As terms like cryptocurrency, blockchain, and digital ledger become commonplace, there are important distinctions and definitions to understand.
While you may already be familiar with Bitcoin, the most well-known type of digital currency, references to other crypto terms might leave you wondering. One of those terms is Ripple.
Is Ripple a type of cryptocurrency, or is it something else altogether? Today, we’re breaking down the Ripple vs. Bitcoin comparison and sharing everything that curious investors need to know.
What Is Ripple?
First, let’s start with the basics in this match; Ripple vs. Bitcoin. What is Ripple?
In short, Ripple is the company behind a type of cryptocurrency called XRP. While reports will often use these two terms interchangeably, they are different.
In 2005, Ripple started as a peer-to-peer trust network, using the power of social media to gain industry leverage. The idea was that network users could use Ripple to bypass traditional banks, opening loans and credit lines among one another.
Though innovative, that idea didn’t take off as first planned. Then, in 2009, Bitcoin came on the scene and quickly became synonymous with everything related to cryptocurrency. Three years later, Ripple followed suit, re-establishing itself as OpenCoin.
In some ways, the new platform’s design operates similarly to its original design, built as a money transfer network with large corporations and financial services companies serving as counterparties to user transactions. OpenCoin’s launched its native currency, XRP, in the same year. Then, in September 2013, it became Ripple Labs.
By 2018, more than 100 banks had signed up to use Ripple. Since then, the list has grown and continues to do so. A few of the most prominent institutions that are implementing the Ripple Network payment system or engaging in a trial run include:
- Fidor Bank
- The Commonwealth Bank of Australia
There is also a consortium of more than 60 Japanese banks actively using or trying the platform.
Basic System Operation
The Ripple network system performs three main functions:
- Payment settling
- Currency exchange
- Payment remittance
Banks and payment networks can access Ripple to enable a more straightforward, direct asset transfer process.
The settlement process occurs almost in real-time and is more cost-effective, secure, and transparent. In this way, it’s a viable and valuable alternative to traditional transfer systems, including SWIFT, a well-known service used by banks and financial intermediaries to process international currency and security transfers.
Here is where the comparisons to Bitcoin become clear.
Bitcoin is a form of cryptocurrency based on the blockchain. Conversely, Ripple doesn’t use blockchain to empower transactions. Instead, it relies on a distributed consensus ledger powered by a network of validating servers and a type of crypto token called XRP.
What Is XRP?
Put simply, XRP is the cryptocurrency that runs on the XRP ledger. In some cases, it’s also referred to as “Ripples.”
With XRP, financial institutions can use the Ripple network to transfer money between different currencies. They also use it to transfer commodities, such as gold or oil. They only incur minimal fees and short wait times when they do so.
It’s a welcome change compared to conventional settlement systems, which use U.S. dollars as a common currency for conversion.
Using these existing systems can be both time-consuming and expensive. Not only are currency exchange fees usually high, but account-based, cross-country bank transfers can also take a few days to process. Using Ripple, institutions will first convert the total value of the transfer into XRP, not U.S. dollars.
Doing so can eliminate those standard exchange fees and expedite the payment processing time. Often, you can complete transactions in just a few seconds.
Each time an organization uses the Ripple network to transfer money or an asset, the operating costs are automatically deducted in a minimal amount of XRP. This action alone is what gives value to XRP. In the simplest sense, they can be considered the fuel that drives the machines that conduct the transfers and settlements.
What Is Bitcoin?
Bitcoin, or BTC, is a form of decentralized digital currency. Users can create, distribute, trade, and store Bitcoin on a peer-to-peer network using a decentralized ledger system known as a blockchain. The blockchain operates without an administrator, central bank, or any form of intermediary.
Created in 2009, a significant benefit of Bitcoin is that it offers lower transaction fees than most traditional online payment systems. Plus, because it’s operated via a decentralized authority, it’s also deemed more secure and unchangeable than government-issued currencies. Users known as miners verify Bitcoin transactions continuously and then add them to the blockchain.
While there aren’t any physical Bitcoins, and they don’t hold value as a commodity, digital currency transactions are all maintained on a public ledger. Everyone has access to the ledger, updated on a real-time basis.
Since its launch, hundreds of other cryptocurrencies have entered the space. Collectively, these alternative currencies are called altcoins. However, in terms of market capitalization, Bitcoin remains the largest and best-known in the world.
Ripple vs. Bitcoin: What Are the Major Differences?
Now that we’ve established how Ripple and Bitcoin work, let’s take a closer look at how these platforms differ.
Digital Currency Creation
With Bitcoin, users can create new coins up to a capped level (up to 21 million). These coins act as rewards for participants who offer the computing power to drive and maintain the blockchain network. Or, users might receive Bitcoin in exchange for validating transactions on the digital ledger.
On the other hand, Ripple created 100 billion XRP coins when it first launched. This holding isn’t changeable, and users cannot create a new XRP.
However, Ripple recently introduced a new network feature that utilizes XRP to fund and continue the Ripple Network system. With this feature, the company plans to release 1 billion of its XRP holding back to itself monthly. This transaction is made possible via a smart contract system or escrows.
Each month, Ripple can use that 1 billion XRP to perform any of the following tasks:
- Fund business operations
- Incentivize new customers
- Sell services to accredited investors
Unused tokens left over at the end of the month go back into the escrow account. For instance, Ripple may only use 200 million XRP one month, which would mean putting 800 million XRP back into escrow. To date, that original 1 billion has grown exponentially, and now, the circulation is well over 50 billion.
Validating Transactions; Ripple Vs. Bitcoin
With Bitcoin, the blockchain mining process verifies transactions. The Ripple Network does not follow the same method.
Instead, transactions are validated using a distributed consensus mechanism. This process is unique because participating digital nodes verify each transaction as authentic by creating and conducting a poll. The poll results are available almost instantly, allowing participants to bypass the need for a central authority.
Like Bitcoin, this allows XRP to remain decentralized, quick, and reliable. However, this is where the similarities end.
The Ripple consensus method only consumes a minimal amount of energy to complete. This energy use is significantly different from blockchain mining, which requires a more significant amount of energy to process.
However, it’s essential to know the facts about how and why Bitcoin uses this energy and how it affects the environment. There are many misconceptions surrounding the implications of Bitcoin, so be sure to check out our post to learn more.
Spending the Cryptocurrency
As more global companies embrace cryptocurrency as a form of payment, investors with Bitcoin can use it to pay for various goods and services, from fast food to vehicles and even college tuition.
This particular area is another where the distinction between Ripple and Bitcoin becomes easier to understand.
Overall, Bitcoin vs. Ripple isn’t much of a dual at all. The two exist and operate with different functions in the crypto space. As a network, Ripple is not a cryptocurrency or a payment method. Instead, the network primarily facilitates currency exchanges and enables easier peer-to-peer payment settling and remittance. However, there are a small number of vendors who have started accepting XRP as a validated form of payment.
Processing Fees and Time
Any time you complete a transaction using Bitcoin, it’s common for associated fees to be relatively high. At the same time, the process can take up to a few minutes.
As mentioned, Ripple transactions are much quicker, usually more affordable, and take seconds to complete with little to no cost. So while there is a related charge, it’s much lower.
Methods of Investing
If someone is interested in investing in Bitcoin, they can buy the cryptocurrency in various ways. Many cryptocurrency exchanges facilitate this activity, but it’s crucial to partner with one that’s verified and credible.
The necessities required to invest in Bitcoin include:
- A valid cryptocurrency exchange account
- Secure internet connection
- Personal identification documents (only if using a Know Your Customer platform)
- Method of payment (e.g., bank account, debit card, credit card)
Once users have chosen their preferred exchange and created an account, they’ll link their payment option to that account. Depending on the exchange, they may also be required to show a variety of identification documents, such as their driver’s license number or social security number.
Once verified, they can begin buying Bitcoin, along with other cryptocurrencies. Increasingly, buying Bitcoin through specialized ATMs and individual peer-to-peer exchanges is possible.
What about XRP? Anyone who wants to invest in XRP will do so by accessing a cryptocurrency exchange and actively trading it.
In most cases, you can’t purchase XRP using government-issued fiat currency, such as U.S. dollars. Instead, they’ll first need to buy another type of cryptocurrency, such as Bitcoin or Ethereum. Then, they can transfer those currencies to a cryptocurrency exchange, where they can trade them for XRP.
The aforementioned smart contract controls the release of Ripple’s XRP. Under this system, it will take many years before the total supply of XRP is in circulation, though the current rate of 50 billion is inching closer to that goal.
On the other hand, miners find and release new Bitcoin. Unfortunately, there is no schedule in place to pace this release. However, network speeds usually help slow down the process, as do the complex algorithms that users must solve to mine and access Bitcoin.
Overall Market Share
Given the sheer popularity of Bitcoin, it might be surprising to learn that XRP has more coins in the cryptocurrency market. As mentioned, Ripple created 100 billion XRP upon its inception. These XRP were pre-mined at the network’s launch, and primary investors gradually release them into the market.
Bitcoin’s supply caps out at 21 million, so the total amount available will never exceed this. While it seems as though this scarcity would prevent on-the-fence investors from seeking out the currency, it has had the opposite effect.
Understanding and Using These Two Networks
As you can see, the Ripple vs. Bitcoin debate isn’t a debate. Despite the fact that XRP is used to fund purchases in a small capacity, the two entities share very few features in common.
Ripple outshines Bitcoin thanks to its minimal fee structure and expedited processing times in terms of payment and transaction processing. Yet, Bitcoin continues to lead the way in popularity and industry recognition. While both platforms have their associated cryptocurrency tokens, they operate differently and cater to other customers.
Before investing in XRP or Bitcoin, learning as much about the cryptocurrency sphere as possible is wise. At Byte Federal, we make this knowledge easily accessible. Feel free to browse more of our related articles or check out our guides to the best Bitcoin ATMs in your area!
If you have any questions or want to learn more, be sure to reach out to our team.