Understanding the similarities and differences between Ripple (XRP) and Stellar (XLM) is important if you want to familiarize yourself better with the blockchain sector. Why these coins? They both are competing for the same client - the existing banking system, and they both are supported by strong communities.
What Is Ripple (XRP)?
The Ripple project was launched in 2012 by Chris Larsen and Jed McCaleb as a network for financial transactions in both cryptocurrency and digital money. The main processes of the network are a payment settlement asset exchange and a remittance system. It is similar to the SWIFT system.
The Ripple network is used to facilitate transactions between different currencies. A transaction in the Ripple network looks like this:
User 1 sends 100 USD to User 2. User 2 needs to receive the sum equivalent in CAD.
User 1 deposits 100 USD to the Ripple network, and gives User 2 a password.
With the password, User 2 can withdraw the equivalent of 100 USD in CAD from the Ripple network.
The funds are not exchanged directly USD to CAD. When the funds enter the network, they are exchanged to XRP and further to CAD. The network and its native coin XRP are currency-agnostic. XPR serves as a bridge from one currency to another. Such an approach allows to send and receive funds in any cryptocurrency without excessive transfer & exchange fees.
Ripple is aimed at banks and financial institutions rather than individuals. This is its main difference from Stellar.
What Is Stellar (XLM)?
Stellar was founded in 2014 as an open-source platform to facilitate international payments. The project shares many common features with Ripple, its predecessor. It is not surprising. The Stellar project was created by one of Ripple co-founders, Jed McCaleb.
The project attracted a lot of attention from different organizations. It received significant funding from Stripe, a payments startup, and donations from Google, BlackRock, and FastForward.
The Stellar network enables fast and cheap cross-border transactions. XLM, the native token of the Stellar network, is used as an exchange medium. In 2018, Stellar signed a contract with TransferTo that enabled the network to make cross-border transactions to more than 70 countries.
This is the first distributed technology that got a Shariah-compliance certificate for payments. Stellar was selected by IMB as a partner for a double-pegged stablecoin project.
Stellar is targeted at the markets in underdeveloped countries. The Stellar network is used to facilitate remittances and bank loans to those who are out of the reach of banking services.
Stellar utilizes its own Stellar Consensus Protocol (SCP). Under SCP, transactions can be confirmed by selected trusted nodes rather than being left open to all the network nodes. A set of trusted nodes is selected by all the nodes in the network. This approach allows Stellar to keep transactions cheap and process them fast.
Stellar has also expanded beyond the standard payment solutions. Now, it hosts Dapps with alternative use cases such as messaging and online publishing Dapps.
XLM vs. XRP Supply and Demand
These coins differ significantly when it comes to supply and demand. Ripple is a deflationary cryptocurrency. A Ripple account requires a reserve fee – it is a minimum holding of XRP that shall stay in the account. The account cannot be closed. When a new account is set up, the reserve fee sum is taken out of circulation. With each transaction, a small amount of XRP is also burned. The maximum supply is 100,000,000,000 coins, and all coins were pre-mined. So, with every account closure or transaction, there are fewer coins in the market. This leads to increased scarcity and shall push the coin price up.
Stellar is an inflationary cryptocurrency. An in-built inflation protocol is part of the system’s protocol. It means that fees paid in the Stellar network are recycled in circulation. It increases the number of XLM by approx. 1% annually.
This mechanism allows the network to perform its primary function efficiently – to serve as a medium for transfers.
Use Cases of Stellar and Ripple
Both projects are aimed at facilitating cross-border transfers and making them cheaper. However, Ripple is aimed at financial institutions and banks while one of Stellar’s main focuses is the unbanked population in underdeveloped countries along with all kinds of enterprises including financial institutions.
The Difference Between Stellar and Ripple
Stellar and Ripple are similar in the way that they were created with the aim to disrupt cross-border payments. However, they have more differences than similarities. For more convenience, we have arranged the main differences in a table.
Differences between Ripple and Stellar
Stellar vs Ripple Transaction Speed
Both networks were intended to provide faster and cheaper cross-border transfers. Both of them process transactions in a similar way: transactions are verified by trusted nodes. The Ripple network can process 1,500 transactions per second. The Stellar Lumens network processes from 1,000 to 5,000 transactions per second.
Stellar vs Ripple in 2023: Which One to Choose?
Ripple and Stellar are similar in many regards. Both XRP and XLM cannot be mined. Transactions are confirmed by trusted nodes. However, while the trusted nodes in the Stellar networks are selected by other nodes, in the Ripple network, the majority of trusted nodes belong to Ripple Labs. This factor has drawn major criticism from the cryptocurrency community because it is out of alignment with a key tenet of cryptocurrency and blockchain technologies – decentralization. It might be one of the major drawbacks of Ripple.
Ripple is deflationary while Stellar is inflationary. Many specialists believe that, in this regard, Ripple might be more attractive as a long-term investment.
The client of Ripple is the existing banking system and financial institutions while Stellar aims to become an efficient, fast, and cheap payment system for everybody, including the unbanked population and all types of enterprises. Therefore, the XLM price might be more steady, and the growth might be more consistent.
Both coins are prone to sudden price changes. This factor makes them attractive for day traders.
Where to Buy Ripple & Stellar Lumens
Both XRP and XLM are listed on the majority of exchange platforms. On LetsExchange.io, these coins can be purchased with more than 350 other crypto coins and tokens.