Ripple Protocol: The Internet for Value
Ripple is a universal protocol founded in 2012 to power the cheapest and fastest payment system for value
transfer. Ripple’s technology enables users to transfer funds (including fiat currencies, digital currencies and
other forms of value) across national boundaries as seamlessly as sending an email.
Building Upon Other Digital Currencies
Like other digital currencies such as Bitcoin, the Ripple Protocol enables peer-to-peer transaction settlement
across a decentralized network of computers. As a result, Ripple circumvents many of the fees and reduces
many of the risks involved in interbank funds transfers, particularly in international transactions. Unlike other
digital currency protocols, however, the Ripple Protocol is currency agnostic and users are not required to
transact in the Protocol’s native currency (XRP). In addition, the technology enables near real-time settlement
(three to six seconds) and is built to route each international transaction to the cheapest FX bid/ask spread
available in the network.
A Compelling Alternative to Correspondent Banking
As a result of its key features, the Ripple Protocol represents a compelling alternative to traditional interbank
funds transfer systems. While this report walks through several potential applications of the protocol, the
technology is perhaps most promising in international transactions. Given the absence of an international
payment rail, international interbank funds transfers rely on a series of correspondent banking networks which
introduce multiple layers of fees, counterparty risk and settlement delays. The Ripple Protocol eliminates the
costs associated with correspondent banking as it enables two banks located anywhere in the world to
transact directly on a real-time basis.
Partnerships are Key
Another key differentiator of Ripple is the network’s reliance on partnerships with banks, payment processors,
money transmitters, and other financial services institutions. This approach stands in contrast to other peer-to-
peer networks, most of which seek to disintermediate existing players. The Ripple Protocol is not built to
interface directly with consumers and does not govern retail prices. Thus, the Protocol provides financial
institutions with the flexibility of passing on some of the cost savings to their end customers (consumers and
businesses) while managing profit margins.
Regulation, Liquidity and Competition are Key Risks
Regulatory uncertainty remains the key hurdle for digital currencies, including Ripple. It is unclear how
regulation will ultimately shape up and what costs this will add on the protocol or to its users. Additionally,
much of the protocol’s appeal, such as the ability to send funds abroad and leverage competitive FX rates,
hinges on the network ability to scale volume. Finally, competition could intensify as some incumbents that feel
threatened by the rise of digital currencies could enact policies to restrict adoption.