Interledger Protocol Dominance and XRP Geopolitical Intelligence
By JC Collins
Bones and old newspapers were all that remained. The world had changed but few noticed. Nations, corporations, banks, and global institutions had quietly restructured themselves around the emerging world of decentralized governance and commerce. Those who had seen the approaching transformation positioned themselves strategically. Those who hadn’t stumbled blind into the future. The wealth of the world had ascended as the lineage of empires fragmented and decomposed back into the earth. A new world had been born.
It is now only March 11, 2018. The year so far, at least for me, has been a blur of buying XRP while watching and reading as much information as possible on Ripple. Between crypto investing and learning about the Ripple Interledger Protocol (ILP), I have also come to know the Russian singer Vitas, who has somehow remained unknown to me since 2001.
But even finding Vitas has been a product of crypto research. YouTube personality Kung Fu Nerd uploaded a video called Bitcoin to the Moon which was a slowed down spoof of The 7th Element by Vitas. It was both bizarre and entertaining. I had to know more about this crazy Russian singer. When I heard the songs Opera One and Opera Two I became an instant fan. Thank you crypto world. Thank you Kung Fu Nerd. Vitas, I will see you in concert either in Europe or Asia, where you draw the largest crowds.
After almost a decade of researching the International Monetary System (IMS), and all of the inefficiencies within its financial architecture, coming to understand the full potential of Ripple and XRP was something of an educational enlightenment.
Since 1944 the IMS has been structured around the global role of the US dollar. During the Bretton Woods Conference of that year, 44 allied nations engineered the post-war monetary system which would govern and guide the world as it rebuilt from the devastation of war. The United States was positioned as the strongest of the major powers as its political and economic stability could be leveraged to support the new global framework.
The original intention of the English economist John Maynard Keynes was to use a supra-sovereign currency called bancor. Keynes reasoned that using the domestic currency of one nation in an international reserve function would cause global imbalances which would continue to expand, eventually leading to large financial crisis and currency exchange disruptions. During the closing arguments of the conference, the bancor was replaced with the USD. Russia was the only nation who would not agree with the switch. From that the fundamental framework of the Cold War took shape.
During the 1960’s it became apparent to most nations that the United States was expanding the supply of USD at a rate which was unsustainable. The ever growing international demand for the dollar was showing no sign of slowing down, and the accumulation of USD around the world transformed what was a trade surplus at the end of the war, to a growing trade deficit. There was a problem developing. A problem, which to now, still has not been corrected.
The accumulation of USD, and its function throughout the international monetary system, serves as the backbone for the majority of geopolitical challenges around the world. Though the United States gained much power and influence because of Bretton Woods, it wasn’t able to maintain balanced relationships with other nations. The possibility of decreasing dollar demand was a threat to the business and banking interests which had built up around the American establishment. But increasing dollar demand was compounding the problem of monetary imbalances and causing deflationary pressures in the domestic economy back home.
The American political establishment leveraged the growing liquidity of the USD to expand domestic welfare programs and build a larger military. Domestic programs were used to manage the perceptions around the increasing job losses as the trade deficit grew larger. The military was used around the world to protect and encourage further demand and accumulation of USD. The truth was that there was no viable alternative which could be used to replace the international role of the dollar. Another nation could rise up and claim the reserve responsibilities, but after removing the American military machine, if at all possible, they would also suffer the same Triffin deficiencies and imbalances. Faced with two bad options, the American establishment choose America.
Add in the creation of OPEC and the international payments system SWIFT in the 1970s to manage the denomination of worldwide energy sales in USD, trend with the emergence of terrorism and an increase of the Middle Eastern geopolitical firestorms which started with the Iranian Revolution, and you can begin to see how the world as we know it has been the product of a monetary agreement which few of us even understand.
The Asian financial crisis which started in 1997 was the first large scale indicator that the USD based centralized unipolar framework was entering into its terminal phase of fragmentation. The simplest explanation for this crisis was that the massive accumulation of USD by other nations contributed to a lopsided exchange rate mechanism.
Being that the dollar was the centre of the system, the burden of the inflation associated with the expansion of the USD money supply was transferred onto the currencies of the emerging economies. These currencies were devalued against the dollar. This devaluation created slow economic growth in the emerging nations, while forcing American companies to move production to those same nations as the higher valuation of the dollar made US exports expensive.
So it shouldn’t have been a surprise that Thailand was the first to suggest they would no longer peg their domestic currency to the USD. This sparked a fire and the Asian currency crisis spread to most of the emerging economies. It took almost two years for the turmoil to subside and new arrangements were put in place to manage a problem that wasn’t going away.
The next large scale indicator was the financial crisis of 2007 and 2008. The world economy was taken to the brink because of the imbalances and inefficiencies in the global framework. After the dust settled China was one of the first to come out with the recommendation that the USD be replaced as the world’s reserve currency. The People’s Bank of China recommended that the Special Drawing Right (SDR) of the International Monetary Fund be used as the alternative.
The SDR is a supra-sovereign asset based on a multi-currency composition, or basket of currencies. The problem was the USD made up the largest percentage of the SDR valuation, and America held veto power over the IMF Governance process. The fact that the SDR wasn’t an actual currency, and lacked the liquidity needed to replace the dollars worldwide function, only added to the challenges. Reforms were passed and new frameworks were theorized but never implemented.
The development of blockchain technology and Bitcoin provided the first real alternative to domestic fiat currencies. The Bitcoin network came into existence in January of 2009. The development of Bitcoin was a response to not just problems with the USD, but was more importantly targeted against the process of fractional reserve banking.
The evolution of blockchain technology and cryptocurrencies has only just begun. What started with Bitcoin has now expanded to over a thousand digital assets and tokens. One of these is called Ripple.
Ripple, and its digital asset XRP, started in 2012 and dramatically increased in value and importance throughout 2017. There are three products being offered by Ripple. One is xCurrent which is focused on processing payments for banks and other payment providers. Another is xRapid which provides on-demand XRP liquidity for the users of xCurrent. Then there is xVia, a tool for business to interact with the xCurrent network.
Ripple has a large scale strategy where it is partnering with banks and companies around the world on trialing xCurrent and xRapid. Even central banks, such as the Bank of England and the Saudi Arabian Monetary Authority, have announced partnerships with Ripple. The Federal Reserve in the United States has validated Ripple and is exploring a vast implementation of Ripple to improve its payments process. There has a been a lot written about the Ripple partnerships, so I will only touch on them here.
The USD dominated SWIFT system of international payments is one of the markets targeted by Ripple. Banks around the world have to hold multiple currencies in Nostro accounts in order to use the SWIFT system. There are trillions of dollars of liquidity locked up in these accounts. Utilizing xCurrent and xRapid as a replacement to SWIFT will release this liquidity and allow banks to repurpose it.
There are some who suggest that the valuation of XRP is volatile and could never be used for this purpose, as the banks holdings of XRP would be exposed to massive losses if the asset dropped in value. The problem with this is that the banks would not have to hold XRP. Bank A would convert domestic fiat into XRP and a transaction would take place over the Ripple network in 3 seconds. Bank B would receive the XRP and convert it into their own domestic currency. The full transaction would take 3 to 5 seconds with minimal exposure to price volatility.
This is not well understood by the critics of XRP. Consider the companies which are under threat from Ripple. It would be in their interest to promote confusion and misleading information on XRP in order to derail the progress being made. This could potentially even include other crypto companies who see Ripple as a huge threat.
There is a lot of technical information available on the Ripple network and XRP. This article is not intended to be a technical paper, but it should be noted that XRP and the Ripple ledger can process over 70,000 transactions per second. This is unmatched by any other crypto asset and can be scalable even further.
Another argument against Ripple is that the blockchain ledger is centralized, and as such, is not a true cryptocurrency. This is a gross mischaracterization of the facts. Ripple is in the process of expanding its blockchain nodes which validate each transaction. Before 2019 the Ripple ledger will be more decentralized than Bitcoin. This means that as more banks and business use the Ripple network and XRP, not only will the network be able to handle all of the volume in just seconds, with extremely low fees, but it will also be the most decentralized blockchain in the world. This is important because it will prevent any one institution, government, or person, from gaining dominance or leverage over the system.
The Ripple Interledger Protocol (ILP) is best explained as follows:
“At its core, Interledger is a web protocol for routing payments across independent networks. It is a technology approach which has never existed before.
Its purpose is humdrum but enterprise critical. ILP aims to:
deliver the payment speed and certainty necessary to service high volumes of all sizes and types of payments
making these cost-effective for customers
providing a profitable mechanism for financial institutions, specifically banks.
In theory, the ILP provides the same benefits as other blockchain systems, including the certainty and auditability of transactions. ILP proponents claim it adds advantages that traditional blockchains cannot offer, such as scalability, privacy and interoperability:
horizontal scalability: no limits to transaction processing to meet customer demand.
complete transaction privacy: transaction data remains private to only the transacting parties.
Interoperability between independent networks
utilization of existing ledgers, systems of record and currencies.
To Ripple, as the originator, the appeal was obvious. All banks and payment providers — from the smallest to the largest — can leverage the ILP’s open protocol to power payments across networks globally. The Interledger Protocol can work with any new network or system, regardless of its underlying technology (including, but not restricted to blockchains).”
To summarize, the Ripple Interledger can connect every payment service in the world and process payments across every network and ledger. Whether its Visa, PayPal, the Federal Reserve, Western Union, MoneyGram, Standard Chartered, JP Morgan, the Bank of England, or SBI, the Ripple network can provide seamless borderless payments in seconds for just fractions of a cent. But Ripple can also connect all of these with every other cryptocurrency and blockchain ledger. Ripple can in fact become the reserve standard across multiple platforms and ledgers, making it the most dominant monetary asset in the world, whether fiat or crypto.
There is another product which is being developed by Ripple called xPool. There is not much known about xPool, but it is speculated that it will be built upon a liquidity providing service for XRP. Banks, institutions, business, and individuals who own XRP can invest those digital assets in xPool. The liquidity required to complete a growing volume of XRP transactions can come from xPool, as xCurrent and xRapid withdraw and deposit XRP from xPool on a second by second basis. Those who own the XRP invested in xPool can increase the value of their investment through transaction fees and interest on interledger lending.
There are endless price predictions out there for XRP. These are futile, as at the end of the day it will be worth what it is worth. Forbes recently had an article suggesting that Ripple could be the next Bitcoin. It has already surpassed Bitcoin in purpose and function, but value is another thing. But keep in mind, as the use of XRP increases around the world, the amount of XRP available will be decreasing from the 100 billion it started with. As demand increases, supply decreases.
Some state that XRP could never appreciate much higher then where it is now because of the market capitalization. This is misleading once again because market cap is not a full indicator of valuation. Valuation is based on market penetration and real-world function. Market capitalization can serve as a rough measure of valuation based on very basic calculations, but should not be considered the final word on asset valuation.
Consider the adoption of Ripple and XRP as the international payments standard for governments and central banks, providing liquidity on the scale of the USD and all other currencies. Now add in retail and investment banks, payment providers like Western Union and PayPal, Visa, MasterCard, American Express, and a growing market demand from individual and institutional investors looking to own XRP. What do you think the valuation can be?
Get XRP and HODL. It’s the long game.
In closing, the real real-world potential of Ripple can be found in the development of geopolitical intelligence. This will far outweigh the future valuations of XRP. The wars and poverty which have afflicted the world and its empires for thousands of years have been spread and maintained through the centralization of wealth. A fully decentralized Ripple interledger with mass adoption of XRP as a global reserve asset, which no one entity owns or controls, can provide humanity with its first real opportunity to evolve its geopolitical intelligence.
This is the real mission of Ripple and its team of developers and strategists. Wealth will evolve and be redefined. All will be brought into the SMART global economy of tomorrow. A decentralized interledger XRP will fundamentally change the world.
There are some who are threatened by this evolution.
Bones and old newspapers. - JC
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