September 16, 2016

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Distributed Ledger Technology- The New Payment Protocol

We are in an age where information is the new currency. Information can easily be shared and made available to anyone and everyone without much limitation using the internet. If information sharing and access can be made easy, so can the real currency. And this leads us to technologies like Blockchain and Ripple Protocol that allow money/currency to be available, transacted, exchanged, and managed with ease and without the intervention of intermediaries.

Way back in the 90s, when the internet was introduced, not many knew what to do about it. A few technology enthusiasts and computer experts could use and make sense of this technology to an extent but no one else had a clue how much of a ground-breaking technology this was and how much it was going to influence our lives in the next two decades. Way back then, nobody conceived of things like Google, Twitter, Facebook, Skype etc.

Today, we are in the period like the early 90s—only this time, it is the Distributed Ledger Technology a.k.a DLT that has emerged. DLT is described by technology enthusiasts as the biggest technological invention since the Internet and is considered as the Internet of Value.

In the payments world, DLT facilitates peer-to-peer transactions without any intermediary such as banks or federal agency. Interestingly, DLT technology, specifically Bitcoin, emerged 2 days after the Lehman brothers collapse, at a time when everyone was questioning the government and federal agencies for bailing out banks from tax-payers’ money and when trust on these centralized systems/institutions were lost.

Payments industry could be considered as the testing ground in adopting technologies like these. The opportunity is immense; the world makes 500 billion electronic payments every year and takes 36 trillion hours to process it. People make remittances worth USD 600 billion a year.

Everybody understands that money today is digital but the natural evolution of the federated system hasn’t happened yet. Moving money from one financial institution to another is expensive and slow because there are too many systems involved and each FI has its own systems that are not only slow but are generations old. This friction can be alleviated with Distributed Ledger Technology (a network-like Ripple or Blockchain) which is faster, efficient, and at only a fraction of the cost.

The second part of this blog will emphasize on Ripple Protocol which is the new global payment open network in DLT Technology. It does for money what internet did for information.