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Banks are unlikely to use distributed ledgers to process cross-border payments for now because of scalability and privacy issues, according to Ripple, one of the most prominent startups developing the technology.
“I will concede, we haven’t gotten there yet,” Ripple’s chief cryptographer David Schwartz said in an interview.
Banks have been vocal about taking steps toward deploying the technology originated from cryptocurrencies to make processes like international payments faster and cheaper.
In an interview with Reuters, Schwartz argued that despite the fact that banks acknowledge blockchain technology’s potential in reducing transaction times and costs, the technology is still not scalable and not private enough to be implemented by banks on a global scale.
Ripple claims that xCurrent’s immutable “interledger” protocol offers instant settlement, making it superior to existing payment networks. However, xCurrent “is not a distributed ledger,” according to Schwartz. In xCurrent’s case, the network peers do not have access to a shared ledger, which is the basis of major blockchain networks like Ethereum (ETH) or Hyperledger. Schwartz said:
“What we hear from many of our customers is that it’s imperative to keep their transactions private, process thousands every second, and accommodate every type of currency and asset imaginable.”
Several banks have tested or deployed a system Ripple developed for international payments that uses a “bi-directional messaging” that can eventually plug them into distributed ledgers, but xCurrent’s technology itself “is not a distributed ledger,” Schwartz said.
We started out with your classic blockchain, which we love,” Marcus Treacher, senior vice president of customer success at Ripple said in an interview. “The feedback from the banks is you can’t put the whole world on a blockchain.”
“What we hear from many of our customers is that it’s imperative to keep their transactions private, process thousands every second, and accommodate every type of currency and asset imaginable,” Schwartz said. Ripple’s approach is what has enabled it to move beyond tests with banks, he added.
In May, financial institutions that took part in a pilot of Ripple’s xRapid platform reported transaction savings between 40-79 percent, while also noting a significant improvement in transaction time, from an average of 2-3 days to “just over two minutes.”
In April, Spanish-based international bank Santander confirmed the launch of its Ripple-powered blockchain payment network One Pay FX, reportedly becoming the first bank to do so.