Well, the reason lies in the fundamental difference between these two blockchain projects. From their ideology to their blockchain, Bitcoin and Ripple can be said to contrast each other like polar opposites. Both Ripple and Bitcoin use cryptography and are two of the top three largest cryptocurrencies by market cap. However, that is where the similarites end. They both differ greatly in ownership model, technological architecture, utility and token economics (tokenomics). It is important that crypto investors and traders know the difference between Bitcoin and Ripple. This article will go through the key differences between Bitcoin and Ripple. We will first introduce Bitcoin and Ripple before getting into their contrasts.
What Is Bitcoin (BTC)?
With a market cap of 212.09 billion USD and a max supply of 21 million, we have Bitcoin. The cryptocurrency with the largest market capacity in the market. Bitcoin was created by an anonymous person or group called Satoshi Nakamoto. Its white paper was published in October 2008. The project’s objective was to ensure decentralization and trust in transactions. Hence, it acts as a ledger to record information on the blockchain platform, regardless of how any party acts. This was to be achieved through a peer to peer, proof of work system. This system does not require participants to trust each other. The Bitcoin network reaches an agreement on the transactions that occurred through proof of work before cryptographically recording it down on the blockchain. This way, Bitcoin’s blockchain algorithm serves as a substitute for trust.
Proof Of Work (POW)
First, to understand Bitcoin, one must first know the concept of Proof of Work (POW). POW is a peer to peer system. Here, participants who contribute to the network called miners, solve complex puzzles and are subsequently rewarded with bitcoins. These Miners run fully operational Bitcoin nodes and contribute to the economic set of the blockchain platform through computing and electrical power. These nodes gather up recent transactions and settle them in the form of a block of data. This process is repeated as each block must look to the previous block to be validated. Therefore, to change the information on the Bitcoin blockchain is very costly and difficult as each transaction is recorded and traceable. This system meant that Bitcoin requires public support as there are no companies or institutes funding it. Second, in this peer to peer system, Bitcoin’s consensus algorithm divides up the right to update the status of the network. These rights are given to miners as they contribute economically to the network. This way, no single individual or organization can overcome the entire network. Integrity is thus preserved through computer codes rather than through human beings opting to do the right thing. Lastly, the Bitcoin network eliminates double spending. This is because it time stamps the transaction when an individual spends a value of bitcoin. And rejects subsequent spend of that bitcoin. This traceability is supported by transparency as transactions on the blockchain are made public.
Bitcoin — Decentralized Digital Currency
This system would eliminate the need for intermediaries such as banks and governments to store and govern funds. Everyone who has access to the Bitcoin blockchain will have the right to access and spend their own funds as they see fit. In short, Bitcoin allows for decentralized control, worldwide participation and codified integrity.
What Is Ripple (XRP)?
Our second contender, Ripple, comes in at a market cap of 12.83 billion and a max supply of 100 billion. Now let’s understand what the third largest cryptocurrency by market capacity has to offer. Ripple’s protocol was first created back in 2004 and in 2012, released by co-founders Chris Larson and Jed McCaleb. Ripple’s network was designed for the internet of value, allowing banks and payment providers to transfer value across borders more efficiently using the network’s native token XRP to represent the value being transferred. This addresses demand for a new payment method that can be used globally, cost effective and settles in real time. Currently, traditional means to transfer funds across borders are costly due to fees and exchange rates between different currencies. In addition, it is a time-consuming process with the turnaround time reaching up to 5 days with SWIFT. Using XRP on the Ripple network, funds can be sent, cleared and settled under 5 seconds.
Proof Of Social Network
The key difference between Bitcoin and Ripple is the ideology and method they use to validate transactions. While Bitcoin is decentralized and uses Proof of Work, Ripple employs a consensus protocol to validate account balances and transactions stored on a common ledger called the XRP Ledger. Some call this a proof of social network, where members of a ‘federate style’ social network reach consensus on the state of the blockchain. This model is highly centralized with participants being recommended to generate a unique list of nodes they can trust, to vote on the state of affairs. This unique node list (UNL) controls the network and is used to protect against malicious or insecure validating nodes. Since this is a consensus-based protocol, the XRP tokens are pre-mined with a small amount of XRP being permanently burned after every transaction to prevent spamming.
Ripple — Centralized Digital Currency
By now the difference between Bitcoin and Ripple should have become more apparent. Ripple is built with a specific clientele in mind and takes on a centralized approach to blockchain. It is designed to improve the existing financial infrastructure instead of creating fundamental change. This goes against Bitcoin’s ethos of decentralization and taking back control from centralized institutions. However, is decentralization the best path towards a globalized economy?
Ripple Vs. Bitcoin
Now that we have painted a picture of both technologies, let’s go into a comparison between Ripple versus Bitcoin.
1. Ownership Model
The ownership model of both networks represents one of the strongest points for debate when it comes to bitcoin vs ripple. When the Bitcoin network was conceptualized with its token bitcoin being the first cryptocurrency to hit the market, it was done so with the ideology for decentralization. After the 2008 financial crisis, there was an apparent flaw with traditional banking and financial systems. Bitcoin was a means to ensure that no one can monopolize the store of value, interfere with the transfer of funds or alter information through transaction validation and transparency. No single entity governs the network and participation is available to all. Ripple is different from Bitcoin as it is highly centralized and owned by the company Ripple. The participants are selective and are elected. While the network itself can function autonomously, the company cannot. It must operate within the boundaries set by the countries it is operating in and adapted to meet the needs of its clients. This would mean that Ripple’s management and authorities can easily influence the way the Ripple network operates. This is highly controversial for a blockchain project as Ripple and its activities are supporting the very parties Bitcoin is trying to do away with.
2. Technology
The decentralized nature of the Bitcoin network allows for its code to be open sourced. Other blockchain projects can be developed from its concept. If you are active in the cryptocurrency community, you might have heard of “forks”. Forks are essentially changes in the software of a digital currency that shares the same history. These forks happen as different development teams with different visions split the network into two different versions. The rise of Bitcoin Cash is one famous example of a fork. Holders of Bitcoin on a supported wallet would have received Bitcoin Cash (BCH) as a result. The Ripple network, on the other hand, will unlikely have sudden forks as the direction of the network is determined by its management. Instead of a decentralized open sourced solution that can be adapted, Ripple is presented as a suite of solutions to key problems faced by its two target audiences; network users and network members. Network users are entities such as SMEs that only send payment while network members who form the foundation of the network, process payment and source for liquidity. Another major application difference between Bitcoin and Ripple is transaction speed. Bitcoin transactions can take up to 30 minutes or more to clear and settle while Ripple takes under five seconds. This is due to the Bitcoin network’s Proof of work system that takes time for block confirmations. Ripple’s validators, on the other hand, are centralized and transactions need only be verified by the list of approved unique nodes.
3. Utility
The differences between Ripple and Bitcoin’s utility lies in Bitcoin’s ability to assume the roles of both commodity and currency while Ripple is only designed to function as a currency. Bitcoin’s decentralized nature means that it is very difficult to shut down, its price in fiat can depreciate but its existence will remain if there are people willing to run the Bitcoin nodes. This coupled with its limited supply creates scarcity. These two factors result in Bitcoin becoming both a store of value and a means of valuating other cryptocurrencies on the market. An individual can with certainty, convert value into Bitcoin and from Bitcoin, into another desired represented form of value worldwide. While bitcoin can be used as a currency to exchange for other currencies, goods and services, its high turnover rate and fees means that a high volume of transactions would create slight inconvenience for both payer and payee as they both would have to wait for each transaction to be confirmed on the Bitcoin blockchain.
Difference In Utility
As a digital currency, the difference between Ripple and Bitcoin lies in Ripple’s enterprise solution which can settle payments under five seconds through the network’s 3 core components.; Xcurrent, Xrapid and Xvia. Firstly, Xcurrent is used by network members to process payments more efficiently and with greater certainty. Secondly, Xrapid is used to source for liquidity through digital assets. Lastly, Xvia provides a standard interface to send global payments to avoid the need for multiple integrations to different payment networks. With the difference in utility for both blockchain projects, it is difficult to pick between Ripple vs Bitcoin as they both serve different purposes. Bitcoin’s concept of a decentralized currency is revolutionary and would change the way finance is handled. But realistically, banks are here to stay as it would be impossible to do away with banks overnight.
4. Tokenomics
The tokenomics of a cryptocurrency covers a vast area but today we will only focus on token supply. With a limited token supply of only 21 million, bitcoin’s scarcity has caused its price to surge in recent years due to demand from speculation and usage. The cryptocurrency is completely unregulated and thus huge price swings can be observed as market forces of demand and supply exert pressure. Ripple on the other hand has in excess 60% of its tokens locked in an escrow to be periodically released into the market. This has a de-inflatory effect as the management can exert some measure of control over the market. In addition, members of the management hold a significant amount of XRP tokens, giving them the ability to ‘dump’ in the market if they so choose to. With this information in mind, the debate between Ripple vs Bitcoin comes to a crescendo. Bitcoin serves as a fair playing field where market forces decide. No one can influence absolute control at the cost of wild price swings. Ripple while providing efficiency and effectiveness as a currency is highly susceptible to human irrationality. A single person can crash the Ripple price and the company can shut down the network.
Final Thoughts On Ripple Vs. Bitcoin
In the battle between Bitcoin versus Ripple who would you pick? The answer to that question will depend entirely on why you would want to choose between them in the first place. Are you a trader and speculating on the future price of Ripple? If the answer is yes, then it would make sense to choose a company whose tokens will be potentially used by every bank and payment provider. If you are looking for a safe store of value, then perhaps Bitcoin. Regardless of who will win the contention, it is clear that both projects have withstood the test of time and their vision only serve to better the world we live in today. For a comparison between Ethereum and Bitcoin, read our guide here.
