Ripple and Stellar both have similar aims. Both involve moving fiat money, cryptocurrency and other instruments very quickly and with very low fees. They are often described as real-time settlement systems (RTGS). Both market themselves as the future of banking and offer many payment processing services.
Ripple is currently the third largest coin by market capitalization. Ripple was created by Ripple Labs and the majority of Ripple tokens, the XRP, are held by this company.
Ripple Labs was founded by Jed McCaleb and Chris Larsen, the current CEO of Ripple Labs. Jed McCaleb is also famous for creating Mount Gox, the Tokyo-based exchange known for losing 850,000 bitcoins to hackers. McCaleb had since sold the exchange.
In September 2013 the Ripple server and client became open to the public for use, though Ripple was initially released in 2012. There are 100 million XRP with 60 million owned by Ripple Labs. Ripple has been around for 4 years and has connections with over 100 banks, so it is well established.
The Ripple Network is called Ripple Net (RN). An amazing feature of RN is that any commodity, currency, cryptocurrency or financial instrument, as well as frequent flier miles or mobile minutes, can be put onto the network and exchanged for something else. All instruments of value get converted to XRP and are then converted into the other instrument.
While most cryptocurrencies use either a proof-of-stake (POS) or proof-of-work (POW) methodology to secure the network, Ripple falls into neither category. Ripple uses what is called a Ripple Protocol Consensus Algorithm (RPCA) to verify transactions and secure the network.
Every few seconds, each node on RN decides whether a transaction is “correct” or not. If enough do, then the transaction becomes closed, the last closed ledger/block on the blockchain.
To make a long story short, as long as 80% of the nodes on a server are honest, no transaction on RN will be fraudulent.
Ripple is focused on providing financial services for banks. It is aimed primarily at moving the current financial model onto the Ripple Network, essentially bringing banking into the modern era of cryptocurrency.
All the financial instruments that are currently in operation with banks, including derivatives, loans and swaps, can be slotted onto RN and performed faster, more securely and at a lower cost.
It is designed and marketed as a neutral utility for financial institutions and systems. While there are many finance-related cryptocurrencies, few are aimed specifically at the banking sector.
Most are aimed at banking the unbanked and regular consumers, or at small to medium-sized businesses. Ripples ambitious model aimed at huge institutions is what has earned it such high esteem in the cryptocurrency sector.
Ripple has many features which set it apart from other cryptocurrencies. For one, transfers are immediate. This can be contrasted with cryptocurrencies such as Bitcoin, where transfers can take 10 minutes, which is not really acceptable.
Transfer fees are also far cheaper than with Bitcoin, which had a period of very large transfer fees, effectively rendering the cryptocurrency unusable.
While other cryptocurrencies have to worry about regulation, this is much less of a concern with Ripple. It is actually backed by a number of banks including UBS, Santander, RBC, Westpac and American Express, among others. These banks are actively collaborating with Ripple Net and are currently at work testing it.
Needless to say, Ripple is eager to get compliant with all relevant rules and procedures and working in hand with big banks will no doubt facilitate this. This is a huge advantage.
These banks can even set their own fees for making the transfers, which is an advantage not found on other cryptocurrencies where mining/network fees set the price.
The main determinant setting Ripple aside from its competitors is that it is fast. Not just fast, but very fast, and by far the fastest cryptocurrency-based network on the planet right now.
There are many competitors claiming to reach up to 100,000 transactions per second in the future, but RN is the fastest and is 100% operational right now.
This is mainly because Ripple does not have to be mined. This has the advantage of there being no centralization at the mining level, low fees and lightning speeds.
Bitcoin currently has a problem where mining rigs are too expensive and are dominated by corporations. The Bitcoin network gets slow and is also terrible for the environment as the electricity costs are overwhelming.
Bitcoin currently processes 7 transactions per second. Ethereum processes 20, Litecoin 56 and PayPal 193. Ripple processes 1,500, the closest cryptocurrency competitor to Visa, which processes 24,000.
These figures will change and all major networks have plans to improve speed. The proposed method for speeding up Bitcoin and Litecoin is called Lightning Network, and for OmiseGo it is called Plasma Network.
Ripple is the opposite of Bitcoin in every possible way. While Bitcoin is decentralized and maintained by thousands of independent miners and developers across the globe, Ripple is completely owned by Ripple Labs. It is the very definition of centralization and there is nothing stopping them from printing more coins.
Ripple is a central bank. On the other hand, Ripple is the best cryptocurrency in some ways. It is the fastest and cheapest and is in a prime position to ally itself with the banking sector and perhaps replace the credit card networks. However, it has its competitors, the main one being Stellar.
Stellar caught the attention of many last year, spiking up nearly 42,000% in price in 2017. The goal of Stellar is in many ways identical to Ripple. Stellar connects banks, people and payment systems.
Stellar is supported by a non-profit organization called the Stellar Development Foundation and the protocol was designed in 2014 by none other than the famous Jed McCaleb along with Joyce Kim.
Stellar is a platform for the exchange of currency, much like Ripple. Like Ripple, Stellar is designed to send money across borders quickly, reliably and with minimal transaction costs.
While Ripple is aimed specifically at banks, Stellar is aimed more at people and businesses. The Stellar token is known as the Lumens, often called Stellar Lumens (XLM). Stellar is the network; Lumens is the token.
Like Ripple, Stellar is not mined. This has similar advantages in that it is fast and cheap. Stellar invented a concept called a Federated Byzantine Agreement.
Without going into any of the technical details, this means that the integrity of Stellar is better than any other cryptocurrency right now in terms of validating transactions and preventing corruption at the level of the nodes.
There are many types of centralization. Bitcoin suffers from potential centralization at the mining level, while Ripple suffers from definite centralization at the ownership level, Ripple Labs owning all the tokens.
Stellar uses a similar consensus mechanism to Ripple where the majority of nodes must agree on a transaction to be added to a ledger. The Federated Byzantine Agreement makes it a little more robust.
The ledger is updated every 2-5 seconds, and currently Stellar can handle in the region of 1,000 transactions per second. Not quite as robust as Ripples 1,500, but far better then Bitcoin, Litecoin, Bitcoin Cash, DASH and Paypal.
Combined. It is superior to nearly every other cryptocurrency at this time, though OmiseGo might be a direct competitor quite soon.
The benefit of Stellar is that you can send your USD to your friend in Europe and get the lowest USD to EUR rate using the network. And it is done more or less instantly. Stellar is perfect for micropayments, is regulatory compliant, and is quick and cryptographically secure.
Like Ripple, Stellar also has some significant backing. IBM have decided to go with Stellar. Deloitte, Parkway Projects and Tempo are also partnered with the Stellar project.
In terms of the ownership, Stellar have given their coins to the non-profit Stellar Foundation, so they have no ownership of the coins. There are a total of 103 billion Stellar Lumens and it has more of a decentralized governance model compared to Ripple. Stellar has a 1% inflation rate set each year.
Ripple vs. Stellar
So what are the differences between Ripple and Stellar? Ripple is seen as a product of the banking industry while Stellar is seen as banking for the people. Stellar is a not-for-profit entity while Ripple is a for-profit company.
Both networks are fast, cheap and secure, and from a technical standpoint there are not that many differences. It is the ideologies and the target market that the differences appear. The main differences are that:
- Ripple is orientated towards banks and corporations, Stellar is marketed towards individuals, small businesses and entrepreneurs.
- Ripple is centralized, while Stellar is decentralized in terms of both coin ownership and advisory boards. Ripple has ties with banks, while Stellar is associated with startup veterans and entrepreneurs.
- Ripple is deflationary or static, while Stellar Lumens has a set 1% inflation every year. Ripple is also closed while Stellar is open source.
As an investment, Stellar might be worth looking into simply because it is newer and has more upside. The market cap of Ripple is around $84 billion while the market cap of Stellar is $6 billion at this current time. Realistically, both of these coins will have a future.
Both have too much backing to go to zero and it is not as if a single cryptocurrency is going to dominate the industry. Ripple will be more popular with banks and Stellar will be more popular with businesses and individuals.
Ripple and Stellar are not in direct competition and both were started by Jed McCaleb. In terms of the existing model, both Stellar and Ripple crush the competition.
Cross-border payments can be done in seconds as opposed to hours or days with the existing credit system. Both cryptocurrencies are widely available on all exchanges, though these two are somewhat difficult to acquire compared to Ethereum and Bitcoin.
There does remain something of a danger of the cryptocurrency market becoming saturated with these types of coin, aiming to disrupt the financial model and the credit card network.
Bitcoin, Litecoin, Bancor, Neo, Dash, Monero, zCoin, zCash, Ripple, Stellar, LaToken, SALT, OmiseGo and others intend to change the way people and business make financial transactions of different types.
And this is aside from banks making their own cryptocurrencies and fighting back, as well as more of these cryptocurrencies to come.
Visa and MasterCard are not sitting still and are currently working on blockchain technology to gain all the benefits it has to offer while still giving people what they know. They are not simply handing over the keys to their vaults and waiting to be taken over.
In light of this, it can be hard to evaluate just how much a coin could rise in value and where the peak is. It is possible that Stellar has more upside right now because it has a different audience that has yet to be reached, while Ripple has reached a large share of its audience in the past 4 years. Both certainly have a future in how people, businesses and corporations make cross-border payments.