Although the two are often conflated, Ripple and Bitcoin are quite different forms of cryptocurrency with different intentions and advantages.
What is Ripple?
Ripple is a real-time gross settlement system (RTGS), currency exchange and remittance network released in 2012 as a subsequent iteration of Ripplepay. The use of a common ledger managed by a network of independently validating servers constantly comparing transaction records is one way in which Ripple differs from Bitcoin. Ripple doesn’t rely on the energy and computing consumption Bitcoin demands. Ripple is based on a shared public database using a consensus process between validating servers for security. Validating servers can belong to individuals or groups like financial institutions.
The Ripple protocol (token represented as XRP) allows for almost instantaneous and direct transfer of currency ranging from fiat currency and gold to even airline miles. This process avoids the fees and wait times of traditional banks and even other cryptocurrency exchanges.
How Is Ripple Fundamentally Different From Bitcoin?
While it is consensus oriented like Bitcoin, Ripple is not based on blockchain, the underlying code of Bitcoin and other tokens. Instead, Ripple uses a HashTree to summarize data into a single value compared across validating servers to provide consensus.
Banks are slowly adopting Ripple in part because it is primarily oriented for large enterprise. The Ripple platform’s intended purpose is to move lots of money around the world as quickly as it possibly can.
Ripple has operated smoothly since its release processing over 35 million transactions without issue. Ripple can process 1,500 transactions per second (tps) and scaled to Visa levels of 50,000 transactions per second. Bitcoin, meanwhile, can handle 3-6 tps and Ethereum 15 tps.
Additionally, Ripple’s token, XRP, isn't mined like Bitcoin or other types of cryptocurrency. Instead, Ripple adopted the method companies use to issue stocks and issued 100 billion XRP coins.
What is XRP and What’s It Used For?
The XRP token by itself has negligible use cases. Ripple had even planned to phase out its use until cryptocurrency surged in popularity in 2016. Despite this small hiccup, as reported by CNBC, if Ripple hits $6.57, its market capitalization will surpass Bitcoin’s.
The Ripple company promises that they will not issue more tokens and keep the total at the 100 billion XRP tokens initially issued. Ripple has a hub-and-spoke design which positions XRP at the center which is fungible with any currency or digital asset. Ripple can fully settle a payment in 3.5 seconds through XRP. The use of XRP is totally independent of the Ripple network which is to say that banks don't actually need XRP to transfer currency.
What Is Ripple’s Value Proposition?
The value of this company is not the XRP token but the Ripple network itself and its ability to move assets around the world rapidly.
Banks can use Ripple to exchange foreign currencies versus the commonly used SWIFT system which is cumbersome and relies on the banks having separate accounts in every country involved. Ripple has signed up more than 100 banks, most notably American Express. However, SWIFT is used by 11,000 financial institutions.
So Why All the Hype about Ripple?
In addition to all the buzz surrounding cryptocurrency in 2017, rumors in December alleged that Coinbase was going to list Ripple, causing the value to surge in price. Coinbase then addressed the rumors in a blog post on January 4, 2018: “As of the date of this statement, we have made no decision to add additional assets to either GDAX or Coinbase. Any statement to the contrary is untrue and not authorized by the company.”
The Coinbase official blog post caused Ripple to drop back to its pre-rumor value. Since then, Ripple has behaved volatilely like most cryptocurrency has been. Though Coinbase doesn’t support Ripple, there are other ways for you to acquire Ripple.
Words of Caution
The central complaint lodged at Ripple is that its centralized control is in direct contrast to the ideals and advantages of a decentralized blockchain used by Bitcoin.
Additionally, Ripple maintains a trusted Unique Node List (UNL) to protect against potentially malicious or insecure validating servers. Because the UNL controls the network rules, it creates a conundrum; though it protects against problematic validators a regulating body/government could force an undesirable or even downright invasive change. Furthermore, due to a FinCEN violation and fine from 2013, Ripple will now only recognize and recommend gateways fully in compliance with current financial regulation.
New York Times reporter Nathaniel Popper tweeted that he has yet to find a bank planning to use the XRP token in a meaningful way. Ripple’s CEO, Brad Garlinghouse, has adamantly denied Popper’s claims, insisting that “Over the last few months I’ve spoken with ACTUAL banks and payment providers. They are indeed planning to use xRapid (our XRP liquidity product) in a serious way.”
However, Popper rebutted that even the banks he contacted at Ripple’s suggestion were clearly non-committal in their intention to implement Ripple in the near future. According to the Financial Times, of the 18 banks and financial services companies publicly linked to Ripple, the majority “had not yet gone beyond testing” it. Furthermore, only a few had ever actually used Ripple’s system “for moving real money.” Worse still, not a single one of the 16 companies that responded for comment had even used the XRP token once.