Dear Financial Voice Reader,
I was a young presenter on Bloomberg TV with my own trading online show when the original internet bubble hit. Before Facebook, there was MySpace. Before Spotify there was was Napster. Before Google there was Yahoo. First mover advantage is not necessarily the best place to be – Bitcoin beware.
Why Ripple over Bitcoin?
If I had to bet on one, and I don’t, then the case for Ripple is far stronger. It’s just most people do not bother to dig into the technicalities.
Whereas Bitcoin was principally established for peer to peer money transfer, between individuals, Ripple was established to handle interbank transfer at much larger size. That to my mind means more volume and so more value of the coin.
Of course, it has the basics of any decent Cryptocurrency; first, connectivity across payments networks, second, speed of instant on demand settlement, third, real-time traceability of funds and finally, low operational and liquidity costs.
But what caught my attention is the global network of customers. Ripple has customers such as Santander, Standard Chartered, Credit Agricole, UBS, American Express, India’s Axis Bank, BBVA among others.
Who Solves the Bigger Problem?
Ripple was created to solve an important problem worth trillions daily. Of the five trillion dollars traded on the forex markets daily, this is not done by individuals but between banks and traders. It’s Ripple’s territory not Bitcoins.
The problem Ripple was created to solve is the delays between banks. Currently when my business wires funds abroad through my bank, if any information is incorrect, the payment is returned and delays accrue. (Do you know how to fill in routing instructions via 3rd party banks when wiring USD from the UK to UAE?) The chances of error are huge – I tell you as a business man. If you’ve never sought an MT103 trace from your bank, you will not truly appreciate the problems of international corporate money transfer and the ensuing stress.
Ripple ensures both banks validate critical information such as customer ID, fees, rates, time of delivery before funds are transferred. This allows the bank to know beforehand if the transaction will pass or not and so remove the failed transaction problem. By removing the correspondent bank, we remove risk management issues too.
But unlike Bitcoin, which can take over an hour to settle, (still better than traditional systems taking 3-5 days, if you get to your bank before 1530!), Ripple settles in 4 seconds. By the way Ethereum takes over two minutes.
Ripple handles about 1,500 transactions per second, 24x7. They do claim they can do a comparable to Visa scale of 50,000 per second.
Who are behind Ripple?
As an asset manager running a private equity fund, I like to know who are investing in an backing a company. Ripple’s shareholders include Andreessen Horowitz. Not heard of them? They backed PayPal as an original founding investor. How about Google Ventures, Santander InnoVentures, Standard Chartered and Accenture – all investors as shareholders in Ripple.
Traction
Traction of any technology is not just if the public are interested, but the big entities. In the case of Ripple, it does not get bigger than the Bank of England. The Bank of England Accelerator has published a report on how they may be able to use Ripple for real time settlements.
For me, for now, that is ample background information for me to invest alongside Google Ventures in Ripple too.
Alpesh Patel
Alpesh is a hedge fund manager and Author of Trading Online (Financial Times). Alpesh takes a limited number of trading and investing apprentices: www.alpeshpatel.com/go
