Table of Contents
- 1 The Basics
- 2 Technical Performance
- 3 Ripple vs Bitcoin: Decentralization?
- 4 Consensus Mechanism
- 5 Comparison Table
- 6 Ripple vs Bitcoin: The Story So Far
- 7 Ripple vs Bitcoin: The Conclusion
The BasicsIn their simplest form, both Bitcoin and Ripple are cryptocurrencies that are supported by blockchain technology, which allows people from all over the world to use these blockchains to send and receive funds. Both projects have their own native coin, which can be purchased online at a third-party exchange.
Bitcoin ExplainedCreated in 2009, Bitcoin was the first and original cryptocurrency. It was built by an anonymous developer called Satoshi Nakamoto, who wanted to create a new global payments system that would allow people to send and receive digital money on a peer-to-peer basis. Peer-to-peer is similar to “Person-to-Person”, meaning that no third party or intermediary is required to process and verify transactions. As a result, the Bitcoin system is “Decentralized”, because it is not controlled by any single person or authority, nor is it controlled by any central bank, government or nation-state. Instead, transactions are confirmed by the contributing Bitcoin community, called “Miners”. Anyone in the world can become a miner by hooking a device up to their computer. In return for their time and electricity costs, those who are successful are rewarded with extra Bitcoin. If you’re a little confused, don’t worry, I’ll talk about this process in more detail in the next section! Bitcoin (BTC) also has a maximum supply of 21 million coins. The current circulating supply is 17.1 million, with the number increasing each day. However, there will never be any more than 21 million Bitcoins mined, and that figure expects to be hit in 2140. Now that’s Bitcoin explained, the next part of my Ripple vs Bitcoin guide is going to find out about Ripple.
Ripple ExplainedAlthough they are targeting the financial services industry, anyone can buy and sell the currency of Ripple – the XRP coin. People often get confused about the difference between Ripple and XRP, so I’ll quickly clear things up. Ripple is the name of the blockchain technology that allows people to send and receive funds (these funds can translate into most currencies out there). On the other hand, XRP is the name of the cryptocurrency, much in the same way that Ether is the cryptocurrency and Ethereum is the blockchain. Just like Bitcoin, the Ripple blockchain does not require third parties to confirm and verify transactions, allowing people to send and receive funds on a peer-to-peer basis. In total, there will be a maximum supply of 100 billion XRP coins, with a current circulating supply of about 60 billion. So, now that you know the absolute basics of Ripple XRP, the next part of my Ripple vs Bitcoin guide is going to look at how each blockchain performs!
BitcoinWhen sending funds to another person, the Bitcoin blockchain takes approximately 10 minutes for the transaction to be confirmed. This remains the same no matter where the sender and receiver is located. Whether you are sending funds to somebody in the same city as you or to someone on the other side of the world, it will always take about 10 minutes! When comparing this to the time it takes to send money overseas with a bank, it is much quicker to use Bitcoin, as banks can take up to three days to process the transfer. However, as the system has become more and more popular, the amount that users have to pay has increased quite substantially. During its busiest period in late 2017, transaction fees were costing as much as $40, which isn’t sustainable for micropayments to say the least. Fun Fact: High Bitcoin fees was the main reason that Bitcoin Cash was created! Every system in the world can only handle a certain amount of transactions before it becomes overloaded. For example, although in 2016 Visa only process an average of 1,667 transactions per second, it has the ability to process over 50,000 per second if it needs to, but cannot exceed much further than that. On the other hand, you have Bitcoin. Even though Bitcoin is the most popular cryptocurrency in the world, it is only able to process a maximum of 7 transactions per second. This is a huge scalability problem that Bitcoin must resolve if it wants to achieve the dream of becoming a global payment system. So, now that you know about the performance of Bitcoin explained, the next part of my Bitcoin vs Ripple guide is going to see how Ripple performs…
RippleAs you will soon find out, the Ripple blockchain performs much better than Bitcoin’s. Here’s why… Firstly, when sending XRP from one wallet to another, it only takes a few seconds for the transaction to be confirmed. Clearly, this makes Ripple a much better alternative to Bitcoin when it comes to the speed of transactions. $3.29, this would have amounted to a transaction fee of just $0.0000329. This means that you could send over 30,000 transactions before you paid $1 in transaction fees! So, what about scalability? Well, once again, the Ripple coin performs significantly better than Bitcoin. Remember how I mentioned earlier that Bitcoin can only handle 7 transactions per second? Well, Ripple can process more than 1,500 per second! All of the above statistics make Ripple ideal for the multi-trillion-dollar inter-bank industry. This is where banks send money to other banks located in other countries. At the moment, banks need to use a third-party organization located in Belgium called SWIFT. As a result, transactions are expensive and can take around 3 days before they are settled. Moreover, when banks are located in developing nations and have to trade in a currency that isn’t popular, they often have to perform multiple exchanges as there is not enough liquidity in the market. By using Ripple, banks can use XRP as a bridge of liquidity, saving institutions lots of time and money. So, now that you know how the two blockchain projects perform, the next part of my Ripple vs Bitcoin guide is going to discuss which blockchain is more decentralized.
Ripple vs Bitcoin: Decentralization?Decentralization means to not be controlled by any single person or authority. However, there are ongoing arguments in the cryptocurrency community regarding the fact that both projects aren’t as decentralized as they should be.
BitcoinWhen it comes to Bitcoin, although it is certainly true that no single entity controls the network, things have changed since its early days. When Bitcoin was first launched, anybody could become a miner using a GPU or CPU, which are cheap to buy. However, it is now possible to use a piece of expensive hardware called an ASIC. ASIC’s are much more powerful than GPU’s and CPU’s, meaning that they will always have more chance of winning the mining reward. As a result, those who can’t afford to buy ASIC’s don’t have a fair chance of contributing to the system. There are now some powerful organizations which manage ‘Mining Pools’, in which different Bitcoin miners join their resources together to ensure that they have the best chance of winning the Bitcoin mining reward. They build Bitcoin mining farms consisting of thousands of ASIC devices. The idea is simple – the more ASIC devices you have, the more chance you have of winning the reward. Most of these mining pools are located in China, where electricity costs are really cheap. When I last checked the statistics (which you can see below), just four mining pools control more than 50% of the total Bitcoin hashing power. This puts a lot of power in to the hands of a very small amount of people, which goes against the decentralized idealogy of Bitcoin.
Ripple XRPThere are also concerns from cryptocurrency fans that Ripple XRP is not as decentralization as it should be. Firstly, unlike Bitcoin, the Ripple coin is controlled by a company called Ripple Labs. It is important to remember that although they do not have the power to amend transactions or control people’s funds, they do control the supply of XRP. At the time of writing, June 2018, there are approximately 60 billion coins in circulation, of a total supply of 100 billion. The big problem is that the remaining 40 billion (40%) is controlled by the founders of Ripple – Ripple Labs. They have the power to do what they want with the coins, meaning they technically have the ability to manipulate its price. If Ripple Labs decided to issue a large amount of the coins they control, it could affect the price in a negative way. This isn’t the case with Ripple as it isn’t possible to mine XRP. Instead, the network uses something called “Transaction Validators”. The only people that can become a transaction validator are the banks that install the technology. Technically speaking, it is still decentralized because no single validator can take control of the network, nor can they amend or manipulate a transaction. However, some people think that everyone should have a chance to contribute to the network, not just financial institutions. So, now that you know some of the concerns that people have regarding the decentralization of both projects, the next part of this Ripple vs Bitcoin guide is going to discuss how transactions reach consensus. Bitcoin vs Ripple: How do They Reach Consensus? Neither of these protocols require a third party to confirm, verify and audit transactions. So, how do they do it? Firstly, let me quickly explain what a consensus mechanism is. Every blockchain uses a cryptographic algorithm to confirm that a transaction is valid without going through an intermediary. This ensures that the person sending the money actually has the funds, and it also makes sure that the funds are not spent twice (double-spending). Every device that is connected to the Bitcoin or Ripple network is called a node, and for a transaction to be confirmed, a percentage of nodes must “Reach Consensus” — which basically means they agree that the transaction is valid.
Bitcoin: Proof-of-WorkThe first ever blockchain consensus mechanism was created by the developer of Bitcoin, and it is called Proof-of-Work. The best way to understand Proof-of-Work is to think about a really difficult calculation. The Bitcoin network generates a random calculation that is so difficult that no human could solve it. Instead, it requires a large amount of computational power to solve. The calculation takes 10 minutes to solve. Once it is solved, the Bitcoin transaction is confirmed as valid. Every single node that is connected to the network competes with each other to become the first device to solve the calculation. Whoever gets there first, wins the Bitcoin mining reward. The main problem with the Proof-of-Work model is that it requires really large amounts of electricity. For example, a recent study revealed that Bitcoin mining consumes more electricity than 159 individual nations! The second issue with Proof-of-Work (as I discussed earlier) is that it allows people to use really expensive hardware, meaning that those who can invest more money have a much higher chance of winning the Bitcoin reward. Thirdly, and possibly most importantly, the Proof-of-Work model has contributed to the issues of high fees, slow transactions and the inability to scale. So, now that you know what consensus mechanism Bitcoin uses, the next part of my Ripple vs Bitcoin guide is going to look at what Ripple uses!
Ripple: Federated Byzantine AgreementIn FBA, each node will trust a limited number of other nodes, which is known as a “Circle”. The Ripple network has lots of different circles, which each overlap each other so that essentially every node is in some way connected. Transaction Validators that are used to verify transactions (banks that use the technology), they are individually selected and accredited prior to them having the ability to engage in transaction verification. This means that in reality, none of the banks that use the technology are going to want to manipulate consensus, as they are using it to support their own transactions. Even if they did, it would be clear for all other Transaction Validators to see, who would simply reject the transaction. Unlike Bitcoin, Ripple and its FBA consensus mechanism is not required to solve really complex calculations, meaning that it uses far less electricity than Bitcoin. This makes it a more efficient system and ensures that transaction fees are kept low. Ultimately, in the few seconds that the system needs to confirm a movement of funds, at least 80% of the Transaction Validators must reach consensus to mark the transaction as valid. So, now that you know about the two consensus mechanisms that are used, the final part of my Ripple vs Bitcoin guide is going to look at how the projects have performed so far! First though, here is a comparison table so you can recap on some of the main differences between these two projects!
|Consensus Mechanism||Transactions p/s||Market Value||Circulating Supply||Launch Date||Team/Organisation||Transaction Fees|
|Ripple||FBA||1,500||18 Bil||40 Bil||2012||Ripple Labs||<$0.01|
|Bitcoin||PoW||7||104 Bil||17 Mil||Jan 2009||Bitcoin Core||$0.50-$3.00|