Ripple was created to solve international payments by providing lower costs and faster transfers. Then Stellar was created to solve Ripple.
Find out what the difference is, how they work and what to consider before buying one or both.
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Stellar was initially based on Ripple systems, with the aim of redesigning the global economy for more inclusiveness. But citing the complexity of the system, Stellar later redesigned itself with a brand new system of its own.
Both facilitate international payments but do so in very different ways.
How Ripple works
Banks and multinational corporations use Ripple to make international payments. This is done by transferring the XRP token through the Ripple network. The end result is liquidity on demand.
How Stellar works
Stellar lets individuals trade money directly with each other, using Lumens (XLM) as a medium and “anchors” to handle the fiat currency aspects.
Let’s say Jim wants to send money from a US bank account to a German bank account, converting it to euros along the way. He wants to do it at the best rates possible.
With traditional money transfers
The money will be bumped between several banks on the way. It will be converted from dollars to euros on the way. The entire process takes 3-5 days, incurs fees from each bank on the way and loses Jim money on all the exchange rates.
Jim could just buy Ripple himself and send it to a wallet address overseas, but he doesn’t want to. Fortunately, his bank uses Ripple.
He makes a money transfer as usual. His bank sends Ripple directly to the bank of the recipient account. The payment is made at whatever exchange rates and fees the bank chooses to charge for this service.
If Jim is lucky, they’ll pass some of the savings on to him.
Jim signs onto the Stellar platform and sends money through it. It makes the transfer automatically.
First it converts the USD to euros, then it uses an anchor to transfer the euros to the recipient account.
An anchor is a Stellar partner that’s entrusted with actually transferring the funds. These are usually money transfer companies. Jim can choose his own anchor and shop around for the one he wants.
There are a few different ways that Jim’s USD might be converted into euros.
Peer to peer: It looks for people who want to trade euros for USD and picks the best prices.
Via XLM: Lumens (XLM) are used to fill the gaps or make up the entire transfer if needed. For example, the Stellar platform might sell Lumens for euros through an existing order on the official Stellar exchange.
Chain of conversions: The platform can automatically perform a chain of conversions, such as USD > NZD > CNY > EUR if that’s what it takes.
Between these options, carried out automatically, and XLM to fill in the gaps and grease the wheels, people can make efficient peer-to-peer money transfers or simply convert currency for their own purposes.
Neither is inherently better or worse than the other, and despite having the same functions, each was built for different purposes.
Ripple is for… Multinational companies and banks to quickly make cost-effective international transfers and currency conversions, plus access a range of extra features. Ripple is a privately owned blockchain company that provides its services to other companies.
Stellar is for… Individuals to make more cost-effective money transfers and currency transfers. Stellar itself is a nonprofit organization with the goal of enabling a more inclusive global payment system.
Prices: Ripple vs. Stellar Lumens
Updated: 23 Feb 2018 12:53:57 UTC
Updated: 23 Feb 2018 12:53:58 UTC
Which is the better investment?
Both Ripple and Stellar saw dramatic price increases at the end of 2017, and their values have tended to mirror each other.
This suggests that many people are investing in both rather than picking just one or the other.
In the short run, it seems likely that Ripple will enjoy faster growth. It has partnered with a lot of high-profile banks, so there’s a lot of money behind it. It also offers a range of features that Stellar can’t match, including smart contract functionality.
But in the long run, Stellar might become the platform of choice. With enough users and anchors, it could feasibly let people exchange currencies seamlessly, and much more cheaply than with Ripple.
Technology has increasingly moved towards the decentralized, and it’s quite possible that Stellar is one step ahead of Ripple in that respect.
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