Ripple Riddle: Two Obstacles To Becoming the Global Payments Standard

  • Ripple’s InterLedger Protocol is used by a number of banks and financial institutions around the world, but there are more to come in the 2018-2019 period, which builds a solid ground for future development of the company.
  • Regulators would like to enforce the anti-money laundering policies for the “gateways”, which are meant to validate transactions between participants, but XRP coin is not verified through the Ripple protocol.
  • Companies might abuse the anonymity provided by XRP coin with the aim to send money to suspicious wallets if regulators would not specify the way transactions are completed within Ripple.

Every cryptocurrency without “counterparty risks” (lack of trust in one of the parties) can be used to transfer money anonymously and cannot be regulated by any control bodies. Financial institutions used to solve the problem of having a counterparty risk by inducing regulations and controls over transactions between them and this process has a commission.

The Ripple protocol is an easier and a cheaper way of transferring money comparing to existing systems like Visa or Bitcoin, with minimum transaction fees in Ripple being $0.0007 per transfer, $2 in Visa and $0.65 for Bitcoin (BTC). In addition, Ripple can process 50,000 transactions per second, while Visa is only getting 24,000, which is a significant difference for banking systems.

There is a reason why Ripple was successful in setting up deals with big retail traders and banks, but there are two limiting factors that slow down the growth: high fluctuations of XRP and indecisive position of regulators on cryptocurrencies.


The sharp fall of XRP since January from 3.20$ per coin to $0.57 per coin today puzzles crypto investors and brings uncertainty over coin’s price and sustainability of the project in future.

Ripple (XRP) CryptoCompare Chart Volatility

In Ripple's 'Cost Cutting Case for Banks' paper they shed light on the cost of hedging XRP and they estimate that savings using Ripple protocol and XRP still outweigh the savings of using Ripple protocol only. However, this is assuming a low volatility of XRP, the last 6 months as seen in the chart above clearly do not classify as ‘low volatility’. In December 2017 the 7-day average volatility hit 190.55%, it has since dropped to 31.48% which is still considered very high in comparison to traditional FX.

When questioned in a parliament hearing recently , Ryan Zagone, Director of Regulatory Relations at Ripple, said that the exposure for banks using XRP for remittances was only 3 to 4 seconds, making exposure to volatility risk very low and easily manageable.

Ripple (XRP) Cost Cutting Case for Banks


As with any nascent market regulation is a source of great FUD. Like all cryptocurrency’s Ripple suffers from this FUD. There is a class action lawsuit against Ripple and SEC Chairman Jay Clayton did not clarify whether XRP will be treated as a security or not, which is important for the outcome of the case.

One of the internal features of Ripple that might make it attractive to financial institutions is its duality in the sense of money transferring. If regulatory issues are sorted, Ripple will become a dangerous competitor to Visa and MasterCard and it will try to take market share from them.

When a financial institution would transfer its activity onto Ripple, it may decide not to use the protocol, but instead use the XRP token, which will help to hide details about the wallet holder to whom money are transferred. This might go against international laws and some countries might abuse this feature a lot with the aim to avoid political and economic sanctions that restrict wealth transferring across borders. Until there is greater regulatory certainty surrounding Ripples future, there is a risk that lawmakers will hinder Ripples usability. As with any truly disruptive technology Ripple is forcing regulators to make new laws and this will take time.

Overall, the future of Ripple is hard to predict now and will depend on their ongoing negotiations with financial institutions and the verdict that SEC will make on cryptocurrencies. However, there is a possibility for stricter control over requirements for companies that would like to process transactions, as Visa and MasterCard may lobby their interests against competitors, such as Ripple.