The main idea of Bitcoin was to be used as a peer to peer electronic cash. Some of the earliest supporters of Bitcoin often bragged about how fast and cheap it was to transfer Bitcoin compared to wire transfer from the banks. However, in recent years, the narrative around Bitcoin has slowly changed. Nowadays, most people see Bitcoin as digital gold, as a digital asset to HODL.
That doesn’t mean that the idea of using cryptocurrency as a cross-border medium of exchange has died. It just means that some cryptocurrencies have been slowly evolving, and they will continue to do so.
These days, there are still cryptocurrencies that are still focused on making cross-border transactions their main purpose. XRP from Ripple, XLM from Stellar Foundation, NANO, and even Libra from Facebook are all trying to tap into this very lucrative market. Meanwhile, the likes of Bitcoin are seen as more of a hedge against global financial instability.
Cheap, Fast, Scalable
So, what happened to Bitcoin? Why has the narrative changed from “peer to peer electronic cash” to “digital gold”? Well, one of the biggest problems with Bitcoin has always been its inability to scale properly. Despite the fact that nowadays we already have Lightning solutions but most people still don’t use them. Bitcoin is still “prejudiced” as one of those cryptocurrencies with very limited speed and high transaction fees. As a result, most people don’t use it to send money abroad but just for investment and speculation purposes.
In order to fulfill the vision as the default currency for cross-border transactions, the crypto space needs that one coin that is cheap, fast, and scalable. Fortunately, we do have several fast and cheap altcoins that have the potential to challenge SWIFT and the traditional banking system. The key is that the coin needs to have very fast transaction speed, very cheap transaction fee, and good adoption potential by the banks and financial institutions.
Ripple’s XRP is one of those names that come to my mind when we talk about cross-border transactions. Yes, Ripple has been focusing its entire effort on convincing financial entities and banks to use XRP. A year ago, Ripple’s solution to use XRP was called xRapid, but now they mix all of their products into a simple RippleNet.
So, when a bank uses RippleNet to send money abroad, Ripple (through its exchange partners) would automatically convert fiat currency to XRP and send it to the recipient’s country. When the XRP has arrived into the recipient’s wallet, the XRP will be converted back to fiat. By doing this, both the sender and recipient no need to struggle with crypto exchanges. They send and receive everything in fiat. The system does automatic conversions for them.
So, if someone wants to send USD to his friend in Mexico through RippleNet, the USD will be automatically converted to XRP, and then the XRP will be automatically converted to MXN. The recipient will receive everything in MXN (not XRP). XRP transfer itself only needs a few seconds to complete, and the transaction cost is also extremely low. Because of these reasons, XRP’s price volatility on the crypto exchanges becomes irrelevant.
You can check XRP On Demand Liquidity live on this website. The stats look quite good, and it gives enough confidence for other banks to trial or test this service. Because let’s be honest, RippleNet and XRP have huge advantages compared to the traditional SWIFT system. It’s much faster and cheaper.
Another candidate that can potentially replace the traditional banking system when it comes to cross-border transactions is XLM. Just like XRP, XLM is also designed to be used as an alternative to the SWIFT system. In fact, XLM shares many similarities with XRP. XLM is basically maintained by the Stellar Foundation. The co-founder and Chief Technology Officer (CTO) of the Stellar Foundation is Jed McCaleb, who also served as the CTO of Ripple.
If you have tried to send XLM and XRP before, you would have known by now that they are quite similar. Both of them require you to fill out the “tags” or transaction ID for the transfer, especially when you attempt to send these coins to a crypto exchange. Both of them are also quite fast, and their transaction fees are quite cheap.
XLM’s attempt to conquer the cross-border transaction world was revealed when it announced its partnership with IBM Blockchain. Just like Ripple with its xRapid/RippleNet, IBM Blockchain also tries to challenge the SWIFT technology by creating what they call IBM Blockchain World Wire. And as you might have guessed already, IBM Blockchain World Wire uses Stellar blockchain to do the transactions.
Yes, the idea of IBM Blockchain World Wire is quite similar to Ripple’s vision to replace SWIFT, although there are some crucial differences. IBM tries to lure the central banks to use Stellar blockchain to send money from and to different countries. However, unlike Ripple’s basic fiat-XRP-fiat conversion, IBM Blockchain World Wire allows central banks to issue their own CBDCs (Central Bank Digital Coins) on top of Stellar. The idea is that these CBDCs can also be used as the bridge currency, and XLM won’t be the only option.
IBM’s plan has been praised by the Stellar community because everybody knows central banks might not feel comfortable to always use a third party coin (in this case, XLM) as the bridge currency to transfer money from country A to country B. That being said, whatever bridge currency that the central banks use, as long as they use IBM Blockchain World Wire, it’d still be a big win for the Stellar community. Why? Because every value transfer on the Stellar blockchain requires a small amount of XLM.
Until today, however, it looks like the adoption for Stellar, and IBM Blockchain World Wire is still behind Ripple’s RippleNet and XRP. It’s normal, though, considering that Ripple has been in this game much longer than IBM Blockchain and Stellar Foundation.
Another coin that is intended for pure value transfer across the border is NANO. Even though NANO has been criticized for its lack of marketing and adoption efforts, everybody admits that NANO has all the right foundation to win this race. Yes, NANO is very fast, and it’s feeless (even better than cheap). Compared to both XRP and XLM, NANO is also faster, with some of its transaction confirmation only requires less than 0.5 seconds.
NANO was created by Colin LeMahieu and it’s currently being developed by the NANO Foundation. NANO got its popularity when the price of the coin skyrocketed for more than 100x in Q4 2017, at the peak of altseason. At the time, the coin founder, Colin, even successfully quit his day job to focus on NANO development fully.
However, despite its very fast transaction speed and feeless transaction cost, NANO lacks behind when it comes to the adoption rate. Compared to both XRP and XLM, when they have started talking to the bankers, NANO is still nowhere to be seen. While there might be some stories behind the scene that we don’t know, but it’s still legit to say that NANO’s marketing efforts are severely lacking compared to its competitors.
Remember that NANO doesn’t have any smart contract capabilities. And its use case is only about value transfer across the border. If it does not gain enough adoption from the financial institutions for cross-border transactions, practically the coin itself will be worthless.
Another potential challenger is Libra, the “stablecoin” that was launched by Facebook in 2019. When it was announced the first time, everybody thought Libra would eventually disrupt the global financial system. Libra was backed by giant corporations like Mastercard, Vodafone, Spotify, eBay, PayPal, Stripe, and many others.
And even though nobody knows yet how Libra would actually perform in real life, most people assumed that Libra would be fast and cheap to transfer money across the border. Libra, by nature, is not really decentralized. It adopted a similar concept like all those other semi-private blockchain systems, with a limited amount of nodes.
However, things don’t look that bright nowadays. Libra has been slowly losing its own supporters, with Mastercard being the most recent one. It also faces a lot of regulatory challenges from various first world countries. Libra remains a big challenger to the traditional banking system, but only if it can overcome all these issues.
There are also other fast and cheap altcoins, but they are not specifically built only for cross-border transactions. I believe these four names above has the biggest potential to replace our old SWIFT technology to send money abroad. Who is going to win the race? Nobody knows. Only time will tell.