This is part 3 of our multi-part series on the blockchain. In parts 1 and 2 we talked about the specific effects of blockchain and cryptocurrency on the finance industry as well as how it will impact asset management and investing. Today we are diving into payments and banking.
You Get a Currency and You Get a Currency
While many banks are skeptical of bitcoin, none are skeptical of blockchain. But the marriage of the two is where it gets dicey. Because while central banks are looking into issuing digital currency, the biggest banks think the technology isn’t evolved enough to handle the world’s biggest payment systems.
Case in point: while Bank of America won’t allow their customers to trade bitcoin futures, the company itself has received at least 43 patents for Blockchain, the most of any other payment firm. Why? Because the slow processing of cross-border payments is one of the areas most commonly identified as ripe for blockchain-based innovation. And everyone wants to jump on the bandwagon.
“…in a world where you can stream video from the space station, but you can’t move your own money from point A to point B…how do we take advantage of technology available today to dramatically accelerate the nature of how transactions and payments happen?” – Brad Garlinghouse, CEO, Ripple
Right now capital is sitting in pre-funded accounts all around the world. When you decide to work with someone, you transfer your currency and they transfer theirs. But what if you didn’t have to pre-fund those accounts? Ripple wants to disrupt this model with sub-second cross-border payments and automated best pricing from its network. Since Ripple payments are nearly instant, their model removes credit and liquidity risk from the process, thus lowering bank (and societal) costs considerably.
Ripple sees an opportunity to make payments faster and cheaper by connecting different ledgers and thereby creating a universal protocol and solving the multi-trillion liquidity problem. And they’re not alone.