I consider Ripple as the DAC (Decentralized Autonomous Company) in a way that Max Wright described Bitcoin as the world first DAC in "Introduction to Bitshares" educational videos series [1]. He mentioned that product of Bitcoin DAC is payment service. Compared to that Ripple DAC product is also international payment service but more advanced, flexible and capable to handles much higher transaction rates. Ripple customer base is also much wider and includes important elements of existing international payment services like correspondent banks, (originating and beneficiary) commercial banks and their business and private customers. Ripple also has its own native customers like gateways, market makers and anybody who deals with XRP - Ripple's official token.
"Swift" market analysis. The SWIFT Network is a undisputed leader of international payment service market. SWIFT was founded in 1973 and was supported by 239 banks in fifteen countries. Today SWIFT has more than 10.000 users (including central banks) in more than 200 countries and territories and handles billions of transactions per year. In 2012 SWIFT disconnected all Iranian banks from network. Not long after SWIFT offered sanction screening as a service. There was a lot of pressure on SWIFT management to put sanctions against Russian banks during the Crimean crisis (2015-2016). This caused the formation of Cross border inter-bank payment systems in Russia and China (CISP) as SWIFT alternatives. SWIFT network and their alternatives are centralized systems and has no long future. There was several very serious security breaches based of SWIFT Aliance client software exploit during last couple of years. That was also possible because of inadequate security controls and measures on clients side (banks). Some central banks (Bangladesh and Russia) and commercial banks (Vietnam, Ukraine ...) was affected with tens of millions dollars damage. SWIFT did not offer new security architecture that solves problem.
Ripple is SWIFT competitor. Ripple has completely different and advanced security architecture based on blockchain technology - decentralized transaction ledger which is immune on centralized system based hack attack. Ripple offers peer to peer international payments between customers with trust relationship. Ripple system tries to find optimal path between customers with each part of the path with trusted lines. Compared with classic SWIFT transaction that allows faster transaction speed, lower transaction fees and lower settlement risk. At the moment Ripple has a small share of international payment systems market. In order to size up market share serious driving force is needed.
Ripple will be XRP central bank! By committing to place 55 billion XRP into a cryptographically-secured escrow account by the end of 2017 [2] Ripple practically announced that it will become a XRP central bank! By 55 monthly 1 billion XRP supply contracts specific monetary policy will be established. It includes constant and predictable (crypto) money velocity that is very important for all Ripple's stakeholders specially for banks which intends Ripple adoption. Target of that policy is stable and sustainable development of whole Ripple's eco system and sizing up international payment systems market share. I think that most important elements are (originating and beneficiary) commercial banks Ripple adoption rate and local/regional gateway growth. From the macro economy point of view this is a classic expansive monetary policy in order to achieve rapid economy development. That policy was applied in Germany and France after WWII and in Japan, South Korea and other south Asia tiger economies when it was in rapid development phase. Similar ideas advocates Sergey Glazyev, economic advisor of Vladimir Putin. Yes, some inflation is necessary in order to achieve development targets but it could be controllable. If I remember correctly, South Korea has about 15% inflation rate during rapid development phase. I think that Ripple's monetary policy is very serious and deep. Only demanded XRP will be supplied and rest of 1 billion in certain month will be transferred for 55 months later. It means that this monetary policy will last until target achievements. Although it has not been written anywhere, If monthly demand will exceeds planned supply I expect that additional supply will be provided (from Ripple or Ripple Lab inc) if that is necessary. At some point in order to achieve some other targets we could expect a restrictive monetary policy - XRP withdrawal from circulation (with price growth). That all is in domain of Central bank monetary policy.
Tipping points. Period of 55 months (about 4,5 years) supply program implies some concrete targets. I don't want to speculate much but from my point of view I expect one or two tipping points during that period of time.
1. Point when Ripple will achieves significant market share (about 10-15%). That will give the clear signal to banking and financial sector that Ripple is the significant SWIFT competitor. After that commercial bank Ripple adoption rate and number of transaction between end users trusted relationships will climbs.
2. Point when transactions volume over gateways will exceeds transactions volume over correspondent banks. That will give the clear signal that Ripple eco system is serious competitor to SWIFT and correspondent banks. Then XRP would become second internationally recognized cryptocurrency maybe with more market capitalization, volume and liquidity that Bitcoin. After that moment Ripple's future will be like Churchill's " riddle wrapped mystery inside enigma".
There are many risks on that road:
- Regulation for Ripple eco system, specially for gateways (Anti Money Laundering and Know Your Customer).
- Central bank reaction to capital outflows. I expect establishing of national cryptocurrencies as proxies between fiat money world and whole cryptocurrency eco system [3].
- New cryptocurrency competitors based on next generation advanced DAC blockchain platforms like EOS and Quantum that enables rapid development. Related to this Ripple aslo needs technology pivot and adoption of Quantum or EOS as DAC platform.
- Last but most serious: Ultimate reactions from SWIFT and big correspondent banks. Making deals with other Ripple crypto competitors. Independently of all that risks Ripple has best start position.
References:
[2] https://ripple.com/insights/ripple-to-place-55-billion-xrp-in-escrow-to-ensure-certainty-into-total-xrp-supply/
[3] http://www.coindesk.com/bank-russia-time-develop-national-cryptocurrencies/ http://www.coindesk.com/colu-open-sources-protocol-to-help-central-banks-issue-digital-currencies/