The Ripple network uses gateways and IOUs to convert assets into their digital form. Gateways act as an entry point into the network. IOUs are then issued by gateways to participants for redeemable tokens.
The development and future of Ripple’s XRP coin are dependent on the growth and rise in the total number of gateways. A higher number of gateways will result in greater ease when entering and accessing the Ripple network.
How Gateways and IOUs Work
RippleNet is a global network developed by Ripple Labs for the purposes of enabling cross border payment transfers using XRP digital coins. Financial companies and banks can use the network for transactions across geographical borders.
A gateway is an entry point of the Ripple network. Different companies that are members of RippleNet also act as gateways. The role of a gateway is to issue IOUs, an informal acknowledgment of debt, and to act as an entry point for money to flow in and out of the system.
In the Ripple Network, an IOU is represented by an internally-used digital token that could represent tangible assets. The IOU is issued by the gateway against a deposit made by the customer. It is transferable across the Ripple network. The customer can choose to transfer it to any other customer. However, the IOU can only be exchanged for its value at the issuer.
xRapid Could Boost Ripple Network
Different financial companies are said to be exploring the use of Ripple’s xRapid network.
eToro CEO Yoni Assia, for instance, recently visited Ripple’s San Francisco office on March 7, 2019. The trading and finance company is researching the possibility of migrating to xRapid to improve its margins. Assia met Ripple CEO Brad Garlinghouse to discuss potential advantages of the move. Praising Ripple, Assia said that, being a fintech company, it was important for them to foster mutually-beneficial relationships with other companies in the industry.
Digital currency exchange Binance is also said to be in preliminary negotiations for a joint venture in the near future. CEO Changpeng Zhao said that, while no progress had been made so far between xRapid and Binance, he was positive of something happening in the future.
Japan-based SBI Holdings is also trying to embrace xRapid in a bid to simplify global payment transfers.
xRapid allows banks and financial companies to convert their fiat currency into XRP coins and then use the Ripple network to seamlessly transfer this amount to another country in fiat. The fiat currency is converted to XRP for a very short time until the payment is completed on the network. Post-transfer, XRP coins are converted back to fiat and transferred to the destination account.
Could xRapid help boost the growth and adoption of Ripple and/or XRP? Let us know your thoughts in the comments below!