Why does Ripple use Blockchain technology in the first place?

This is what I understand Ripple's use-case with banks.

You and I announce to a trusted third party that $10 million of my money should now be considered yours. This third party isn't a middleman who holds debt, - it simply keeps track of IOUs and regularly announces to all parties who owes who how much. The ACH system in the US (a.k.a. "Direct Deposit") works this way.

So, for the most part, bank's don't actually send money to each other at all - they just keep track of who owes who how much. Actually settling those debts, if it happens at all, has to happen outside of the systems above.

Ripple, as I understand it, basically a distributed public ledger of IOUs. (And those IOU's can themselves be traded as currency, when they're written by a trusted party.)

But why ripple uses Blockchain technology. Here doesn't Ripple acts as a middle-man? Why not to use central DB's? What is the difference of Ripple from a company that creates network of banks but rely it's technology on Oracle DB and related API's for example? Also who are the miners and nodes of the Ripple's use case with banks?

Thanks. Firat

Firat Akcoray

Posted 2017-12-30T19:56:41.367

Reputation: 113

Answers

This is a very good question. The simple answer is marketing. Technically, a standard database would have been much more efficient in achieving the same. However, there would have been even less reason to invent a token (XRP), you couldn't have found them on coinmarketcap, and they couldn't call it blockchain. So no billions for the founders.

stefanwouldgo

Posted 2017-12-30T19:56:41.367

Reputation: 579

Ripple did not set out to revolutionize the banking sector and replace existing banks. Ripple is just a protocol which enables real time payment transfer between individuals without any third party as a middleman.

As you said, Ripple keeps track of the state of IOUs on a distributed public ledger. And to get to consensus about the current state of ledger, it uses permissioned miners. People like you and me can not set out and start mining Ripple, but major banks can come together and contribute as miners. Ripple enables banks to work with each other in trustless and transparent environment. And that's how it uses blockchain.

Preet

Posted 2017-12-30T19:56:41.367

Reputation: 393

Ok I got the point somehow but now another question pops up. I'd like to send you 10 USD and it makes 5 Ripples at the time I try to make transaction. (1XRP=2USD) But then something happened and XRP currency lost value as %50 and you got 5 XRP and its value is 5USD right now. What is going to happen? – Firat Akcoray – 2018-01-09T07:41:05.940

You can think this way with any two currencies. Suppose I want to exchange INR to USD and the momemnt I exchange my 60 INR for 1 USD, exchange rate changes to 30 INR=1 USD. Cryptocurrencies are also currencies and their prices are derived from the supply and demand, same as of other currencies. – Preet – 2018-01-09T08:36:43.263

Yes but we have to admit that no fiat currency on the world is as volatile as any of the cryptocurrencies. – Firat Akcoray – 2018-01-09T21:44:06.747

Why do you not consider the permissioned miners a third party? Are they not responsible for completing the payment? – Steve Ellis – 2018-01-13T02:12:15.067

Permissioned miners are not third party because once a node gets permission to join network, all nodes are equal. Task of permission can also be done in distributed way by taking vote from all the nodes. – Preet – 2018-01-13T10:17:02.947

from https://www.whydoesthisneedblockchain.com/discuss/banking-finance/why-does-ripple-need-blockchain:

"to be clear there is ripplenet the protocol, ripple (xrp) the cryptocurrency, and ripplelabs the company. ripplelabs uses ripple as the base currency in its protocol. it's a way for banks to easily exchange these IOUs in a currency that isn't tied to any one bank. so any bank could theoretically come up with their own currency and say that's what they would send other banks, but there kind of needs to be a 3rd party in order for every bank to hop on board because of privacy. also it's much, much faster than any other current solution for banks to transact with each other. the ripplelabs use case for xrp is really more as a digital currency and less so for the decentralization piece."

mike

Posted 2017-12-30T19:56:41.367

Reputation: 11

It is true that due to the central banking system, transferring between banks within the same country is easy. However, when you look at international transactions, the process becomes more complex and involves the payer’s bank, that bank’s correspondent, the recipient bank’s correspondent, and finally the recipient's bank.

Ripple is really aimed toward international currency exchange, although may be used in countries that do not have an effective central banking system.

But if nothing else... at least you can imagine the ripples on a serene mountain lake as you skip rocks by the water's edge.

K Paul

Posted 2017-12-30T19:56:41.367

Reputation: 61