At the end of January, Ripple CEO Brad Garlinghouse shared a stage at the Paris fintech conference with SWIFT CEO Gott Liebbrandt. They argued why every company is the future of cross-border payments, and essentially argued whether banks would be willing to ditch their proven relationship with SWIFT in order to take advantage of a decentralized network. As so often, Garlinghouse asserted that the future belongs to decentralized networks. However, this decentralized network may not belong to either Ripple or SWIFT.
IBM’s World Wire payment service operated on the Stellar blockchain network may offer the best solution of both worlds – it combines the decentralization and speed of Ripple with a trusted reputation and an existing relationship with major banks comparable to SWIFT. IBM’s official website outlines the benefits of World Wire, and they are almost identical to those of Ripple’s xCurrent and xRapid offerings: near-instant transactions, complete transparency and thorough transaction tracking, low clearing costs, and compatibility with any currency or investment type. IBM also notes that 97% of the world’s largest banks are already IBM customers, while 90% of global credit card payments are processed through IBM mainframes. The World Wire was developed to take advantage of the full range of disruptive advantages offered by Ripple and at the same time to adopt them as easily for banks as SWIFT’s offerings.
IBM and Stellar’s World Wire also cleverly overcomes one of Liebbrandt’s biggest arguments against the likelihood of banks adopting Ripple’s technology. Making transfers via xRapid means first converting the fiat currency into Ripple’s XRP cryptocurrency and then converting it back into fiat currency at the other end of the transfer. The World Wire instead allows any agreed digital asset to be used as an intermediary, including stablecoins like the Stronghold’s dollar-pegged coin. Bank-specific stablecoins, such as the recently announced JPM Coin from JPMorgan, could theoretically be seamlessly integrated into the World Wire network.
We analyzed the JPM Coin announcement in a recent article, along with Garlinghouse’s argument that a system of such bank-specific home currencies would be grossly inefficient compared to a shared open network such as Ripple’s XRP blockchain. In a recent interview with Cheddar, IBM’s blockchain boss Jesse Lund was clear about the distinction between World Wire and JPM Coin. World Wire aims to “introduce fungibility to digital assets” with stablecoins that are much “more widely accessible” than JPM Coin’s internal blockchain-based payment solution.
Speaking to Finder, Lund explained that a large number of banks are expected to be part of the network from the start:
“[We’re] We’ll be supporting 50+ countries from the start, 30-40 currencies, and enough market makers to take 30 or 40 banks with us, so we’ll cover a significant part of the world … We have letters of intent with several banks around the world to go digital To support and spend currencies, stablecoins and other currencies.
An important announcement regarding World Wire is imminent as IBM’s Lund delivers a keynote address with Stellar founder Jed McCaleb at the Money 20/20 Conference in Singapore. Scheduled for Tuesday, March 19 at 9:40 am local time, Lund Finder said he would expect a “special announcement” during his presentation.
Why did IBM choose Stellar?
In her most recent letter to shareholders, IBM CEO Virginia Rometty described IBM Blockchain as “a world leader in enhancing trust and transparency in corporate networks by creating a new way for customers to share and secure data” with more than 500 blockchain-based customer projects and more than 85 active blockchain networks under one roof. The same letter describes various ways in which the new technologies from IBM are being adopted by major banks, including the implementation of evolving AI technology. Leading European bank BNP Paribas is cited as an example of a major bank working to integrate IBM’s AI into their services. In relation to World Wire and the IBM / Stellar partnership, this underscores how closely IBM already works with many of the leading world banks. But the question arises: why does IBM have to work with Stellar?
Lund mentioned two keywords when explaining to Finder IBM’s choice for Stellar: “transparency” and “scalability”. In her letter to shareholders, Rometty mentions that the use of open source protocols is an essential part of successfully building a successful hybrid approach to next generation digital solutions. With World Wire, IBM practices what they preach and adopts the open source Stellar network as the backbone of their payment solution.
Transparency is one of the big selling points of an open and decentralized blockchain network like Stellar. Transactions are transmitted to the blockchain network and agreed by other network participants. Unlike the proof-of-work mining model used to verify transactions on networks like Bitcoin, Stellar uses a consensus mechanism called the Federated Byzantine Agreement (FBA). A full technical breakdown can be read here, with the main way FBA works is that every consensus node on the network has a list of other nodes it deems important and only verifies a transaction after those trusted nodes have verified the same transaction . As soon as this transaction check has spread over a sufficient network, the transaction is considered completed.
As for scalability, Stellar’s website claims that transactions can be completed within 2 to 5 seconds. The network is also designed to enable transactions between all types of currencies and assets by matching orders within the network. Transaction chains can be created automatically so that if you want to convert US dollars to euros but no one is looking to do the opposite, a transfer chain between other currencies could be created until a path to the desired currency is found.
Are IBM and Stellar a threat to Ripple and XRP?
There is no doubt that IBM and Stellars World Wire are direct competitors to Ripple’s cross-border payment solutions xCurrent and xRapid. Interestingly, Stellar founder Jed McCaleb also played a key role in creating Ripple.
McCaleb first made his name with eDonkey, a Napster-style peer-to-peer file sharing network. After McCaleb was legally threatened by the record industry, he founded Mt. Gox, which would quickly become the world’s leading bitcoin exchange. McCaleb sold Mt. Gox in 2011, before the infamous hack that resulted in the theft of 850,000 Bitcoin. McCaleb founded Ripple Labs shortly after Mt. Gox was sold, but left Ripple in 2014. As the founder of Ripple, McCaleb received 20 billion XRP that he has sold continuously over the past few years. The sell-off has been controversial at times, especially at the beginning, as its announced sale intention in 2014 resulted in an immediate 40% drop in the price of XRP. After some legal disputes between McCaleb and Ripple, he was allowed to regularly a share equivalent to 0.75% of the daily trading volume of XRP. According to The Wall Street Journal, McCaleb was selling up to 752,076 XRP per day in August 2018.
Current Ripple CEO Brad Garlinghouse took up his position in 2015, a year after McCaleb abruptly stepped down from his role as chief technical officer. In light of the legal disputes surrounding McCaleb’s XRP sell-off, Ripple and Stellar understandably hardly mention any competition among themselves. However, both were much more accommodating in their intention to replace SWIFT as the world market leader in cross-border payments.
At the beginning of this article we mentioned the clash between Garlinghouse and SWIFT CEO Gott Liebbrandt in January. As explained in an article on the event, SWIFT and Ripple have been in an almost constant battle of words for the past few years. IBM and Stellars World Wire also clearly have SWIFT in their crosshairs. Without mentioning SWIFT by name, the introductory paragraph on the IBM World Wire website is clearly aimed at the established payment network:
“The world has been using the same network to process financial transactions for 50 years. And although globalization has changed the world, payment fees and other financial barriers remain the same. But now there is a new way to move money. “
During their discussion in the Paris FinTech Forum, Liebbrandt Garlinghouse said that SWIFT had carried out the largest blockchain proof of concept “outside of IBM”. He also stated that it is much easier for banks to incorporate APIs into improved versions of the SWIFT payments network than to switch to an entirely new system like Ripple’s. And Liebbrandt also argued that banks are unwilling to gamble with the volatility of switching funds into a cryptocurrency, if only briefly. Garlinghouse argued that the future belongs to truly decentralized open networks and that comparing an improved system of SWIFT APIs to Ripple’s network is like comparing a horse-drawn cart to a Ferrari.
Now, IBM and Stellar are offering something that answers all of the questions Liebbrandt and Garlinghouse identified with each other’s payment solution. World Wire is designed to interface seamlessly with the bank’s APIs. It has the advantages of an open network without the volatility risks of moving funds into a volatile cryptocurrency. In short, IBM and Stellar potentially offer a solution that has all of the benefits of SWIFT and Ripple’s solutions without their drawbacks. And the project is backed by IBM, a trustworthy computer giant whose name alone should be enough to attract banks’ attention.
A long way to go
Many people in the banking and blockchain world will be watching Lund and McCaleb’s keynote speech in Singapore to see what the next step in IBM and Stellar’s ambitious plans for World Wire will be. But as Liebbrandt and Garlinghouse agreed in Paris, we are still far from getting a clear answer as to which solution will dominate the future of the global payments industry.
Garlinghouse has stated in Paris and elsewhere that we are five to ten years away from seeing the kind of full blockchain adoption that Ripple is seeking. And Lund repeated these views when he outlined the long-term vision for World Wire to Finder:
“Our goal is to expand this network further and provide global coverage within 3-5 years, with which you can send transfers consistently, instantly and at very low cost from anywhere in the world to anywhere in the world. ”
The battle for the future of global payments is clearly just beginning. But while Ripple and SWIFT have dominated the conversation so far, IBM and Stellar represent a very powerful challenger to both.