Bitcoin vs. Ripple: What's the Difference?

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By 
NATHAN REIFF
 
 
Reviewed by 
SOMER ANDERSON
 
 
Updated Apr 26, 2021
From the outside, the cryptocurrency investing universe seems limited to Bitcoin.
As the most well-known cryptocurrency, Bitcoin is the leader in market
capitalization and overall traction with investors.

But there are several other options for those interested in diversifying their
portfolio and experimenting with coins that offer a different take on the concept of
digital currencies. Ripple’s XRP is one of them. In March 2021, the
cryptocurrency ranked fourth, behind Bitcoin, Ether, and Binance coin, in terms of
total market capitalization.

Let’s take a closer look at what distinguishes XRP from Bitcoin and other top
digital tokens.

KEY TAKEAWAYS

 Ripple is the company that is behind XRP, the cryptocurrency.

 Bitcoin transaction confirmations may take many minutes with high
transaction costs, while XRP transactions are confirmed in seconds with
little cost.
 XRP is a technology that is mainly known for its digital payment network
and protocol.
 Many major banks use the XRP payment system.
What is Ripple?
Any discussion of XRP must include a brief introduction to Ripple. In news
reports, XRP and Ripple are often used interchangeably. Both are actually
different.
Ripple is the name of the company and network behind the XRP cryptocurrency.
The company was founded as a peer-to-peer trust network that leveraged social
media. Users within a network could bypass banks and 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 tracks and became OpenCoin1  –a network for money transfers where
large businesses and financial services firms acted as counterparties to
transactions. XRP, its cryptocurrency, was launched in the same year and the
founders, who coded it into existence, gifted 80 billion XRP to as initial corpus.
The purpose of XRP was to serve as an intermediate mechanism of exchange
between two currencies or networks. OpenCoin became Ripple Labs in
September 2013.

On its website2 , Ripple describes itself as a global payments network and counts
major banks and financial services amongst its customers. XRP is used in its
products to facilitate quick conversion between different currencies.

Bitcoin vs. XRP

Bitcoin operates on a public blockchain ledger that supports a digital currency
used to facilitate payments for goods and services. The bitcoin network is based
on the blockchain concept, a public ledger of verified transactions and record
keeping. 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 in this way, miners are rewarded with BTC upon
successfully validating transactions3 .

XRP is the native cryptocurrency for products developed by Ripple Labs. Its
products are used for payment settlement, asset exchange, and remittance
systems that work more like SWIFT, a service for international money and
security transfers used by a network of banks and financial intermediaries4 . XRP
is pre-mined and uses a less complicated method of mining as compared to
Bitcoin.

What are the main differences between Bitcoin and XRP?

The main differences between Bitcoin and XRP are as follows:

Both have different methods to validate transactions

Instead of using the blockchain mining concept, the Ripple network uses 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 end
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 as compared to Bitcoin, which is
considered an energy hog.   

XRP is cheaper and faster than Bitcoin

Due to the complicated and intensive nature of mining used in the
cryptocurrency, Bitcoin transaction confirmations may take many minutes and
are associated with high transaction costs. XRP transactions are confirmed
within seconds and generally occur at very low costs.

Similar to the bitcoin transaction processing fee, XRP transactions are charged.
Each time a transaction is performed on the Ripple network, a small amount of
XRP is charged to the user (individual or organization)5

XRP has more coins in the market 

About 1 billion XRP were pre-mined at launch and have been released gradually
into the market by its main investors. 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 as a store of
value.

XRP and Bitcoin Have Different Circulation Mechanisms

Bitcoins are released and added to the network as and when miners find them.
They do not adhere to a release schedule and their supply depends mostly on
network speeds and difficulty of the algorithm used to mine coins.

A smart contract controls the release of XRP. Ripple planned to release a

maximum of 1 billion XRP tokens each month as governed by an in-built smart
contract; the current circulation is over 50 billion.

Any unused portion of the XRP in a particular month will be shifted back to
an escrow account. This mechanism ensures that there will be no possibility of
misuse due to an oversupply of XRP cryptocoins, and it will take many years
before all the cryptocoins will be available.

 
Overall, XRP is better for lower processing times and lower transaction charges
than bitcoin.6  7

Bitcoin vs. Ripple Example

To understand both with real-world comparisons, below are some analogies.
Peter, living in America, visits Walmart and pays for his purchases in US dollars.
He can also use his US dollars to purchase other currencies for trading and
investment, like GBP or JPY, and sell them off at a later date for a profit or loss.

Bitcoin is an equivalent digital currency—an alternative to real-world US dollars,

for example.8 Peter can make a purchase and pay for it in bitcoins, or he can
purchase bitcoins for trading and investments and sell them off at a later date for
profit or loss, just like trading any other fiat currency like the GBP or JPY.

If Peter in America wants to send $100 to Paul in Italy, he can do so by

instructing his American bank to execute the transaction. After taking necessary
charges, Peter’s American bank will issue instructions using the present-day
SWIFT system that will credit Paul’s Italian bank account with the equivalent
euros (or USD). This process may involve high charges at both ends and takes a
certain number of days for processing.

Enter Ripple, the payment and settlement system that also has a currency, the
XRP.9

Ripple’s payment system uses XRP tokens for the transfer of assets on the
Ripple network.1 0 The same $100 can be converted instantly by Peter to
equivalent XRP tokens, which can be instantly transferred to Paul’s account over
the Ripple network.

Upon suitable verification and authentication of the transaction by the

decentralized Ripple network, Paul will receive the XRP tokens. He will have the
option to convert it back to USD's or any other currency of his choice, or even
retain it as XRP tokens. The verification process is faster than those of bitcoin
and traditional money transfer systems.6

The Bottom Line

While Ripple works in a bit more complicated way, the above example explains
its basic workings. The Ripple system scores better than the bitcoin network for
its lower processing times and lower transaction charges.6  7 On the other hand,
BTC is generally more widespread and better known than XRP, giving it the
advantage in other ways.1 1

Bitcoin remains a truly public system that is not owned by any single individual,
authority, or government.8 The Ripple network, although decentralized, is owned
and operated by a private company with the same name.1 2
 Despite both having their unique cryptocurrency tokens, the two popular virtual
systems cater to different uses.