks are still getting squeezed from one side by larger correspondents. Only a small group of these correspondent banks have the capability to manage liquidity efficiently, forcing the rest to pay exorbitant costs for their services.

These costs are so high that the number of correspondent banking relationships is decreasing, with non-bank payment companies stepping in to fill the void, offering lower costs and higher speeds, squeezing banks from the other side. It’s important for banks to also have a long-term plan to deal with competition and to attract and retain customers.

The next step — after banks can connect proprietary ledgers — is to enable settlement with an open digital asset. This provides on-demand liquidity and reduces expensive foreign exchange costs.

Ripple’s approach of settling with XRP concentrates liquidity around a universal asset without a counterparty, enabling any participant to contribute to the pools of liquidity and draw from them. Already, early adopters are seeing the benefit of using public liquidity pools between fiat and XRP with xRapid.

A Payments Infrastructure for the Future

It’s not enough to just repackage outdated technology with a fancy user interface and use buzzwords to sell it. At Ripple, we are focused on building a robust network for the future — where our solutions lay the framework for payments for the next 50 years or longer.

This starts with providing technology that the current financial structure is comfortable with: xCurrent, blockchain technology that provides cryptographically secure transactions across a dispersed network of ledgers and integrates easily with existing systems.

In the near future, we anticipate that open ledgers like the XRP Ledger will facilitate instant settlement of payments globally. Banks will adopt products like xRapid that allow for easy transactions between fiat and XRP to substantially lower their liquidity costs.

In the same way that IP dug new plumbing for the Internet, revamping global payments must start at the bottom infrastructure layer and move up from here.

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