XRP vs. Bitcoin: What are the key differences?
Bitcoin (BTC) was the first cryptocurrency to publish a white paper in 2009 that envisioned a new form of money. As the idea took off to become the first real-world implementation of blockchain technology, Bitcoin found use cases within the internet and eventually created borderless marketplaces.
Bitcoin’s blockchain infrastructure is run by a network of independent node operators and miners spread out across the world. The Bitcoin white paper, dubbed “Bitcoin: A Peer-to-Peer Electronic Cash System,” spearheaded the idea of decentralized finance (DeFi) under the pretext of giving the power back to the people, but the technology had to also outperform the traditional financial system in every way. This meant being faster, more secure, limited by quantity and limitless by geography, among other capabilities of an asset we know today as money.
As entrepreneurs took up this challenge, it resulted in the birth of numerous sub cryptosystems that would end up competing to replace Bitcoin as the king of crypto. Here enters Ripple’s XRP, a cryptocurrency or altcoin that was inspired by Bitcoin but chose to become a version focused on improving the traditional financial system.
The Ripple network is powered by XRP for settling cross-border payments for enterprises and individuals. Ripple does this by partnering with financial institutions such as banks to deploy payment corridors in compliance with local jurisdictions.
But the differences between XRP and Bitcoin only intensify after this point.
Inception — The rise of the duel
The founder(s) of Bitcoin chose to remain anonymous behind the alias Satoshi Nakamoto. And successfully so, as the clues and claims collected over the last decade have all reached a dead end. The reasoning behind this move was to establish a truly decentralized peer-to-peer (P2P) financial system with no scope of being controlled. By having no form of establishment, Bitcoin survived all forms of regulatory scrutiny and resistance — all while marching its way into mainstream adoption.
The XRP Ledger (XRPL) was built in 2011 by engineers on a quest to create a better version of Bitcoin. The team — David Schwartz, Jed McCaleb and Arthur Britto — envisioned a Bitcoin-like system without the dependence on mining operations, with Chris Larsen joining the group as the last piece of the puzzle. With this goal in mind, the ledger originally launched Ripples or XRP as its native token. Ever since then, XRP took off as the go-to cryptocurrency for traditional institutions across the globe that are interested in pursuing cross-border remittance initiatives.
Looking beyond all the differences in origin, both Bitcoin and XRP are backed by their community of crypto enthusiasts that support the respective ecosystems globally. Both communities are currently leading the efforts to acquire legal status for their crypto, but unlike XRP, Bitcoin is not backed by any institution like Ripple and its suite of lawyers.
The fight for Bitcoin’s relevance is led completely by the people that really believe in it and the reassurance of a huge return on investment. Those backing XRP are testing its legality under the traditional umbrella and are heavily dependent on its acceptance from banks and traditional financial institutions in order for it to go mainstream.
Fork the system
While Bitcoin was created to take out the banks and governments from the equation altogether, XRP took a different approach to find a place within the existing financial landscape. As it matched Ripple’s inherent goal of improving cross-border payments and redefining traditional banking, XRP stood out as a core piece of technology to make this possible. However, Ripple is a software company that exists independent of XRP and in no way controls or operates the cryptocurrency.
Unlike Bitcoin’s open infrastructure that is run solely by the general public, XRP is built on the privately owned interledger protocol (ILP). Bitcoin was built on the belief that a true asset, which can appreciate with time, has to be limited in nature. Hence, the supply has been capped to 21 million, although it is possible to continue issuance by making changes to the protocol. Powered by the SHA-256 hash function, the Bitcoin ecosystem depends on miners to confirm transactions and release new tokens into the market by earning rewards.
On the other hand, XRP was designed not to be mined and the token’s maximum supply has been capped at 100 billion, of which 80 billion XRP were gifted to Ripple by the founders. However, the actual circulation of XRP is dependent on the crypto’s use case, and any extra tokens get moved to an escrow account to be recirculated at a later stage. This structure allows XRP to commence more transactions at a faster and cheaper rate.
The Bitcoin community is largely dependent on a network of miners to make the ecosystem possible. However, the success of this technology is based on trusting at least 51% of miners that can outweigh bad actors while legitimizing transactions. XRP removes this dependence by replacing the miners with validators that are servers designated to confirm transactions based on protocol authenticity.
Bitcoin runs on a proof-of-work (PoW) mechanism to tackle the issue of double-spending, which if not done, will allow users to trick the system into spending the same number of Bitcoin across two or more transactions. In other words, the network is highly dependent on the positive intention of at least 51% of miners to legitimize a transaction on the BTC network. While the PoW mechanism limits the speed of transactions, XRP transactions are confirmed and settled faster by the ledger’s consensus protocol i.e., around three to five seconds, as opposed to Bitcoin’s 500 seconds. This difference in the protocol allows XRP to process 1,500 transactions every second while Bitcoin manages to settle three transactions in that time.
Mining operations also contribute to energy consumption in the form of electricity. With long-term sustainability in mind, XRP’s distributed consensus mechanism can validate transactions using negligible amounts of energy and a fraction of Bitcoin’s time. However, both crypto ecosystems require a fee to process the transactions, which is heavily dependent on the mode and quantity of transfer.
Price surge vs. adoption rate
A lot of entrepreneurs and traditional investors have changed sides after a “Bitcoin billionaire” became a thing. Although the original Bitcoin white paper made no such promises, BTC stands as the most profitable store of value that continues to attract investors. XRP, on the contrary, took on a role as a bridge currency that outperforms fiat currency in terms of speed and costs. XRP currently leads the cross-border remittance space, owing to Ripple’s extensive partnerships with traditional banking giants across the globe.
The XRP ecosystem currently focuses mainly on increasing its adoption rate by serving various use cases within traditional payments. The XRPL founders initially gifted 80 billion XRP to Ripple, out of which 55 billion or 55% of the total XRP supply have been locked in a series of escrows.
Given the popularity of both XRP and Bitcoin, the cryptocurrencies can be traded across all major crypto exchanges across the globe and are also supported by most crypto wallets. While both are cryptocurrencies at heart, Bitcoin and XRP came into existence to challenge the different realities of finance and potentially work to redefine the meaning of money in the process.
The following table shows the difference between the two leading cryptocurrencies:
What’s in it for the people?
One big dilemma that a crypto investor could think they are facing is to choose sides between two coins or projects. But ultimately, both XRP and Bitcoin were built to perform different tasks and don’t come under direct competition.
Bitcoin leads in accessibility, as the system allows anyone to trade or carry Bitcoin across the world, independent of all jurisdictions. XRP is more like a specialized tool that is designed for settling cross-border transactions with lower costs and quicker speeds than traditional fiat currency.
As a true store of value, Bitcoin’s ability to be openly traded gives the general public more control over any man-made regulations and market predictions. XRP’s use case is heavily dependent on Ripple’s partnership with banking institutions and has not been focused on price.
As XRP continues to serve real-world use cases, its relevance in the financial world can no longer be ignored by banks as it could become a part of a streamlined approach to cross-border settlements. Combined efforts from Ripple and the XRP community are attempting to push Ripple’s payments solution toward global adoption.
On the other side, Bitcoin’s volatility has made it a viable option for speculative investments. While BTC has been accepted as an asset after a decade-long stellar price performance, the exact status of XRP is still unclear in many parts of the world.