Analysis

Ripple is Winning the Race Ahead of Bitcoin

In a recent interview with Bloomberg Asia, Ripple CEO Brad Garlinghouse was asked for his views on Ripple being referred to as the next Bitcoin. Garlinghouse said that the comparisons were compliments to Ripple but he went further to compare Bitcoin to the Napster of the cryptocurrency industry.

Napster was the pioneer of peer-to-peer internet file sharing but was unable to evolve and other services like Spotify, Pandora and iTunes took over and went on to be extremely successful. The brilliant response notwithstanding, the comparison between Bitcoin and Ripple has gone on since Ripple burst into the top 3 cryptocurrencies, at one point leapfrogging Ethereum to second place.

Is the comparison justified?

Yes and no.

Ripple and Bitcoin have many things in common and are both a revolutionary invention in the financial technology industry. Bitcoin, the invention of the pseudonymous Satoshi Nakamoto, has been around since 2009 and has since then enjoyed market dominance. Bitcoin was a pioneer cryptocurrency and introduced the world to the blockchain technology.

Ripple was developed in 2012 by Ripple Labs Inc. which was known as OpenCoin then. Founded by serial entrepreneur Chris Larsen and Mt Gox founder Jed McCaleb, Ripple sought to develop a platform in which the transactions were verified by consensus and not by miners as with Bitcoin. Ripple has since then grown to become a leading avenue for cross-border funds transfers and has now registered more than 100 financial institutions to its platform.

Why Ripple is the Spotify to Bitcoin’s Napster

One of the most significant qualities of the system created by the San Francisco company that makes it light years ahead of its competitors is its transaction time. In the current economic spectrum in which globalization has taken root, moving funds from one corner of the globe to another is crucial and Ripple is proving to be superior to Bitcoin in this regard. Bitcoin takes an average of 45-60 minutes to settle a transaction.

If a user wants to have his transaction prioritized and processed faster, he has to part with a bigger amount for the transaction fees. While this is a huge improvement on the traditional model which would take 3-5 days, it’s still impractical for day to day transactions. Ripple settles transactions in 3 seconds! This lightning fast speed gives Ripple the upper hand and makes it more suitable for sending funds.

The transaction fees with Bitcoin are also increasingly becoming prohibitive to many users. While Nakamoto envisioned a system which brings down the fees to extremely low amounts to fight the centralized model which was expensive, the situation on the ground today is quite different. Bitcoin users now pay an average $27 to send Bitcoins with the fees rising to $40 for faster processing. This model benefits the miners at the cost of the users making it an unsustainable model. Ripple charges a mere 0.00001 XRP to settle a transaction. This amount of XRP is destroyed rather than being awarded to miners which decreases the supply of XRP in the market, raising their value.

The proof of work algorithm used by Bitcoin is very energy-intensive which makes mining an expensive affair for the miners. It is estimated that Bitcoin mining consumes as much electricity as Ireland and Denmark annually and in a few years could consume as much electricity as the United States! This is simply unsustainable and will eventually push out the smaller miners leaving the mining to the big institutional miners.

This is the key reason even Ethereum is planning to slowly move to proof of stake which is more energy efficient. Ripple uses the consensus algorithm in which the network receives the transactions from different nodes and pushes these transactions in batches to other nodes. Transactions which receive an approval of over 80% are then registered on the ledger. This algorithm is less energy-intensive and it’s much faster.

Bitcoin’s hard cap stands at 21 million coins, with close to 17 million already having being mined so far. While this model protects against inflation, it also makes it unsuitable for institutional use. Ripple on the other hand has a hard cap of 100 billion XRP! This huge number of tokens makes XRP ideal for institutional use as it’s less susceptible to unprecedented price volatility. As global firms such as Amazon and Tencent adopt cryptocurrencies, they would be wary of a cryptocurrency which is susceptible to artificial volatility caused when a few investors dump their coins and the market reacts negatively. With 100 billion XRP, the Ripple ecosystem is nearly impossible to manipulate.

The battle for cryptocurrency dominance will range on with Bitcoin, Ripple, Ethereum, Litecoin and others all shooting for the top. However, the cryptocurrency that adopts best to the evolving customer preferences and market demands will emerge victorious and will become the digital currency of the future. Ripple has a very good shot.

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