How does Ripple transfer Fiat currency over the blockchain?

One of the issues I am finding with the blockchain business models is that fiat currencies (Euro, Dollar…) always have to be transformed into cryptocurrencies (Bitcoin, Ethereum…) and then at destination transformed back into the other fiat currency. Since these cryptocurrencies’ value is so volatile this creates fx risk. ( I change 1.000 Euros into Ethereum one day, and the next day I get back 985 Euros)

Ripple is able to transfer fiat currency in real time among banks. How do they do this?

For this they use a different technology than the blockchain. They have created  (and recently open sourced) the “Interledger protocol” which is a 2 way messaging middleware that connects banks point to point or through a third party (Liquidity provider). The trick is they need the connected banks to first deposit funds at the other bank, these funds act as pre-funded collateral which enables the speedy transaction, since the cash is already there from the start. Another cool part of the protocol is that if a direct connection between banks can’t be found, the protocol establishes a multi-hop link going through multiple banks until the link is established. In case no route can be found, there is always a link that can be established via Ripple’s blockchain by transfroming into XRP (this would provide big cost savings) since the transfer is done in almost real time, the fx risk would be very small. A thorough explanation of how ripple works can be found in the Ripple solutions guide


Here you can see Ripple in action doing an Fx spot transferring 1.000 Canadian dollars to Euro in 8 seconds instead of 4 days.



2 thoughts on “How does Ripple transfer Fiat currency over the blockchain?

  1. thats’s similar to how Transferwise works( There is no trick. It’s just another middle-man, but an agile one. Ether acts as the protocol for information interchange, using the distributed ledger as a clearing third-party. But the real question is: if you can do it right now on FX with FIX, why in hell would you need Ethereum conversion, wich allways(as long as the cryptocurrency is traded by the millisecond) bears FX risk and transaction costs. Oh my fuet danporrenat, SonGoku save us from this mess!

  2. Hey 🙂
    Ripple does not transform euros into ether or any other currency. It has pre-funded accounts between the nodes and has a middleware that connects all the nodes and credits/debits these prefunded accounts. Since money is already there this can be done lightning fast.

    Fintech isn’t always about using a new technology. It’s about solving a problem in a new way, it can be done with old technology. For example mpesa is using sms in africa to bank the unbanked 🙂

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