BFC5130 - Case 4 - Ripple: business in Crypto PDF

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BFC5130 – Case Studies in Banking and Finance Semester 1, 2021 CASE 4: Ripple – The Business of CryptoDate of Submission: Monday 29th MarchSubmitted by:Words Counted: 998Table of Contents Findings...........................................................................................................

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Ta bl eo fCo nt e nt s Fi nd i ng s ..................................................................................................................................2 Cryptocurrencies and blockchain’s role in 2025..................................................................................2 The advantages of XRP vs. Bitcoin vs. Ether.......................................................................................3

Di s c us s i o n..............................................................................................................................4 Brad Garlinghouse’s strategy..............................................................................................................4

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Ex e c ut i v eSummar y

Th ep u r po s eo ft h i sr e p o r ti st od i s c u s st h ec h a l l e n gi n ga n dt h er o l eo ft h ef u t ur ec r y pt o c ur r e n c i e s a n db l o c k c ha i ni nt hen e x tfiv ey e a ri nt h efin t e c ha n dfin a nc i a li n du s t r y . I twi l la l s of u r t h e r e l a b o r a t eo nt h ea d v a nt a g e so fb i t c o i n , XRPa n dETHa swe l la sGa s l i n g ho u s e ’ ss t r a t e g i e sf o r Ri p p l e . The r e f o r e , i ti sa b l et oc o n c l u d ea n dg r a deh i ss t r a t e g ya n dh i sv i s i o no nt h ec o mp a n ya nd t h ef u t ur eo ft h ewh o l efin t e c ha n de c o n omyt h a ti ti son l yr e a s o n a bl ei fRi p p l ec h o o s en o t t o e x s i tt hes of t wa r ec o mpa n ya n dc o n t i n ueo ns t a yf o c u so nt h ec r o s sbo r d e rp a y me n tt ot a k eo v e r o rf u l l yr e p l a c ewi t hs wi f t .

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Fi n d i n g s

Cryptocurrencies and blockchain’s role in 2025 I nt h er e c e nt y e a r , i ti sc l e a rt os a yt h a tfin t e c hi n d u s t r yh a sb e e ns i g n i fic a n t l ygr o wt ha n de x pa n d t oe v e nmo r ea d v a n c el e v e l s . Cr y p t o c u r r e n c i e sa n db l o c k c h a i na sp a r to ft h efin t e c hgr e a t e s t i n n o v a t i o n , b a n ki n g , fin a n c ea n dpa y me n ts e c t o r sh a se n h a n c e dt h e i rp r od u c t i v i t yb e y o n dt h e i r l i mi t a t i o n .Asc a nb es e e n , t h e s eo p e ns o u r c e sn e t wo r ka n ddi g i t a lc u r r e nc yh a sb e n e fic i a lf o r b o t hfir msa ndc u s t ome r s , a swe l la sf o rt h ee me r g i n gma r k e t . The r e f o r e , i ti se x p e c t e dt h a t , i nt he n e x t5y e a r s , t he ywi l lc o n t i n u et op l a yo re v e nb i g g e rr o l e si nt h eme d i u mo fe x c h a n g ei nt h e fin a n c i a li nd u s t r yo re v e nc o n s o l i d a t i ont oa n ot h e ri nd u s t r y .

Si n c ec r y p t o c u r r e n c i e sa ndb l o c k c ha i nwe r ei n t r o d u c e d ,t h e r eh a v eb e e na ne n or mo u si mp a c ton t h ewh o l efin a nc i a li n d u s t r yd u e st ot h er ol e st h e yp l a y . Fo rfir ms , t h e yh a v ef a c i l i t i e st h ep a y me n t a n dt r a n s f e ri naf a s t e s twa yp o s s i b l ea swe l la sc h e a p e rc os t . Th e ya r ea l s oa bl et ofin da n d c o mmu n i c a t et omo r ec u s t o me r swo r l d wi d e . Fo rc u s t o me r s , i ta l s og o e st h es a mewa y ,f a s t e r s e r v i c e sa n dc h e a p e rc o s ta n dt h emo s ti mp o r t a n tt hi n gi sp o t a b i l i t yt ha tt h e yc a nt r a n s f e ra t a n y t i mea n da n y whe r ewi t ht h eh i g hs e c u r i t yofb l o c k c h a i ni nwh i c ht h e i ri n f o r ma t i o nwi l ls a v e b o t ho ffli n ea n do n l i n e . F o re me r g i n gc o u n t r i e s , t h e s ewi l lb et he i re x p a n s i o nt ot h egr e a t e r t e c h n o l o g yo ft h efin a nc i a ld e v e l o p me n ta nda c c e s st oe n d l e s ss e r v i c e sa n de x pl o r eg r e a t e r c o mp e t i t i v ep r i c ea n dc o s t .

Th emo s ti mp o r t a n tt h i n gt oc o n s i d e rt h a tt h er o l et ha tt h e ya l s or e p l a c ei n2 0 2 5i st h e mi d dl e ma n , f o ri n s t a nc eb a nk sa n do t h e rfin a n c i a li ns t i t u t i o n s , t hi swi l lgr e a t l yr e d u c ec o s ta n d t i mea n de ffo r tt ha th a v et op u tt h r o u g ht h et r a d i t i o n a li n t e r me d i a r i e s .Bu to n ema yq ue s t i o nt h e n e g a t i v ei mp a c t o nt h o s emi d d l e me nwhe nt hefint e c hf u l l yt a kep l a c e .

The advantages of XRP vs. Bitcoin vs. Ether Ma n yt yp e so fc r y p t o c u r r e n c i e sa r el a t e rl a un c h e di n t ot h ep l a t f or mo ffin a n c i a li n d u s t r y ; h o we v e r ,i ti se s s e n t i a l t ou n d e r s t a n dt h ev a l uep r o po s i t i o no fe a c ha n dd i s t i n g u i s ht h ed i ffe r e n t 3

a n ds i mi l a r i t i e s . Th ef ol l o wi n gc r yp t o c u r r e n c i e st ha twi l lb edi s c u s s e db e l o wa r eBi t c o i n , XRP a n dEt he r . Bi t c o i nh a sb e e nv e r yp op u l a rs i n c ei twa sl a u n c h e d, e v e nt h o u g hi th a sb e e ng o n et ou pa n d d o wnd u r i n gt h ep e r i o d . Th ep r i ma r yp ur p o s eo fBi t c o i ni st ob eo p e r a t i n gwi t he a s ep a y me n t t h a th a sabl o c k c h a i nt os e c u r ea n ds t o r ev a l u ei nap u b l i c , d e c e n t r a l i s e da n ds e l f s u s t a i n e dwa y . Th eo wn e r s h i po ft h eb i t c o i na l s oc a nb ei naf r a c t i o nwh i c hma k ei te v e ne a s i e rf o rt h es ma l l e r p l a y e r so rt r a d e r si nt hema r k e t .An dwi t hh i g h l yt r a ns p a r e n c ya n ds e c u r e , t h e i rp e r s o n a ld a t ai s h i g hl yp r o t e c t e da n dv e r yc h a l l e n g i n gf o rt h eh a c k e r st og e tt h r o u g ht h eb l o c k c ha i nc o n t r o l .

Ri p p l e ’ sc r y p t oc u r r e n c ykn o wna sXRPi sfir s tp r o j e c td e s i g nwi t hac o n s e n s u sme c h a ni s mt ha t d ono tn e e dmi n e r . I t sma i na d v a n t a g e si sr a p i d ,l o wc o s tt r a n s a c t i o n s .I ti st h ef a s t e s t , c he a p e s t c r yp t o c ur r e n c i e swi t hne g l i g i b l ee n e r g yc o n s ump t i o nt h a tu s e dac o ns e n s u sne t wor ko fv a l i d a t o r s t op r o c e s st r a n s a c t i o n s . XRPn e t wo r ko rRi pp l en e t wo r ki se s t a b l i s h e dt oh i g h l yr e g a r dt h e t r u s t e dp a r t i e st h a tg r e wo r g a n i c a l l ywh i l ep u s h i n go u td i s h o ne s tn o d e st op r e v e n t ma l i c i o u s a c t i v i t i e s . Ev e nt h o u g h ,t h e r ei sn oi n c e n t i v e , t h ev a l i da t o r sh a sv o t i n gr i g h to nu p d a t e sa n dh a d a ni n t e r e s ti nt h es u c c e s soft h en e t wo r k . I ti sa l s ofir s ti n t r o d u c e dI n v a r i a n tc h e c k i n gwh i c hi s wa st h es y s t e mt h a t u s e dt ofin db u g sbe f o r et h e yc a u s e da n yp r o b l e mi nt h el e d g e r . Et he r , mo r ec o mp l e xe n v i r o n me n tc o mp a r e st ob i t c o i n, wa si n t r o d uc e di n20 1 5 , l a u nc h i n gwi t h i t so wnb l o c k c h a i nt h a ta l s ou s ep r o o f o f wo r k , bu twi t had i ffe r e n th a s h i n ga l g o r i t h mt h a t a l l o we db l o c kc on fir ma t i o n so fo n l y1 2s e ca ndt h ep r oc e s s i n go f1 5t r a n s a c t i o n sp e rs e c on d .I ti s o ffe r i n gc o n s t a n tmi n i n gi n c e n t i v eu nl i mi t e du p o nt het o t a l s u pp l yo fETH. Thek e ydi ffe r e n c e wa st h ed e v e l o p me n to fd e c e n t r a l i s e da p p l i c a t i o n skn o wna sDAp p so rs ma r tc o nt r a c t s . Th e s e s ma r tc o n t r a c t sg a v es o f t wa r ea p p l i c a t i o nst h eb e n e fit so fd e c e n t r a l i s a t i o na n ds e c ur i t yt h a tc a me wi t ht h eb l oc k c h a i n . Di s c u s s i o n Asc r yp t o c u r r e n c i e si ss t i l lf r e s h l yn e wc o mp a r e st oo t h e rc u r r e n c yl i k efia t g o v e r n me nt i s s u e d mo n e y , t h efin t e c hc o mp a n ys u c ha sRi pp l ei ss t i l lwo r ki n go nt h eb l o c k c h a i ni mpl e me n t a t i ona nd d e v e l o p me n tt oma k ei te v e nf a s t e ra n dc h e a p e ra n dh i g h l ymo r es e c ur e d. Ot h e rc h a l l e n g e di st h a t t h er e pu t a t i ono ft h eb i t c oi ni sa l s owe l lkn o wni nt h eb l a c kma r k e t . Th e r e f o r e , s o mema j o r i t yof 4

p e o p l es t i l ln o tf u l l yt r u s tt h ei n t e g r i t yo ft h ema r k e t .Hi g h l yr i s ka n dv o l a t i l i t yo fon ei nt he fin a n c i a lma r k e t , a l s oc a u s eae n o r mo u ss u c c e s s f u li ns p e c u l a t i v ea n dl o s tf o rt h ei n v e s t o r s .

Brad Garlinghouse’s strategy Ga s l i n gh o u s eh a sag o o dv i s i o nf ort h ec o mp a n ya n df o rt h ef u t ur efin a n c i a li n d u s t r ya n da swe l l a st h ewo r l d .Hea b l et os e et h ef o r wa r d l o o ki n gi n s i g h to ft h ef u t u r ep o t e n t i a lo fRi p p l e Bu tt h e r ea r es t i l lc r i t i c i s msu p o no t he r sp l a ni fh ewa n t st of u l l yi n v e s ti nXRPord i v e r s i fie dt o o t h e rs e r vi c e s . AsGa r l i n g ho u s eme n t i o n e d, Cr o s s b o r d e rpa y me n t swe r eon l yt h efir s ts t e pi nc r e a t i n gt h e “ i nt e r ne to fv a l u e ” . I ti sr e a s o na b l et oa s s u met ot h a th eh a sab i g g e rp l a nt h a nj u s tt hec r o s s b o r d e rpa y me n t . An di ti sa l s oc l e a rt h a tt h er i p p l ec u r r e n c y ,XRP , h a sb e e ng o i n gt hr o u g hah u g h r o l l e r c o s t e rr i d ewi t h i nj u s taf e wh o u r sad a ywh i c hi n d i c a t e st h a ti ti ss t i l lv e r yh i g h l yr i s k yi f Ga s l i n gh o u s ewa n t t oa ba n d o nt h es o f t wa r eb u s i ne s st of u l l yi n v e s ti nt h eXRPe c o s y s t e mf o r n e wu s a g emod e l s . On ewo u l db e l i e v et h a ti to n l yma k e ss e ns ef o rGa s l i n g h o us e ’ ss t r a t e gyf o r Ri p p l et oc o n t i n u ef o c u so ne x p a n d i n gt h ema r k e to ft h ec r o s s b or d e rp a y a me n tt of u l l yt a k i n g o v e rt h es wi f ta nda c c e s st omo r ec u s t o me r st h a nt heb i gb a n ksl i k ec i t i b a n ks . Th e ys h o u l db e b u i l d i n gt he i rr e p u t a t i o nwo r ki n gwi t ht h eb a n k sa ndr e g ul a t o r st oi mp r o v eu p o nt h ee x i s t i n g fin a n c i a li nf r a s t r u c t u r e . Ga s l i n gh o u s es h o u l dc on t i n u ewi t hhi sp l a no n eo nt h ebo r de r l i n ep a y me n te x p a ns i o n . An dwa i t u n t i laf e wmo r ey e a r st os e ei ft h e r e ’ sag r e a t e ro p po r t u n i t yt oe x p a n di n t ot h eo t he rs e c t o r sl i k e d i v e r s i fic a t i o nr a t he rt h a nt a k et h eh i g h e rr i s ka n dj u mpi nt ot h en e wg oa l swi t h o utap r o p e rp l a n .

Cl a s sn o t e : The characteristics of money are durability, portability, divisibility, uniformity, limited supply, and acceptability.

Ba n k so n l yha v et h ec e r t i nc a p i t a lr e s e r v et h a tt h e yh a v ei nt e h i rb a l a n c emo n e ya sr e a l s s e t 5

Cu r r e n c yl i k eCBr e s t r i c t e d De p e n do nt h ee c o no myb r o a d l y Le g a l t e n d e r Wh a tma k emo n e yfia t ?Th ea s p e c t t h a tma k ei tfia t ? wh a t ma k ei ta c c e p ti t ?Be c a u s et h e yh a v et ou s ei ti nt h e i rc o u n t r yun l i k eb i t c o i n t h es t a b i l i t yi nt h ev a l u eo ffia t c u r r e n c y t h et r u s tf o rt h eg o v e r n me n tf r o mpe o p l e * * i ft h eg o v e r nme n tn o tr e s p o n s i bl e , fia tc ou l db eap r o b l e m Th a t ’ swh yp p lg ot oc r y pt o

Wha ti sc r y pt oc ur r e nc y Pr i v a t e, no t Fa s t e r Ma r k e td r i v e n Us i n gb l o c k c h a i nt e c h no l o g y De c e n t r a l i s e d Do e s n ’ t r e q u i r ei n t e r me di a r i e s By pa s st h efina n c i a li n s t i t u t i on s I n fl; a t i o nd e v a l u ey o u ra s s e t De v a l u ey o u ri n v e s t me n t Pplwa n tt og e ta wa yf r om t h eg o v e r n me n ts u p p l y

cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. Many cryptocurrencies are decentralized networks based on blockchain technology—a distributed ledger enforced by a disparate network of computers. A defining feature of cryptocurrencies is that they are generally not issued by any central authority, rendering them theoretically immune to government interference or manipulation.

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