To start, take a closer look at Ripple, which Chris Larsen and Jed McCaleb, American programmers, created in 2012. Ripple’s cryptocurrency is XRP, and that crypto has the third top market capitalization with the XRP/USD price of $0.32. It is important to understand that Ripple refers to the technology, while XRP refers to the token itself. The idea behind Ripple is the ability for banks to make international transfers within seconds at almost no cost. The founders decided to create Ripple to overcome challenges of the existing cross-border payment systems, including slowness, inefficiency, and high cost.
Ripple relies on distributed ledger technology that ends the need for third parties when transferring money across borders, cuts costs and reduces the time spent. XRP is also useful for banks thanks to its ability to provide liquidity. Although the target audience of Ripple is banks, everyone is welcome to use it, and banks are certainly not the only ones who have already put it to good use.
One of the co-founders of Ripple, Jed McCaleb, created Stellar in 2014. As with Ripple and XRP, Stellar refers to the technology, while XLM or Lumens refers to the cryptocurrency. Stellar is like Ripple in that it also allows for quick and affordable sending and receiving of funds. It also has similar coding to Ripple, which should be unsurprising considering their shared founder.
The difference lies in whom the blockchain and token target. Stellar Lumens is for the average person, particularly those in the developing areas of the world, although banks can still use it. The focus of Stellar is on increasing the abilities of those in poor or less-developed countries to interact in the global economy with nearly instant and highly affordable transactions. The Stellar protocol allows for a direct exchange of fiat currencies in cases of high activity, but it typically converts the sender’s money to Lumens, then converts the Lumens to the receiver’s currency.
Are Both Necessary? Similarities and Differences
The lengthy list of similarities between Ripple and Stellar would make some believe that there is no need for both. After all, they both:
- Have private nodes without mining allowed;
- Rely on distributed ledger technology;
- Deliver almost free and instant transactions, making them ideal for international payments and transfers.
Despite those similarities, there are enough differences between Ripple and Stellar to account for a need for both cryptocurrencies. The biggest differences are the target audiences and the goals behind the blockchains. As mentioned, Ripple’s creation occurred specifically to appeal to banks, a huge market with a great deal of potential for profit. By contrast, Stellar’s creation was to extend the reach of financial services around the globe, helping the unbanked. In fact, Stellar refers to itself as “not for profit” because its goal is helping people rather than making money.
The two also use different consensus algorithms, with the unique consensus protocol for Stellar and proof of correctness for Ripple. Furthermore, Lumens coins are inflationary, while XRPs are deflationary, meaning they increase and decrease circulation, respectively. Finally, Ripple is more centralized than Stellar, although both are much more decentralized than traditional currencies.
It is also interesting to note that Ripple tends to be a larger organization and has raised much more capital, something likely related to the difference in target audiences. By contrast, Stellar has a smaller yet highly experienced team and has not put as much of an emphasis on marketing as Ripple has.
Overall, there are differences in:
- Size of the organization;
- Inflationary vs. deflationary nature of tokens;
- Consensus protocols.
Can They Coexist?
Given the differences between Ripple and Stellar, many believe that there is no reason that only one of the two can exist or “win.” In fact, both are among the most popular cryptocurrencies and they have similar prices. At the time of writing, one XRP was at $0.32, while one XLM (Lumens) hit $0.223. Based on market cap, Ripple’s XRP ranks at number 3 with Lumens not far behind at number 6.
Who Would Win?
Those who want to know which of the two cryptocurrencies would come out on top if one had to disappear, will be hard-pressed to get an accurate answer. The world of cryptocurrency is volatile and unpredictable. At the time of writing, however, Ripple’s XRP has a higher market cap than Stellar’s XLM, $12 billion compared to $4 billion.
There is also the fact that Ripple has partnerships with many high-profile banks and continues to target financial institutions. As such, there is a great deal of money invested in Ripple, and those who are most interested have more money to spend. There are more than 100 banks working with Ripple already, a figure which includes RBC and Bank of America.
To make up for this advantage of Ripple, Stellar has the potential to allow for a cheaper and more seamless exchange of currencies, provided it has sufficient users to exchange currency regularly. Additionally, Stellar has the advantage of being more decentralized, which can prove useful if the world is moving toward decentralization, which seems to be the trend.
Both Ripple and Stellar make it their goal to improve the ease of completing transactions across borders, particularly those that involve multiple currencies. Ripple is two years older and targets banks when spreading its technology, while Stellar targets the unbanked. Both rank incredibly high in terms of popularity and market value, and their prices are relatively similar. As such, it appears that Ripple and Stellar are different enough to coexist in harmony, and each currently enjoys success. Despite their similarities, those in the crypto community seem to support both currencies, indicating that there does not necessarily have to be a winner.