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Who Will Win: Ripple or Stellar?

Written by Alexandra Perry
Posted March 4, 2018

There aren't many digital currencies quite like Ripple.

The token started 2018 with a bang, sprinting past Ethereum to become the second most valuable digital currency in the world by market cap.

By the time Ripple breached $3 in price in January 2018, it had increased by over 5,000% since the same time the previous year. 

Despite that dynamic growth, Ripple tends to mystify many investors.

The main reason people get confused is that Ripple is very different from many of the digital currencies demanding investors' attention. Unlike Bitcoin and Litecoin, Ripple is more than just a peer-to-peer digital currency.

In fact, Ripple's parent company Ripple Labs uses blockchain in a truly revolutionary way: improving cross-border payments.

And it isn't just Ripple anymore. Today, another digital currency called Stellar Lumens has emerged to challenge Ripple's crown.

While Ripple and Stellar provide a similar financial tool, there are some key differences between the two. 

What is Ripple (XRP)?

Chronologically, Ripple was the first technology on the market, so it's best to begin the conversation here. 

Many investors have been hearing a lot about Ripple. They've heard it has many big banking clients. They've heard it's changing the world of finance.

When banks interact with Ripple, they aren't actually buying Ripple's digital currency, XRP. They are using the valuable blockchain-based financial tools provided by Ripple Labs, the company behind the digital currency XRP.

What these banks are buying is not Ripple's digital currency XRP, but the valuable blockchain-based financial tools provided by Ripple Labs, the company behind the digital currency XRP. One of these blockchain-based technologies is the Ripple Transaction Protocol.

The early stages of the Ripple Transaction Protocol began in 2004, long before the world of digital currency.

A man named Ryan Fugger came up with his own secure online payment system, which he christened RipplePay. In 2011, completely separate from RipplePay, Jed McCaleb would begin working on his own digital currency system, one that relied on consensus rather than miners to operate.

If you’re a digital currency enthusiast, the name McCaleb should sound very familiar to you. Outside of playing an incremental role in both Ripple and Stellar, McCaleb was also the founder of the now-defunct Bitcoin exchange Mt. Gox.

In 2012, Chris Larsen joined McCaleb. Together, they approached Fugger and convinced him to hand over the RipplePay project. By combining RipplePay and their own digital payment system, McCaleb and Larsen were able to launch a company called OpenCoin Inc.

OpenCoin Inc. quickly gained attention from big investors, including Andreessen Horowitz and Google Ventures.

In a handful of years, OpenCoin evolved into Ripple Labs, a company dedicated to providing cutting-edge financial tools to a wide market of banks.

One of those tools is the blockchain-based Ripple Transaction Protocol, which uses Ripple’s native digital currency XRP.

It works something like this...

If banks choose to use the Ripple Transaction Protocol, they can create secure pathways to move money. Within these pathways, money can be moved with relatively low fees and near instantly.

This has a lot of value to banks, especially those that are trying to facilitate less expensive and swift overseas money transfers.

In 2014, the MIT Technology Review named Ripple Labs one of the year's smartest companies. The company has continued to grow alongside increased interest from the financial community.

If anything, Ripple has certainly bridged the gap that existed between blockchain technology like Bitcoin and banks, demonstrating how blockchain can be used alongside the current financial industry.

That all sounds great, but sadly it isn't the whole story.

Not everything remained bright and cheery in the Ripple world. Turmoil soon broke loose, and it was this turmoil that gave birth to Stellar.

What is Stellar (XLM)? 

Stellar emerged in 2014, a full three years after McCaleb started working on the foundation of Ripple.

Stellar was created when McCaleb and Stellar cofounder Joyce Kim decided to leave the Ripple team over philosophical differences. That said, Stellar is loosely based on Ripple's codebase, giving the tokens distinct similarities. 

When it comes to philosophy, unlike Ripple, Stellar emphasizes that excess funds are placed with the Stellar Development Foundation, a nonprofit committed to the success of the Stellar blockchain.

So how does the Stellar blockchain work?

Through the use of anchors, which are basically financial institutions that use Stellar Lumens, the Stellar blockchain seeks to connect individuals overseas. Anchors can take money in a fiat currency (say USD), transfer it to Stellar Lumens, move it overseas, and then convert it back to the intended digital currency.

Like Ripple, these transfers can also be made without the use of the native cryptocurrency.

In theory, each of these transactions should be able to take place for less than a penny. The Stellar network also uses a decentralized exchange to make sure users are always getting the best exchange rate.

In 2017, IBM announced that along with a network of banks, it would start using Stellar Lumens to move money across borders throughout the South Pacific regions.

So Who Will Win? Stellar or Ripple?

In honesty, one of the key differences investors have to look at with Ripple and Stellar is philosophy. 

Many investors and digital currency analysts have voiced concern over Ripple Labs holding excess XRP. How the company plans to circulate this supply is a question of hot debate. People concerned about this can view Stellar as a potential option.

Ripple, on the other hand, has more market experience. While it didn't attract IBM, it does have the support of over 100 large banks, including Santander and UniCredit. 

It is still early enough in the blockchain game for some good competition. Investors should be keeping an eye on both of these digital assets as we head into 2018. 

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Alexandra Perry

follow basic@AlexandraPerryC on Twitter

Alexandra Perry is a contributing analyst for Wealth Daily and Energy and Capital. She has multiple years of experience working with startup companies, primarily focusing on artificial intelligence, cybersecurity, alternative energy, and biotech. Her take on investing is simple: a new age of investor can make monumental returns by investing in emerging industries and foundational startup ventures.


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