Precious Metals Trading Within Ripple

In addition to having its own digital currency (XRP), offering Paypal like internet payment features, and allowing users to exchange between different currencies – both fiat and digital – the Ripple protocol can be used to invest in or trade any commodity or asset that you can think of.

How Ripple Trading Works

Trading commodities and assets over the Ripple protocol works in exactly the same way that currency trading works. For those of you who are not yet familiar with Ripple, here is a brief overview of the process:

For something to be traded within Ripple it needs to be issued onto the system by a ‘gateway’. It is this gateway which serves to convert a physical asset (or a digital asset external to Ripple, such as Bitcoins) into a digital asset that you can hold in your Ripple wallet and trade with other users.

This gateway may offer to sell you the asset in the first place, before issuing it onto the Ripple system for you, or they may simply take deposits and process withdrawals on behalf of their customers. While a particular asset is being stored digitally within a Ripple wallet, or traded between Ripplers, the gateway holds onto the physical or external asset. This is formalized through a system of ‘IOUs’

When a gateway issues an asset onto the Ripple ledger they are actually issuing an IOU – a promise to ‘pay the bearer’ the face value of the IOU. In this way, everything within Ripple is effectively ‘asset backed’ and works in a way that is very similar to the way bank notes used to work under the gold standard, when each dollar or pound was worth a certain amount of gold and could be redeemed for that gold at a bank. The only thing which you can hold within a Ripple wallet which is not an asset backed currency of this kind is the internal currency XRP.

In order to use a service like this you obviously need to trust the gateway to redeem its IOUs according to the terms and conditions outlined when you bought them. This trust is formalized within Ripple by a system which forces you to explicitly set up a 'trust line' to a gateway for a specific amount that you are comfortable with before you can hold their IOUs in your Ripple wallet.

This system is most commonly used for currencies. For example, you might deposit United States dollars with a gateway, allowing you to hold US dollars within your Ripple wallet. You can then use these dollars for forex trading or for making purchases.

Anybody can receive your US dollars directly if they trust the same gateway; if they do not trust the same gateway, but they do trust a different gateway for USD, then the system will find a path through the accounts of other users who trust both gateways. All of this happens automatically and behind the scenes, so that all you see is that you send USD and they receive USD. Sometimes a small ‘spread’ may be charged for this service by the Ripple user whose account is being used to make the transfer. The idea is that this will still be less than bank transfer or credit card fees, and that the profit goes to ordinary Ripple users rather than to a bank or other corporation. The same system can be used for a person to to send USDs bought from one gateway, and for the recipient to receive any other currency to be redeemed at any gateway which they trust – with the exchange rate being set by a peer to peer market and the profits again going to regular ripple users who offer their account balances for making exchanges.

The value of any IOU is determined by a combination of the value of the underlying asset, and the reputation of the issuing gateway. For example, if people have 100% belief that a USD gateway will redeem its IOUs, usually by processing withdrawals to a bank account, then they will be willing to trade a $1 IOU for $1. If people are 50/50 about whether they think the gateway can be trusted, then its $1 IOUs may only trade for $0.50.

The exact same system that is used for currencies can be used to trade in any other asset. The first gateway to offer precious metal trading services is Ripple Singapore.

Ripple Singapore

Singapore offers 0% sales tax and 0% capital gains tax. It also has a well-established market for traditional commodity trading. These things combine to make it an attractive location for a precious metals gateway.

Ripple Singapore actually started out as a regular currency gateway, issuing and redeeming Singapore dollars and United States dollars. Recently, however, they have extended their services to include gold (under the ticker symbol XAU), silver (XAG) and platinum (XPT).

One XAU has a value equivalent to one troy ounce of 0.9999% pure investment grade gold. One XAG has a value equivalent to one troy ounce of 0.9999% pure investment grade silver. One XPT has a value equivalent to one troy ounce of 0.9999% pure investment grade platinum.

If you want to make a purchase directly from Ripple Singapore than there is a significant minimum order amount – for example gold is available to buy only in 10oz bars. Smaller investors can, however, buy any fraction of 1 XAU, XAG or XPT from other Ripple users within their wallet. This means that you can buy or sell just a few pennies worth (or less!) at a time, and the only fee you will pay is the standard Ripple transaction fee currently set at around $0.00001 (USD) per transaction, regardless of size. It also means that there is an opportunity for people who can buy directly in bulk to profit from selling on their holdings to smaller investors for a modest premium.

Unlike traditional services which offer to sell you precious metals and then hold them for you, there are no regular storage fees associated with owning XAU, XAG or XPT, despite the fact that the bullion is held in secure audited vaults. This offers a significant advantage over traditional routes for investing in precious metals.

If you want to redeem your purchases, you can send your IOUS to Ripple Singapore and they will send out your precious metals within two days. There are obviously fees associated with making a withdrawal, and there are also minimum amounts (they can’t send you half a gold bar, for example).

How to Get Started

If you want to start investing in precious metals and holding them in your Ripple wallet, or trading them with other users, you can get started pretty quickly. Here is a quick guide for beginner’s:

  1. You will obviously need to have a Ripple Wallet
  2. If you want to buy directly, or withdraw physical bullion, then you will also need an account with Ripple Singapore.
  3. Next you will need to set a trust line. To do this you just need to click the ‘advanced’ tab from your Ripple wallet, then click ‘set trust’ and then add the Ripple Singapore address (r9Dr5xwkeLegBeXq6ujinjSBLQzQ1zQGjH) and choose how much you would like to trust them for (set your trust in the asset you want to purchase from them, like ‘5 XAU’ for example.
  4. To buy on the peer to peer market you now just click trade, select a currency pair you want to trade (USD/XAU for example), and select the gateway you want to use for each one. You can now place buy and sell orders, or make use of the instant ‘convert’ button.

Categories Ripple | Commodities | Investing | Trading

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