Bitcoin and XRP control the lion’s share of the cryptocurrencies market, equating to approximately 65%. Bitcoin is responsible for the vast majority of this figure. Nonetheless, the two coins are the big players in the industry for diverse reasons. While, of course, Bitcoin and Ripple are not the same in many respects, it’s interesting to observe what they do individually and their significance in the markets for investors.
What is Bitcoin?
The words ‘cryptocurrency’ and ‘Bitcoin’ are synonymous merely because Bitcoin is the first officially launched of this kind globally. So, the definition of a cryptocurrency is reasonably consistent even with Ripple, though it helps first to define what a cryptocurrency is.
A cryptocurrency is primarily a digital currency created on blockchain technology using advanced cryptography methods. The central feature of most cryptocurrencies is they are decentralized, meaning no central authority controls them.
Bitcoin is a cryptocurrency that acts as a peer-to-peer electronic money transfer service, as described by the pseudonymous founder, Satoshi Nakamoto. Bitcoin burst onto the scene in January of 2009. Currently, it’s the most-traded cryptocurrency globally, with a market capitalization of at least $260 billion.
What is XRP?
Started in 2012, XRP is the native cryptocurrency created by the American technology company, Ripple Labs Inc. However, the currency is often referred to as just Ripple, despite being the name of the company that created XRP. Chris Larsen and Jed McCaleb founded Ripple Labs Inc.
XRP is a cryptocurrency in many ways like Bitcoin, though it’s best to imagine XRP more as a very advanced digital payment token catered mainly for financial institutions. Ripple is a place for institutional payment processors, most notably banks, that provide seamless real-time payment remittance settlement transfers worldwide.
Although the native token is XRP, the platform supports other different tokens representing units of value such as fiat currencies, other cryptocurrencies, commodities, and even flier miles, all of which are exchangeable. XRP is the third most-traded cryptocurrency after Bitcoin and Ethereum, boasting a market cap of close to $11 billion.
The main distinction between Bitcoin and XRP
Although analysts class both coins as cryptocurrencies, XRP doesn’t necessarily fit into this mold. This statement has led many enthusiasts not to consider XRP as a real cryptocurrency due to its configuration. We can differentiate XRP by the following key staples of most mainstream coins:
- Mining process
Bitcoin ticks all three boxes because it exists using a computer mining process on a distributed and decentralized blockchain network. ‘Bitcoiners’ or the mining community effectively control all these aspects. In contrast, XRP doesn’t have a blockchain. Instead, Ripple utilizes what they refer to as a protocol consensus algorithm where a distributed network of validating servers confirm transactions.
The benefits of having no mining process are removing equipment costs, which is more environmentally friendly and significantly improving network latency. This unique feature about XRP sets it apart from other major players. In fact, talks have been brewing in recent years that some coins will move towards a similar model that doesn’t rely on expensive mining.
Decentralized vs. centralized
The most apparent disadvantage with this centralized approach is the general public doesn’t have much control over creating the currency, unlike Bitcoin and many other coins. Perhaps this is the sole reason why Ripple caters towards particular entities. A more centralized model can lead to internal manipulations within the system, and Ripple has faced controversies over the years about this. Ripple has claimed that XRP is an independent digital asset with no control over the coin’s technology. Despite this claim, analysts rumor the company owns about 60% of its total maximum supply of 100 billion tokens.
In essence, XRP isn’t like most cryptocurrencies in its design, as evidenced by its unique consensus structure that relies more on predetermined contributors, contrasting Bitcoin, which depends on the general public for contribution. We could argue that XRP is more of a niche, and it’s evident that Ripple has its sights predominantly on the international transfer market.
The primary function of Bitcoin is merely a digital currency or medium of exchange. In contrast, Ripple facilitates international money transfers, currency conversions and even allowing users to create their own tokens.
The distinctions with transaction speeds and fees
XRP boasts lightning-fast transaction speeds of around four seconds, while that of its counterpart can take at least an hour or longer. Regardless, both entities still trump the transaction periods of traditional financial systems that typically take a few days minimum. Cryptocurrencies are technologically superior in this regard.
XRP is also significantly cheaper per transaction than Bitcoin. On Ripple, the average transaction is 0.00001 XRP, an extremely minuscule amount in dollars (roughly 0.000004 USD at the time of writing). Although the figure does vary from time to time, it’s still barely noticeable.
In contrast, Bitcoin continues to experience haphazard swings in transaction costs over the last few years for numerous technical reasons. In some years, many users complained about exuberant fees for sending small amounts. Therefore, it’s challenging to put a consistent figure as a charge. And in 2020, the fee is about $12.69, exponentially higher than usual.
We can observe that though Bitcoin is wonderful due to decentralization, these are the limitations brought to users. Meanwhile, Ripple doesn’t suffer from this setback due to its inherent centralized design.
The sheer dominance of both Bitcoin and XRP tells us plenty about the role and untapped potential of cryptocurrencies. In the cases of these respective coins, we can see they are fundamentally different from each other.
In summary, Bitcoin is a decentralized, electronic, global peer-to-peer payment network, while XRP is a centralized, electronic, global remittance, and currency exchange network.