Bitcoin Explained
Like other cryptocurrencies, Bitcoin (BTC) is built on the blockchain. The coin’s public ledger is designed to be an infrastructure facilitating payments for goods and services. Since its inception in 2009, the currency has grown to validate the blockchain concept.
This validation has prompted the launch of several thousands of cryptocurrencies. Furthermore, there’s been a growing community of participants in the bitcoin ecosystem. For instance, there are miners who solve computational problems to verify new blocks of transactions. At the same time, there are traders and investors who get involved in the economy to trade bitcoin as an asset.
These models hold for other cryptocurrencies, known as Altcoins. These Alternative Coins may not compare directly to bitcoin regarding market cap. However, they have a level of importance that makes them worthy of consideration for investors, developers, miners, and other significant stakeholders.
One altcoin that’s worth understanding is Ripple. Hence, it’s earned a place being compared with Bitcoin.
Ripple Explained
The market code of Ripple is XRP, and Ripple labs developed the coin. This is another difference between Ripple and Bitcoin, as an anonymous entity created the latter. Following Ripple’s development by Ripple labs, it’s been used to facilitate payment settlement, remittance infrastructures, and exchange of assets.
As expected of cryptos created after Bitcoin, Ripple features a less-complicated mining system. Specifically, it is pre-mined, which means that a large portion of the crypto has already been mined and placed immediately in circulation upon launch. Virtually all new cryptocurrencies go to market with this launch strategy.
At the start, Ripple labs leveraged social media to familiarise the public with their peer-to-peer network. The modus operandi on the platform saw users interact directly with each other for loans and credit lines without having a bank as an intermediary. Unfortunately, the model didn’t fly, and within the same founding year, 2012, the project pivoted to become OpenCoin.
Upon becoming OpenCoin, the operational model started featuring financial institutions and other large stable businesses as transactional counterparties. The switch to featuring legacy institutions has boded well for the Ripple Network payment system. As the business model showed promise, the brand name quickly reverted to Ripple Labs in 2013.
When Ripple was created, 100 billion tokens of it came into existence. One-fifth of these tokens went to the co-founders, while 80 billion found its way to the company. The role of the tokens in the Ripple business model is to give incentives to customers, aid business operations, and sell to accredited investors.
Owing to this model, the company releases 1 billion XRP each month via its smart contract system. The tokens are released into Ripple Lab’s escrows; unused ones return to the company at the end of the month.
Main Differences between Bitcoin and Ripple
You’ve already noticed differences in the fundamental explanations of the two cryptocurrencies. However, there are more to consider:
| Differences | Bitcoin | Ripple |
|---|---|---|
| Market supply | Bitcoin has a lower market supply at a maximum of 21 million tokens mineable. | Ripple has a higher market supply with 100 billion tokens pre-mined. |
| Transaction speed | Transactions are slower and at high fees | Transactions are faster and cheaper |
| Consensus mechanism | Uses a proof-of-work consensus mechanism | Uses a consensus validation mechanism through polls |
| Blockchain technology | Uses a fully-decentralized blockchain technology | Uses a blockchain-based digital payment protocol controlled by a consortium of entities |
| Market cap rank | 1st | 6th |
Market supply
Ripple has more supply than Bitcoin. While the latter enjoys a 21 million pool (with over 18 million in circulation already), Ripple has 100 billion coins pre-mined. Out of Ripple’s 100 billion, 45 billion are already in circulation.
You should note that the 21 million Bitcoins stated above aren’t pre-mined. They have to be mined through computational infrastructures designed to solve problems. The 21 million figure only exists because the Bitcoin network’s blockchain is configured to be capped at 21 million.
The artificial scarcity created by the cap is responsible for the coin’s high value, which also explains investors’ interest in the crypto as a store of value.
Speed of transactions
The difference in the operational model for Ripple results in a fast transactional rate. Ripple is faster than Bitcoin, consequently resulting in lower transaction costs. The Ripple network fosters speedy remittances, currency exchange, and payment settlements. XRP transactions take a few seconds to complete. On the other hand, Bitcoin may take minutes, hours, or days.
Validation methods
The difference between the two coins also shows in their transaction validation processes. For Bitcoin, miners solve problems to validate transactions into blocks through the proof-of-work consensus mechanism and then get rewarded for their effort. For Ripple, the consensus validation mechanism uses polls to authenticate transactions.
The decentralized polling system is more efficient and reliable. Furthermore, Ripple’s validation process requires low computational power.
Underlying technology
While Ripple is decentralized, many argue it still enjoys a degree of centralized control. The token requires a network of validators by operating on a consensus ledger. Ripple Labs chooses the validators, which is a more efficient approach, but still gives life to the need for trust. The network has to pick validators it can trust, which is against what blockchain aims to render obsolete – the need for trust.
Bitcoin, on the other hand, promotes a trustless concept. By using a public blockchain maintained by the community, there is no need for any person or entity to be trusted. The system rewards its participants autonomously.
Analogies to Understand Bitcoin and Ripple Differences
The real-world usage of Bitcoin and Ripple gives further context to their differences.
Bitcoin’s use
In a country like El Salvador, where Bitcoin is a legal tender, you can pay with Bitcoin rather than buy stuff with the US dollar. All that matters is the accurate value interpretation in the real-time price of BTC.
In other cases, you can buy Bitcoin, like you’ll purchase land, and sell it off when the value is higher. Traders and investors leverage the fluctuating value of BTC to accrue financial gains.
Ripple’s use
Ripple has its currency, XRP. More importantly, Ripple works as a payment and settlement infrastructure. Rather than conducting international money transfers through banks using the costly and sluggish SWIFT system, you can use Ripple.
With SWIFT, your bank has a unique code. You can then inform the bank in question about a potential international transfer. Then, through SWIFT, the transfer instructions are sent to the recipient bank, with the equivalent in whatever currency. Both sides of the transaction incur charges, and processing is bound to take days.
Ripple solves both problems by issuing its XRP token to facilitate asset transfer. If A wants to send $500 to B, A converts the money to an equivalent XRP token, then sends the ripple coins to B. B receives the XRP tokens instantly and can decide whatever currency to change them to in their home country.
Conclusion
Bitcoin and Ripple are similar in some ways and different in many. Regarding efficiency and cost-effectiveness, Ripple has more advantages. However, Bitcoin currently enjoys better public sentiment despite its shortcomings. Public opinion has also primarily defined the major use cases of both currencies. While Bitcoin can transfer assets, it’s used mainly for payments and as a store of value. Similarly, while XRP can be a store of value, its use case pushes more toward replacing the traditional SWIFT network.
This dichotomy reflects an innate issue plaguing cryptocurrencies – their values remain primarily about how people feel about them.
Reviewed and Fact Checked by Nakul Shah , DLT Expert and Project Manager