Considerations when deciding between XRP and Stellar Lumens
With strong financial backing and
a long list of partners, Ripple has attracted plenty of attention
not only in the cryptosphere but also across mainstream media. But any analysis
of Ripple inevitably draws comparisons with Stellar
Lumens (XLM), another crypto giant focused on offering fast, reliable
and affordable global payments.
There are plenty of similarities
between Stellar and Ripple, but also a few key differences. Read on to find out
how these two cryptocurrencies stack up against one another and decide which
project is best placed for success.
Disclaimer: This information should not be interpreted as
an endorsement of cryptocurrency or any specific provider, service or offering.
It is not a recommendation to trade.
XRP vs XLM:
The breakdown
|
XRP (XRP)
XRP
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Stellar Lumens (XLM)
Stellar Lumen
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|
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Description
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XRP is designed to offer fast,
cheap and secure cross-border payments through RippleNet, a network of banks
and payment providers all around the world.
|
Stellar offers a network that
connects banks, payment systems and people around the world, with the aim of
offering fast, cheap and reliable cross-border payments. The Lumen (XLM) is
Stellar's native currency and is used to facilitate exchanges between fiat
currencies.
|
|
Uses
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Cross-border Payments
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Cross-border Payments
|
|
Ticker symbol
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XRP
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XLM
|
|
Release year
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2012
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2014
|
|
Origin
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United States
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United States
|
|
Maximum supply
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100,000,000,000
|
Unlimited Supply
|
|
Notable team members
|
Brad Garlinghouse, David
Schwartz, Stefan Thomas
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Jed McCaleb, David Mazières
|
|
Notable partnerships
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Accenture, American Express,
Deloitte, Royal Bank of Canada, MoneyGram, National Australia Bank, Western
Union, Westpac
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IBM
|
|
Consensus algorithm
|
Proof of Correctness
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Stellar Consensus Protocol
|
|
Mineable?
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No
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No
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What's the difference between XRP and Ripple?
The term “Ripple” is often used to describe the XRP
cryptocurrency, but this is in fact incorrect:
- • Ripple is a California-based tech company that
aims to streamline and innovate cross-border payments.
- • XRP (XRP) is the independent digital asset that
facilitates transactions on the Ripple network.
Ripple and
Stellar: How do they work?
Founded in 2012 by Jed McCaleb
and Chris Larsen, Ripple offers a digital payment network for financial
transactions. It provides a blockchain-based solution designed to facilitate
cross-border payments between financial institutions, using the XRP
cryptocurrency (XRP) to act as a bridge between fiat currencies.
Following differences of opinion
with other members of the Ripple team, McCaleb left Ripple and founded Stellar
in 2014. The two platforms initially shared some code but are now based on
completely different codes.
Stellar also aims to offer fast
and affordable cross-border transactions, but it uses a distributed payments
network designed to connect banks, payment systems and people around the world.
Stellar’s native asset, the Lumen (XLM), is used to conduct transactions
between different currencies.
On paper, they’re both very
similar projects, but they’re actually far from identical. One of the big
differences is based on philosophy: while Ripple is focused on improving the
efficiency of international transactions between banks, financial institutions
and other corporates, Stellar has turned its attention to providing access to
low-cost financial services for those in the developing world.
It’s also worth noting that
Stellar offers a couple of additional features that Ripple does not. Not only
does the Stellar network provide a decentralised exchange, it also provides a
platform for ICO launches.
How XRP (XRP) works
Banks and multinational
corporations use XRP to make international payments. This is done by
transferring the XRP token through the Ripple network. The end result is
liquidity on demand.
How Stellar Lumens (XLM) works
Stellar lets individuals trade
money directly with each other, using Lumens (XLM) as a medium and “anchors” to
handle the fiat currency aspects.
Case study:
What’s the difference between transferring fiat currency, XRP and XLM?
Let’s say Jim wants to send money
from a British bank account to a German bank account, converting it to euros
along the way. He wants to do it at the best rates possible.
Compare how
Jim’s process would differ based on which currency he transfers:
1.
Transferring fiat currency
The money will be bumped between
several banks on the way. It will frequently be converted from GBP to USD to
EUR on the way. The entire process takes three to five days, incurs fees from
each bank on the way and loses Jim money on all the exchange rates.
2.
Transferring XRP
Jim could buy XRP himself and
send it to a wallet address overseas, but he doesn’t want to. Fortunately, his
bank uses the Ripple platform and can send and receive XRP.
He makes a money transfer as
usual. His bank sends XRP directly to the bank of the recipient account. The
payment is made at whatever exchange rates and fees the bank chooses to charge
for this service.
If Jim is lucky, it has passed
some of the savings onto him.
3.
Transferring XLM
Jim signs onto the Stellar
platform and sends money through it. It makes the transfer automatically.
First, it converts the GBP to
euros, then it uses an anchor to transfer the euros to the recipient account.
An anchor is a Stellar partner
that’s entrusted with actually transferring the funds. These are usually money transfer companies. Jim can choose his
own anchor and shop around for the one he wants.
There are a few different ways
Jim’s GBP might be converted into euros.
- • Peer to peer: It
looks for people who want to trade euros for GBP and picks the best
prices.
- • Via XLM: Lumens
(XLM) are used to fill the gaps or make up the entire transfer if needed.
For example, the Stellar platform might sell Lumens for euros through an
existing order on the official Stellar exchange.
- • Chain of conversions: The
platform can automatically perform a chain of conversions, such as AUD
> NZD > CNY > USD > EUR if that’s what it takes.
Between these options, which are
carried out automatically, and with XLM to fill in the gaps and grease the
wheels, people can make efficient peer-to-peer money transfers or simply
convert currency for their own purposes.
Differences
between Ripple and Stellar
1.
Philosophy
As we touched on above, Ripple
and Stellar are built on separate philosophies and are focused on different
target markets. Ripple is a privately owned blockchain company that provides
its services to other companies. It allows multinational companies and banks to
quickly make cost-effective international transfers and currency conversions,
plus access a range of extra features.
Meanwhile, Stellar allows
individuals to make more cost-effective money transfers and currency transfers.
Stellar itself is a nonprofit organisation with the goal of enabling a more
inclusive global payment system.
2
.Technology
Once upon a time, Ripple and
Stellar shared a large amount of code. However, the two systems are now based
on different codes.
Ripple’s payment protocol uses a
proof-of-correctness consensus mechanism based on majority validation. The
mechanism is applied every few seconds by all nodes to maintain the agreement
of the network.
Meanwhile, Stellar’s payment
protocol, Stellar Core, is based on the Stellar Consensus Protocol algorithm.
This uses a consensus model called Federated Byzantine Agreement and, according
to Stellar, provides a method of reaching consensus without relying on a closed
system to accurately record financial transactions.
3. Future
supply
The maximum supply of XRP is
capped at 100 billion. The initial supply of Lumens was also 100 billion, but
that’s where the similarities end.
To protect the XRP Ledger against
spam and denial-of-service attacks, a small amount of XRP is destroyed in each
transaction. This transaction cost means that the total supply of XRP will
decrease over time.
On the other hand, XLM is
designed to be inflationary, with a fixed inflation rate of 1% per year and all
transaction fees recycled.
4.
Decentralisation
Decentralisation is commonly
cited as one of the core principles of cryptocurrency, but Ripple is widely
considered to be a more centralised network than Stellar. Ripple has received
plenty of criticism in this regard, much of which stems from an incident in
2015 when the funds of recently departed Ripple founder Jed McCaleb were
frozen.
This raised questions about the
level of control Ripple has over its network. However, Ripple CEO Brad
Garlinghouse was quick to respond, using
Quora to refute suggestions that Ripple is overly centralised.
He posted: “Ripple is not centralised. To be clear, if Ripple disappeared today
XRP would continue to function. To me, that’s the most important measure of
whether something is decentralised.”
Pros and
cons of Ripple and Stellar
|
Ripple
|
Stellar
|
|
•There’s a lot to like about Stellar’s plan to
deliver low-cost financial services to the world. Its network offers several
key benefits over existing payment systems, while the fact that Stellar also
acts as a decentralised exchange and ICO platform introduces added
functionality. And and while it may not enjoy the same level of corporate
backing as Ripple, Stellar has secured some impressive partnerships of its
own.
|
|
|
XRP vs
Stellar Lumens
XRP
Stellar
Which is the
better holding?
When deciding which
cryptocurrency to hold, you will need to take into account a number of
considerations.
For example, both XRP and Stellar
saw dramatic price increases at the end of 2017, and their values have tended
to mirror each other. This may suggest that many people are holding both rather
than picking just one or the other.
Another consideration is the fact
that XRP has partnered with a lot of high-profile banks, so there’s a lot of
money behind it.
On the other hand, you will also
need to take into account the possibility of Stellar getting enough users and
anchors that it could feasibly let people exchange currencies seamlessly and
much cheaper than with XRP.
Also, technology has increasingly
moved towards decentralisation, and you will need to decide if Stellar is ahead
of XRP in that respect and if it matters.
Ripple vs
Stellar: the bottom line
Though they’re cut from the same
cloth in some ways, Ripple and Stellar are far from identical. With a focus on
very different target markets and with a key variation in the underlying
philosophy behind each project, trying to frame this as an argument between two
competitors battling for supremacy is overly simplistic.
If you’re considering purchasing
XRP, that doesn’t mean you shouldn’t also consider buying XLM – and vice versa.
Of course, you may also decide that neither project is worth buying into.
Both Ripple and Stellar have
their own strengths and weaknesses, so thoroughly research each currency before
deciding if either is well placed to achieve success.
Source: Finder.com
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