Bitcoin vs. Ripple Labs: An Overview
From an outsider’s view, the cryptocurrency investing universe seems to be all about Bitcoin (BTC), the most well-known. Bitcoin leads in market capitalization and overall traction with investors.
Yet several options exist for investors who want to diversify their crypto portfolio and experiment with coins that offer a different take on digital currencies. Ripple Labs’ XRP is one of them.
Key Takeaways
- Ripple is the company behind the cryptocurrency XRP.
- Bitcoin transaction confirmations may take many minutes and rack up high transaction costs, whereas XRP’s are confirmed within seconds, and the transaction fees are relatively small.
- XRP is the native token for a blockchain mainly known for its digital payment network and protocol.
Bitcoin
Bitcoin operates on a public blockchain ledger that supports a digital currency used to facilitate payments for goods and services. Its network is based on the blockchain concept, a public ledger of verified transactions and recordkeeping.
Crypto miners verify transactions on an ongoing basis and add them to the Bitcoin blockchain. In exchange for their time and the computing power necessary to validate the ledger, miners receive BTC after validating transactions.
Ripple Labs and XRP
Ripple Labs developed XRP as its native cryptocurrency, which can be used for payment settlement, asset exchange, and remittance systems that work more like SWIFT. SWIFT is a service for international money and security transfers used by a network of banks and financial intermediaries.
XRP isn’t mined—it is released by Ripple, purchased by users, and uses a more efficient consensus mechanism than Bitcoin.
In news and market reports, the words “XRP” and “Ripple” are often used interchangeably, yet it’s misleading to do so. Ripple Labs is the company name, and XRP is its cryptocurrency.
Ripple started as a peer-to-peer trust network that garnered attention on social media. Users within a network could bypass banks, make loans, and open credit lines with each other. But the network failed to take off.
In 2012, three years after Bitcoin ushered in the cryptocurrency era, Ripple changed direction and became OpenCoin—a network for money transfers in which large businesses and financial services firms acted as counterparties to transactions.
The same year, Ripple launched XRP, with 80 billion tokens going to the company and 20 billion to its co-founders. XRP was designed to serve as an intermediate mechanism of exchange between two currencies or networks. OpenCoin changed its name to Ripple Labs in September 2013.
The creators of Ripple describe it as a global payments network, which counts major banks, like Bank of America, and financial services firms among its customers. XRP facilitates quick conversion between currencies.
Key Differences
Although they are both cryptocurrencies, there are several differences between Bitcoin and XRP. Here are the main ones.
Each Uses Distinct Methods to Validate Transactions
Instead of using the blockchain mining concept, the Ripple network employs a unique distributed consensus mechanism to validate transactions in which participating nodes verify the authenticity of a transaction by conducting a poll. This enables almost instant confirmations without a central authority.
The result is that XRP remains decentralized and is faster and more reliable than many of its competitors. It also means that the XRP consensus system consumes negligible amounts of energy compared with Bitcoin, which is considered an energy hog.
XRP Is Cheaper and Faster Than Bitcoin
Due to the complicated, intensive nature of mining used in cryptocurrency, Bitcoin transaction confirmations may take several hours and levy high transaction fees. XRP transactions get confirmed within seconds and generally incur low transaction fees.
Using XRP results in shorter processing times and lower transaction charges than Bitcoin.
XRP Has More Coins in the Market
One hundred billion XRPs were created at launch. 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 helped generate investor interest in its potential.
XRP and Bitcoin Have Different Circulation Mechanisms
New bitcoins hit the network when miners verify the transaction data, close a block, and open a new one. A smart contract controls the release of XRP. Ripple releases a maximum of 1 billion XRP tokens each month; the circulation in July 2023 is about 52.7 billion.
Any unused portion of XRP in a particular month goes into an escrow account. This mechanism ensures that there will be no oversupply of XRP tokens. As the XRP system is set up, it will take many years before all its coins are available.
What Is a Cryptocurrency?
A cryptocurrency is a digital or virtual currency secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. Many cryptocurrencies are decentralized networks based on blockchain technology—a distributed ledger enforced by a disparate network of computers.
What Is a Blockchain?
A blockchain is a distributed database or ledger that is shared among the nodes of a computer network. As a database, a blockchain stores information electronically in digital format. Blockchains are best known for their crucial role in cryptocurrency systems, such as Bitcoin, for maintaining a secure and decentralized record of transactions. Blockchain’s innovation is that it guarantees the fidelity and security of a record of data and creates trust without the need for a trusted third party.
What Is Market Capitalization?
Market capitalization, or market cap, is a simple metric based on stock or crypto price. To calculate a company’s market cap, multiply the number of shares outstanding by the current price of a single share. For example, a company with 50 million shares and a stock price of $100 per share would have a market cap of $5 billion. Market capitalization is often used to help define the value of a company when analyzing potential trading opportunities.
The Bottom Line
The Ripple system has advantages over the Bitcoin network due to its faster processing times and cheaper transaction charges. But BTC is better-known and more widely used worldwide.
Bitcoin remains a truly public system that isn’t owned by any single individual, authority, or government. A private company owns the Ripple network, although it is decentralized. Despite having unique cryptocurrency tokens, the two popular virtual systems cater to different uses.
The comments, opinions, and analyses expressed on Investopedia are for informational purposes online. Read our warranty and liability disclaimer for more info. As of the date this article was written, the author does not own cryptocurrency.
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