Key Takeaways
- Ripple’s private ledgers offer banks privacy, but real global utility needs XRP’s public mainnet.
- Cross-chain value movement relies on XRP’s liquidity and bridging functions.
- XRP must reach higher price levels to support large-scale institutional use.
Financial institutions thrive on discretion, and public blockchains like XRP Ledger (XRPL) pose a visibility issue. To address this, Ripple created private versions of XRPL, tailored for banks.
These permissioned networks enable banks and big institutions to issue currencies, do internal testing, and tokenize assets without sharing workflows and strategies with the world. According to Jake Claver, banks just can’t function in an environment where their sensitive actions are disclosed to the world.
Every bank basically ends up with its own isolated system, working as a secure digital island. But this design comes with a flipside; the private ledgers do not speak to each other.
So when institution-to-institution transactions finally happen, the problem is interconnectivity. Ripple’s solution is a hybrid approach where XRP’s public mainnet serves as the neutral settlement layer between these private silos.
XLS-38 and the Mechanics of Cross-Chain Bridges
In order to shift assets between chains, Ripple launched tools such as XLS-38. This facilitates interoperability through “door accounts” and “witness servers” to lock up an asset on one private ledger and rebuild it upon another.
Claver depicts this through the issue of a CBDC from a central bank on a private chain. Where the need for cross-border payments occurs, those tokens are then routed over XRP onto the public ledger.
The key is liquidity. The cryptocurrency must be extremely liquid and reasonably valued to accommodate large-volume international settlements. If it’s cheap or doesn’t have depth, it can’t effectively plug trillion-dollar markets. Stablecoins, commonly put forward as a potential alternative, are insufficient.
Every institution creating its own coin restores the inefficiencies of the legacy system, such as Nostro/Vostro accounts. It provides a simpler, decentralized alternative where no entity owns it and its function is merely to connect isolated networks.
XRP’s Endgame: Global Financial Glue
Ripple has operated behind closed doors with over a decade of working with central banks. That extended gestation period allowed the institutions to get used to distributed ledger technology without being pushed out prematurely into the open.
CTO David Schwartz of Ripple gave the impression this silent period won’t persist indefinitely. Eventually the private networks will be ready to interconnect with the XRP mainnet.
Once that arrives, the utility of the cryptocurrency as a bridging asset will be put to the test at a very large scale. But this will work provided its supply and its price can accommodate multi-trillion-dollar-sized volumes across borders without triggering market instability. It is more than just a token; it’s infrastructure. The backbone to future-proof finance globally.
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