On the sixth episode of Ripple’s web video series, The Ripple Drop, director of project management at Ripple, talked about RippleNet’s multi-hop feature explaining the benefits it offers.
What is Multi-hop?
Multi-hop is a wireless network that uses wireless hops to transmit information simultaneously from a source to a destination. It is a feature of the Interledger Protocol (ILP). ILP is a protocol that sends money across different ledgers or payment networks.
At the interview with Reinhard Cate, the producer of The Ripple Drop, Craig explained that multi-hop gives RippleNet member the ability to make transactions with payment providers, banks, and digital wallets to which they don’t have direct connection. Comparing it to a game of telephone, he explained that multi-hop’s purpose is to get rid of the need for a direct one-to-one connection to settle payments.
Multi-hop easing Cross-border Transactions
Recently Ripple launched the new feature for RippleNet in conjunction with Siam Commercial Bank (SCB) in Thailand. This meant that they were permitting customers to make payments through SCB into Cambodia, Laos, Vietnam, Myanmar and Thailand. Therefore, the sender has the ability to access and get reach into these entire regions. The receiver too has the ability of getting value payments since the transaction fees are less with complete transparency and visibility.
Banks do not do businesses with banks they do not know due to a number of reasons, diligence being one. Therefore, multi-hop is enabling banks to connect indirectly –via banks they share accounts with- to many more they do not know.
Multi-hop also increases liquidity in that, the use of XRP would enable connections that grow their delivery network without holding piles of fiat currencies all over the world. This compares to a case where an intermediary bank acts as connection and exchange to deliver money at the next bank in chain, maybe in a different currency.
All banks within the Association of South Eastern Asian Nations [ASEAN] region can see all transaction data and approve each transaction after screening. Therefore risks are lowered since they can all be well managed and no bank is exposed to credit risk at another.
Thanks to Ripple, banks within the multi-hop chain can settle payments on behalf of other financial institutions hence greatly improving cross-border transactions across the E. Asian region.