Categories: CryptoNews

Ripple’s Dilip Rao Disputes Blockchain Potential To Cut Overhead Costs

Many people have been touting blockchain technology as a way to reduce overhead costs for financial institutions. But Ripple seems to disagree with that statement, as the numbers do not add up according to them, and the cost-cutting measures are only a fraction of what others claim they could add up to.

Also read: Centralized Exchanges Hamper Global Bitcoin Growth

Blockchain Is Not As Big of A Cost-Saving Measure

With so many large banks around the world exploring the boundaries of blockchain technology, it only seems normal they must stand to gain from doing so. However, as it turns out, Ripple disputes the claims this technology is an effective way to massively cut down on overhead costs. In fact, the real benefits of distributed ledgers in the .exchange settlement system remain unclear.  That is to say, financial institutions can realize value and cost-savings by using distributed financial technology today, although the benefits are more noticeable in payments use cases, compared to securities.

In Australia, several banks have been working together with Ripple, rather than joining the R3 consortium or other ‘mainstream” blockchain technology exploration groups. Both Commonwealth Bank and Westpac want to use the Ripple blockchain for cross-border trade financing and currency exchange features in the future.

According to Ripple, the main selling point for the blockchain is allowing various networks to communicate with each other, where they were previously unable to do so. Rather than looking at one network to connect the entire world, companies should approach distributed ledgers as a way to have “thousands of networks blooming”.

Note from the Author: A representative reached out to us to clarify this sentiment as follows: 

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Dilip actually made the point that blockchains don’t solve the root problem with real-time global settlements. They require the world to adopt a new ledger (Bitcoin). He’s a proponent of using a web protocol (like Interledger protocol) to connect the world’s existing ledgers and allow for real-time settlement across ledgers.”

Another area worth exploring is how distributed ledgers can replace the Australian Reserve Bank’s exchange settlement account, and remove the need for banks to tie up funds with the central bank. Eliminating the exchange settlement account with a distributed ledger would free up other bank resources, although it would not have a significant impact on overall costs.

According to Westpac head of Transaction Services Mike Baldwin, implementing a blockchain solution is costly and takes a lot of time to complete. Despite building a proof of concept with Ripple in 2015, very little has changed ever since. Although there is a statement to be made as to how the initial investment should pay itself back rather quickly, Ripple’s Asia Pacific managing director Dilip Rao feels that will not be the case.

Update April 14: Added two clarifications in the article. 

Source: SMH

Images credit 1,2

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JP Buntinx

JP Buntinx is a FinTech and Bitcoin enthusiast living in Belgium. His passion for finance and technology made him one of the world's leading freelance Bitcoin writers, and he aims to achieve the same level of respect in the FinTech sector.

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