Bitcoin has ushered in a new era of finance since its inception in 2009. It is the most popular crypto coin and has received attention from the financial world. The crypto market has several crypto coins for you to invest in. One such crypto coin is Ripple(XRP). But who wins between XRP and Bitcoin?
What is Bitcoin?
Bitcoin is the first crypto coin on the market. Bitcoin brought the concept of blockchain technology and distributed ledgers to the mainstream.
Bitcoin is used to facilitate payments and transactions. This crypto coin runs on a decentralized ledger that stores transaction information on the blockchain network. Users validate blockchain transactions before adding them to the network.
Users verifying transactions are known as miners; they use powerful hardware to solve cryptographic puzzles. Users who solve the puzzle first get to add a new transaction block to the blockchain and earn crypto rewards.
What is an XRP coin?
Ripple Labs launched its native token, XRP, in 2012. Unlike other altcoins, XRP was not meant to compete with Bitcoin. The purpose of XRP was to solve issues related to global payment systems. Today, XRP is mainly used for payment settlements, remittances, and cross-border transactions by financial institutes.
The Ripple network aims for XRP to be an alternative to the dated SWIFT system used by banks for payment settlements. XRP can help complete transactions in a few seconds, whereas SWIFT can take one to four days to complete a transaction.
Difference between Bitcoin and XRP
Transaction Details
Transactions in XRP are faster and cheaper than bitcoin transactions. Bitcoin transactions are time-consuming and require powerful hardware to solve complex cryptography puzzles. The confirmation of XRP transactions takes a few seconds. The XRP network can support more users than the Bitcoin blockchain.
Consensus mechanism
The Bitcoin blockchain uses the proof-of-work consensus mechanism to complete transactions. Miners use powerful computers to solve complex puzzles in this system. The user who solves the puzzle first adds the validated block to the blockchain. The winners are rewarded with bitcoins for spending their energy and time to secure the network.
The Ripple network does use the proof-of-work system for its consensus. Block validation is done through a predetermined set of nodes or users who vote on each block that needs to be added to the blockchain. The transaction block is only added when the majority of the nodes validate the block.
Energy efficiency
The proof-of-work consensus mechanism is a highly energy-intensive process. This system requires powerful hardware that consumes a lot of electricity.
XRP does not require users to solve complex puzzles, as only a select few nodes vote to validate transactions, making it much more energy efficient. This consensus system does not need a risk-reward mechanism like the Bitcoin blockchain.
Tokenomics
There is a cap on the total number of bitcoins that can be produced. In the future, there can be no more than 21 million bitcoins in circulation. Currently, 19.2 million bitcoins are in circulation. Miners receive 6.25 BTC every time they validate a new transaction block. The reward amount is determined by a process known as Bitcoin halving.
One billion XRP tokens were pre-mined by Ripple and released to users at the launch. New XRP coins are minted based on a smart contract. The minting of new coins is capped at 1 billion XRP per month. Currently, 100 billion XRP tokens are in circulation.
Bitcoin vs. XRP: Uses and Examples
Bitcoin is the most popular crypto coin on the market but is not as utilitarian compared to newer crypto tokens. Hence, its application is limited to only simple transactions. Bitcoin is mainly used by users looking for a convenient and anonymous way to transact.
XRP is mainly used by banks and other financial institutions, as its function is to simplify the payment settlement process. It is available for users, but most individuals indirectly benefit from XRP if Ripple has partnered with their bank.
Consider a user who uses both crypto coins. Bitcoin is a form of money accepted by businesses. The user can go to any local store and pay for goods using Bitcoin.
The application of XRP is more specific. For example, if you have to shift to another country for work and want to send money back home, the present system is complex. You visit a bank and complete a few steps to send money to your home account. The transactions will take up to 1–4 days to complete and involve heavy fees.
XRP makes this process much simpler. First, you have to create an XRP-compatible wallet to use it. The process of creating a wallet is fast and simple. Once it is set up, you can instantly convert the money to XRP tokens and send them to your home wallet within a few seconds. There are no heavy fees or delays in this system.
Is Bitcoin decentralized?
Bitcoin is highly decentralized, and its users are spread all over the world. However, in recent years, you cannot mine using a basic system. You need expensive, powerful hardware as the difficulty of mining has gone up. To stay competitive in mining, you have to spend thousands of dollars to invest in ASIC mining hardware.
Many users consider rising costs a sign of centralization. Users are worried that large companies will gain control over Bitcoin’s mining process.
Is XRP decentralized?
The technology behind XRP is decentralized, but its users are not. XRP does not use the proof-of-work consensus mechanism. XRP validation is based on a pre-selected set of nodes voting for consensus.
Regular users cannot become nodes on the Ripple network. The role is filled by large banks or other financial institutions, making XRP’s network highly centralized.
Final Thoughts
There is no clear winner between Ripple vs. Bitcoin. Each crypto coin has its strengths and weaknesses. The choice between the two comes down to your preferences as an investor or user. Bitcoin is the most popular crypto coin and highly decentralized, but it’s slow and expensive. XRP is fast and cheap, but it is highly centralized. XRP’s development is controlled by a single company. However, both of these crypto coins can be good options to diversify your portfolio.
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