The R3CEV banking consortium could be partnering with Ripple Labs, according to a tweet from Ripple Labs CEO Chris Larsen.
“The future of fintech is bringing together like-minded companies, like @R3CEV and @Ripple. More details to come soon…,” Larsen tweeted.
— Chris Larsen (@chrislarsensf) May 19, 2016
R3CEV Explores Ripple
Jo Lang, R3 research director, wrote a white paper on considerations for Ripple adoption by large financial institutions one year ago.
Lang noted that Ripple has focused on partnership versus competing with existing financial institutions seeking to gain efficiencies and improve transaction processes. R3 partnered with bitcoin developer Peter Todd to complete a technical review of the Ripple Protocol Consensus.
Ripple Labs is not trying to disrupt banking, Lang wrote, but upgrade traditional settlement and payment solutions. Ripple sets itself apart from current settlement solutions with cost, speed and ubiquity, Lang noted. “We have begun to see the emergence of newer payments solutions and products that have built on top of the Ripple network to leverage their settlement solution.”
R3 Has Concerns
On the cautionary side, Lang noted that there is great variability among transaction settlement requirements, and institutions will want to have transaction validators guaranteed to meet unique requirements.
Lang noted weaknesses in Ripple’s network, including its reliance on third party validators. The network’s highly decentralized model does not remove the need for a trusted third party. Instead, it creates a new kind of trusted third party, which is risky since misalignment can occur between Ripple and institutions.
Ripple could also rely on its cryptocurrency, XRP, which has the highest market cap following bitcoin and Ether.
In its current form, Lang said Ripple could emerge as a new trusted third party in bilateral settlement. One unique aspect is the potential for unique node lists to trend to a centralized model. Another aspect is a possible misalignment of risks or incentives with any expanded reliance on XRP.
Institutions seeking to adopt Ripple’s solution should evaluate the risks against the benefits for a new settlement and payment network, Lang concluded. These include increased currency interoperability, faster transaction processing speed and decreased costs.
Ripple Moves Forward
Ripple last month announced the hiring of Marcus Treacher, a veteran in transaction and payment systems banking. Treacher is a former executive at HSBC and member of the global board at the Society for Worldwide Interbank Financial Telecommunications (SWIFT), a Belgium-based facilitator of global bank transfers.
Adam Ludwin, the CEO of Chain, another consortium, criticized Corda, R3’s distributed ledger, noting that it doesn’t have a shared infrastructure, according to bankinnovation.net. Ludwin noted that it takes serious software engineering to get distribution, privacy and consensus in one system.
Ripple is specifically positioned as a bank-centric settlement system that claims 10 of the top 50 largest banks are involved with it.
Ripple’s financial technology enables banks worldwide to transact with one another with no need for a central counterparty.
Such goals are consistent with R3CEV, which has launched Corda, its own distributed ledger. Corda includes consensus mechanisms and does not have a native cryptocurrency. One of its core tenets is that a trusted third party is not needed, unlike Ripple.
Ripple might work within Corda as a settlement option for banks. Some banks already have relationships with both Ripple and R3CEV.
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