Should you buy Ripple or bitcoin?
Ripple is the name of the company, and XRP is the name of its coin. Ripple was specifically created to facilitate a now-outdated system of international transactions.
The reasoning is that in the information age, when photos, videos and other data can be sent anywhere in the world almost instantly, there’s no reason a transfer of value should be so expensive or inefficient.
Ripple vs bitcoin: head to head
|Fiat currency*||Bitcoin (BTC)**||Ripple (XRP)***|
|Ownership||Governments and banks||Public||Private company|
|Developers||Varies||A small group of core developers||A large group of Ripple developers|
|Transaction time||3-5 days||Approx. 1 hour depending on fee chosen||Approx. 3 seconds|
|Average transaction cost||USD30-40||USD40||USD0.004|
|Transactions per second||No set limit||Approx. 10||1,500|
|Energy cost per transaction||Varies. Usually negligible||Approx. 250kWh||Negligible|
|Processing algorithm||n/a||Proof of work||Consensus|
|Inflation||n/a||Coin supply increasing to 21 million cap by 2140.||Static/deflationary. An almost indiscernibly small amount of XRP is destroyed in each transaction.|
|Coin supply limit||n/a||21 million||100 billion***|
*With bank international transfers
**As of 22 December 2017
***55 billion XRP is held in an escrow smart contract
Prices: Bitcoin vs Ripple
Ripple in escrow
55 billion XRP was put into escrow for gradual release. This was done to quell fears that Ripple would flood the market with XRP at a later date. Release from escrow is enforced by a smart contract.
The XRP is set to be released to Ripple at a rate of 1 billion a month over the course of 55 months. Any unused portion of the XRP released that month will go back into escrow for another month at the end.
Assuming 50% of the newly released Ripple is used each month it would take 15 years for 90% of the 55 billion to get released into the market.
Where to buy BTC and XRP
How Ripple works vs how bitcoin works
Each BTC is a straightforward store of value. It can be transferred on the bitcoin blockchain, and converted into fiat currency (such as New Zealand dollars) by selling it on an exchange. It is worth a certain amount, and can be transferred.
Ripple XRP is slightly more complicated in function and purpose.
The problem with international money transfers
International money transfers are slow, inefficient and expensive. A typical international payment from the USA takes 3-5 days to settle, has an average cost of USD42 and an error rate of at least 5%.
Ripple aims to make it happen instantly, at negligible cost and with a 0% error rate.
Other than the technical challenges, the main problem with international money transfers is liquidity. Unless the receiving bank has enough money on hand, in the correct currency, it cannot let the customer access the funds.
Ripple solves this by letting XRP serve as a pool of liquidity. Banks, international companies and anyone who needs to make international money transfers will be able to hold a pool of XRP to draw upon for instant liquidity anywhere in the world.
With this system, a money transfer can actually be as simple as sending data, instead of as complicated as sending actual money.
Ripple features vs bitcoin features
Bitcoin itself doesn’t have any features other than being transferrable, decentralised and transparent. Current bitcoin developments are mostly oriented around solving the problems of its slow transactions and high fees.
By contrast, the Ripple network has developed to incorporate additional features. The main ones include:
- Escrow – An automated escrow service that can safely hold funds until a certain time, or certain conditions are met. For example, setting up a fund that automatically releases a certain amount as a birthday present for someone every year.
- Payment channels – This scalable feature allows for the possibility of tens of thousands of transactions per second.
The downsides of Ripple
Ripple has two main downsides.
A lot of people feel that Ripple (XRP) cannot be trusted as a currency because Ripple itself is a private company with close connections to the banking system.
By contrast, bitcoin is a decentralised currency which cannot officially partner with any company or entity.
However, this is more of an ideological distinction than a functional one. Ripple still operates through a transparent blockchain which operates just as reliably, or more, than the miner-dependent bitcoin blockchain.
The ideology is important though, because it’s also a point of difference between Ripple and its competition.
As a pure store of value rather than a functional token, bitcoin is arguably in competition with any other coin that’s being bought as an investment or for transactional purposes.
Ripple has competition of its own. This might be one of the main challenges to its value in the future. Plus, there’s the possibility that a true global cryptocurrency could mean Ripple’s ability to facilitate international fiat currency transfers is much less useful.
One of the main alternatives to Ripple is Stellar Lumens (XLM), which was also designed to facilitate international transactions.
The main difference is that Stellar is designed to let people do it themselves, peer to peer, while Ripple is integrating with banks and existing services.
It’s also worth noting that extremely low transaction fees, extremely fast transfers and high scalability aren’t particularly unique for newer cryptocurrencies. For example, some cryptocurrencies, such as Verge, are aiming to offer completely free and near-instant transactions.
Bitcoin isn’t the baseline of what blockchain transactions should look like. It’s by far the slowest and most expensive cryptocurrency for transfers. In comparison Ripple is quicker and less expensive, but has challenges with competition and centralisation. Potential buyers should carefully weigh the differences between bitcoin and Ripple.