A comparison of Ripple and Bitcoin
The cryptocurrency investing universe appears to be limited to bitcoin from the outside. As the most well-known cryptocurrency, bitcoin is the leader in market capitalization and overall traction with investors.
There are many other options available for people who want to diversify their portfolios and experiment with coins that offer a new take on digital currencies.
Ripple’s cryptocurrency XRP is just one example. The cryptocurrency was ranked sixth on the list of total market capitalization in July 2021. Let’s look closer at what makes XRP different from Bitcoin and other top digital tokens.
Particulars
- Ripple is behind XRP, a cryptocurrency.
- Bitcoin transactions can take many hours with high transaction fees. XRP transactions, however, are instantaneously confirmed with minimal cost.
- XRP is technology best known for its digital payments network and protocol.
- Major banks use the XRP payments system.
Bitcoin
Bitcoin operates on a public blockchain ledger that supports a digital currency used to facilitate payments for goods and services. The blockchain concept is the basis of bitcoin’s network. It is a public ledger that records verified transactions.
Bitcoin miners verify transactions and add them to the Bitcoin Blockchain. In exchange for their time and the computing power necessary to validate the ledger in this way, miners are rewarded with BTC upon successfully validating transactions.
Ripple
Ripple Labs’ native cryptocurrency is XRP. Its products can be used to settle payments, exchange assets, and remittance system that works more like SWIFT (a service that transfers international money and security via banks and financial intermediaries). XRP is pre-mined and has a simpler mining process than Bitcoin.
In news reports, XRP is often mistaken for Ripple. They are both different. Ripple refers to the network and company behind the XRP cryptocurrency.
The company was established as a peer-to-peer trust network that used social media. A network of users could make loans or open credit lines between each other without the need for banks. The network was unsuccessful.
In 2012, three years after Bitcoin ushered in the cryptocurrency era, Ripple changed tracks and became Open Coin–a network for money transfers where large businesses and financial services firms acted as counterparties to transactions.
XRP, the company’s cryptocurrency, was also launched that year. The tokens went to 80 billion and 20 billion respectively to its co-founders. XRP was created to act as an intermediary mechanism for exchange between currencies and networks. Open Coin was merged into Ripple Labs in September 2013.
Ripple is a global payments network that counts financial institutions and major banks among its customers. XRP is used to convert between currencies quickly.
The Key Differences
These are the main differences between Bitcoin & XRP:
Both have different methods to validate transactions
Ripple uses the blockchain mining concept to validate transactions, but instead of using it, it uses a unique distributed consensus mechanism that allows participants to verify the authenticity of transactions by conducting a poll. This allows for almost instant confirmations, without the need to contact a central authority.
XRP is still decentralized, and it is more reliable and faster than its rivals. This means that XRP consumes very little energy compared to Bitcoin which is considered an energy hog.
XRP Is Cheaper and Faster Than Bitcoin
Bitcoin transactions confirmations can take several minutes due to the complex and intensive nature of mining involved in cryptocurrency. This may lead to high transaction costs. XRP transactions can be confirmed in seconds and are generally very cheap.
Transactions using XRP are subject to a similar fee as the bitcoin transaction processing fees. Each time a transaction is performed on the Ripple network, a small amount of XRP is charged to the user (individual or organization).
XRP has More Coins on the Market
About 1 billion XRP were already pre-mined when the launch was completed and are being released slowly to the market by its main shareholders. In contrast, Bitcoin’s supply is capped at 21 million, meaning there will only ever be 21 million Bitcoin in existence. BTC’s artificial scarcity has prompted investors to be interested in its potential as an asset store.
Different Circulation Mechanisms for Bitcoin and XRP
Bitcoins are released to the network when they are found by miners. They don’t follow a release schedule, and their supply is dependent largely on network speeds and the difficulty of the algorithm used for mining them.
The release of XRP is controlled by a smart contract. Ripple had planned to release 1 billion XRP tokens per month, as controlled by an embedded smart contract. The current circulation is more than 50 billion.
Any unused portion of the XRP in a particular month will be shifted back to an escrow account. This ensures that there is no chance of misuse from an oversupply of XRP crypto coins. It will take many years for all crypto coins to become available.
Overall, XRP is better for lower processing times and lower transaction charges than bitcoin.
Real-World Example to Understand Ripple vs Bitcoin
Below are some analogies to help you understand the differences between them using real-world examples.
Peter, living in America, visits Walmart and pays for his purchases in US Dollars. You can use your US dollars to buy other currencies, such as GBP and JPY, for investment and trading, or for profit or loss.
Bitcoin is a digital currency that can be used as an alternative to US dollars. Peter has the option of making a purchase in US dollars and paying for it with bitcoins. He can also purchase bitcoins for trading or investments and then sell them off later for profit or loss.
Peter can instruct his American bank to make the transaction if he wants to send $100 to Paul. After paying the necessary fees, Peter’s American Bank will issue instructions through the SWIFT system. This will allow Paul to be credited with the equivalent amount of euros or USD. This may result in high fees at both ends, and processing can take up to a few days.
Enter Ripple, the payment system and settlement system with a currency, XRP.
Ripple’s payment system uses XRP tokens for the transfer of assets on the Ripple network. The same $100 can be converted instantly by Peter to equivalent XRP tokens, which can be instantly transferred to Paul’s account over the Ripple network.
Paul will be issued XRP tokens upon satisfactory verification and authentication by the decentralized Ripple system. Paul will be able to either convert the token to USD or another currency of his choosing or keep it as XRP tokens. The verification process is quicker than traditional money transfer systems like bitcoin.
Conclusion
Although Ripple is more complex than bitcoin, the following example shows its basics. Ripple is better than bitcoin for its faster processing times and lower transaction fees. However, BTC is more widely known and well-known than XRP, which gives it an advantage in other areas.
Bitcoin is a public system that isn’t owned by any one person, authority, or government. Ripple is also owned and operated privately by the same company. The two systems are different in that they each have their own cryptocurrency tokens.