How do these digital coins differ?

Not all cryptocurrencies are created equal. Nor do all cryptocurrencies produce an equal impact on the cryptocurrency market. Nor do all digital coins even work in a like manner.

If you analyse any two cryptocurrencies, you will immediately see that there is more dissimilarity between them than similarities. Bitcoin and XRP might enjoy popularity among supporters of digital money, but these two tokens have many differences of which even people who buy Ripple might be unaware.

In what follows, we explain what separates these two types of cryptocurrency.

First and foremost, Bitcoin and XRP use completely different systems to verify transactions. The leader of cryptocurrencies uses mining to verify transactions or generate new coins. Mining involves decentralised networks of computers scattered around the world. These networks secure virtual ledgers documenting cryptocurrency transactions, called blockchains, whose major appeal is security. Computers on the network use their processing power and receive new coins in return. It is a “You scratch my back, and I’ll scratch yours” process: the people called miners maintain and secure the blockchain; the blockchain gives away the coins as a reward for each block the miners add; the miners are motivated by coins to maintain the blockchain.     

XRP does not use blockchains but verifies transactions through its consensus protocol. Protocols in the cryptocurrency world are defined as basic sets of rules that allow data to be shared between computers. They establish the distributed database allowing digital coins to be exchanged on the internet quickly and securely. Validators reviewing a transaction must accept a consensus protocol for this transaction to be approved.

The first difference between Bitcoin and XRP entails another. Thanks to its transaction protocol, XRP processes transactions in seconds, at low cost, and with minimal energy. It is, therefore, much faster, cheaper, and more energy-efficient than Bitcoin. As a more energy-efficient alternative to Bitcoin, XRP is also more environmentally friendly than the latter.  Powered by blockchain, Bitcoin transactions are far less efficient. While XRP transactions are performed in seconds, those of Bitcoin take 10 minutes on average. Their fees are also much higher than those of XRP.

Bitcoin and XRP also differ in their distribution methods. BTC is distributed through the Bitcoin mining process. New coins mined by miners are added to the supply until the maximum supply of 21 million is reached. Unlike Bitcoin, whose mining process is ongoing, XRP was mined before its launch. Ripple, a payment protocol whose native cryptocurrency is XRP, locked 55 billion of its digital coins into an escrow, a legal arrangement in which a party temporarily holds the money until a particular condition has been met. Then, Ripple arranged smart contracts allowing it to release a billion of XRP from the escrow every month. When the digital tokens are released from the escrow, Ripple can sell them to raise funds. Tokens that remain unused or unsold are locked in a new escrow.

Bitcoin and XRP enjoy different prices. As of writing, Bitcoin is hovering around $42,500, brought higher by the war in Ukraine. XRP is trading now at about $0.70. The main reason for such a large price difference between the two cryptocurrencies stems from their different supply cap, a permanent limit on the number of units of a cryptocurrency that can ever be created. Bitcoin has a maximum supply of 21 million coins, while XRP has a maximum supply of 100 billion tokens. XRP is not as rare as Bitcoin and is, therefore, cheaper.

The dissimilarities existing between Bitcoin and XRP speak in favor of the latter. Although BTC is more coveted by cryptocurrency enthusiasts, the potential of Ripple is undeniable. It could replace the current system for international money transfers more surely than could Bitcoin. That it has been partnering with banks also adds to its credit. Once more banks start looking kindly upon XRP, its price will inevitably grow.  

Disclaimer: This article was written by Istvan-Cs. Magyari,  C.E.O. and  Legal Representative of Milex-Adserv S.R.L.

This content should not be interpreted as investment advice. Cryptocurrency is a volatile market, do your independent research and only invest what you can afford to lose.