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Bitcoin vs. XRP: What’s the Difference?
Bitcoin vs. XRP: An Overview
Bitcoin is the best known of all cryptocurrencies with the highest market value. It is designed to be used to transfer value and make payments.
XRP is another cryptocurrency designed to be a faster and cheaper payment system for businesses and financial institutions. It is the native token for the XRP Ledger and is managed by the XRPL Foundation.
Key points
- Bitcoin and XRP are cryptocurrencies, but XRP is cheaper, faster, more scalable, and more environmentally friendly.
- Designed as a global payment system, Bitcoin is primarily used as a store of value and medium of exchange.
- XRP was designed for cross-border payments but is also popular among investors.
Bitcoin
Bitcoin it is a blockchain and a cryptocurrency. Transactions are recorded and verified on a public ledger called a blockchain. To ensure the integrity of the blockchain and prevent fraudulent transactions, Bitcoin employs a consensus mechanism called Proof-of-Work (PoW). In this system, network participants, known as miners, compete to solve complex cryptographic puzzles using powerful computers. While solving these puzzles, they also validate transactions and information from previous blocks.
The first miner to successfully solve the puzzle is rewarded with bitcoin. Their block is added to the blockchain and revalidated by the rest of the network.
XRP and XRP register
XRP is the native cryptocurrency of the XRP Ledger blockchain. Like many other blockchains, it works to securely store transactional data with distributed consensus. XRP was designed to act as a file intermediate currency for transactions spanning multiple crypto-assets and business-to-business networks.
The consensus protocol on XRP Ledger is very different from that of other blockchains. There are different types of servers (nodes) on the XRP Ledger network. While all nodes play a role in reaching consensus, there are three distinct types:
- Validator: Validate the order of transactions by comparing their ledger versions
- Center: information relay that transmits transactions and changes of state
- Action: Connectivity nodes for application developers
The Validator and Hub nodes work together to create logs and deterministically sort transactions in the order they were conducted. All nodes create and maintain lists of trusted validating nodes, with operators removing and adding them as they see fit. Validator nodes reach consensus, in a sense, by comparing notes.
XRP is not rewarded to network participants like other blockchains and cryptocurrencies. When the blockchain was released, a fixed amount of 100 billion XRP was created: 80 billion XRP was given to the Ripple company and the rest went to developers.
Ripple periodically releases XRP from its escrow accounts to fund its operations.
“XRP” and “Ripple” are often mistakenly used interchangeably. Ripple (formerly Ripple Labs) is a company and XRP is the name of the native cryptocurrency for the XRP Ledger, an open source distributed ledger operated by the XRPL foundation. “Ripple” is also sometimes used as the name for the XRP token, but Ripple (the company) does not own or control the blockchain and cryptocurrency.
Key differences
While Bitcoin and censorship and their prevalent use cases.
Consensus mechanisms, speed and costs
Bitcoin’s PoW consensus mechanism for validating transactions relies on a network of miners to computationally solve cryptographic puzzles. Bitcoin mining process It requires a lot of electricity and can lead to high network fees, slow transactions, and block creation times that make blockchain difficult to scale.
Instead of relying on mining, the XRPL network employs a social governance consensus mechanism, the XRPL consensus protocol, which consumes negligible amounts of energy. Participating nodes verify the authenticity of transactions by conducting probes, enabling near-instant confirmations, cheaper integrated transaction fees, and greater network scalability. Network transaction fees should not be confused with exchange or broker transaction fees.
XRP transactions are typically processed and confirmed within 3-5 seconds, while Bitcoin transactions can take anywhere from 10 minutes to several hours to confirm. XRP transactions have no fees like those of Bitcoin; instead, users are required to pay a small amount of XRP, which is burned by the network. The standard amount burned is 0.00001 XRP. The average fee for a Bitcoin transaction was $128.45, and in May 2024 it was around $6.
Cryptographic algorithms
The cryptographic algorithms used in the Bitcoin blockchain are the Secure Hash Algorithm 256 (SHA-256), the Elliptic Curve Digital Signature Algorithm (ECDSA), and the Race Integrity Primitives for Message Digest (RipeMD160). XRP Ledger supports the following cryptographic algorithms: SHA-512 (keeping only the first 16 bytes), EdDSA and ECDSA (secp256k1).
Multiple tokens
XRP Ledger accounts, also known as XRP addresses, are similar to Bitcoin accounts in that they represent a user’s identity and holdings on the XRP Ledger. However, they differ in several key aspects.
XRP Ledger accounts are more versatile than Bitcoin accounts and can tokenize asset types, such as other cryptocurrencies, stablecoins, utility tokens, and security tokens. While second-layer blockchains can tokenize other assets, Bitcoin accounts are limited to holding and purchasing bitcoin only.
Market characteristics
XRP has a total supply of 100 billion XRP, while Bitcoin has a total supply of 21 million BTC. Bitcoin has a larger market capitalization and price than XRP because investors have decided it has more value.
Circulation dynamics
In 2017, 55 billion XRP was locked in escrow accounts on the blockchain. Ripple has reportedly said that it will release 1 billion XRP tokens into the circulating supply every month (presumably for 55 months after their lockup, a period that has long since passed). Any unused portion of the XRP released in a given month goes back into an escrow account.
This was done to maintain a somewhat predictable rate of new XRP coming into circulation and to fund Ripple’s operations.
Is it better to invest in Bitcoin or XRP?
It depends on your outlook and how you determine value. Each has its own purpose and use cases, making them different for each investor. It’s best to speak to a financial advisor who is familiar with cryptocurrency to find out if either is right for your circumstances.
Will XRP ever be worth anything?
Predicting cryptocurrency price changes is difficult because market sentiments change very quickly. In May 2024, XRP had a market value, but there is no guarantee that it will have a market value in the future. Furthermore, there is no guarantee that Bitcoin will do so either.
Can Ripple be the next Bitcoin?
The cryptocurrency market changes very quickly, so it is possible that XRP will become as popular among investors as Bitcoin.
The bottom line
Bitcoin and XRP are popular digital currencies with different use cases. Choosing between the two cryptocurrencies and deciding whether these features represent advantages or disadvantages depends on the user’s specific needs and preferences.
XRP’s faster processing times, cheaper transaction fees, and flexible multi-signature capabilities facilitate instant, cost-effective payments for a wider range of cryptocurrency assets. Bitcoin’s decentralization and economics foster truly public record-keeping of transactions and a predictable market that cannot be corrupted by a central authority.
The comments, opinions and analyzes expressed on Investopedia are for online information purposes. Read ours warranty and exclusion of liability for more information. As of the date this article was written, the author owns BTC, ADA, ETH, and XRP.