Bitcoin vs. Ripple Labs: What's the Difference?

Bitcoin vs. Ripple Labs: An Overview

Bitcoin is the most well-known of all the cryptocurrencies. The cryptocurrency runs on a distributed ledger system known as a blockchain to transfer value and make payments.
Ripple Labs is a company that developed and maintains the XRP Ledger, another blockchain. XRP, its cryptocurrency, is designed to function more efficiently than existing payment systems.

KEY TAKEAWAYS

• Ripple Labs is a company behind the cryptocurrency XRP and the XRP Ledger network.
• Bitcoin is considered to be more decentralized than XRP, but XRP is cheaper, faster, more scalable, and environmentally friendlier.
• Bitcoin is primarily used as a store of value and medium of exchange, while XRP was designed for cross-border payments.

Bitcoin

Bitcoin emerged as a groundbreaking financial innovation: a decentralized virtual currency powered by blockchain technology. The concept of decentralization eliminated the need for intermediaries like banks, governments, and other central authorities to facilitate and validate financial transactions.
Instead, Bitcoin transactions are recorded and verified on a public ledger, known as a blockchain, maintained by a distributed network of computers worldwide. The secure public ledger maintains an immutable record of all transactions, ensuring transparency and accuracy. Every transaction is broadcast to the entire network, and each computer on the network verifies the transaction's validity before adding it to the blockchain.
To secure 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.1
The first miner to solve the puzzle successfully earns the right to add the next block to the blockchain and is rewarded with newly minted bitcoins. This process, akin to gold miners searching for precious ore, is why miners are given this moniker. Once a block is added to the blockchain, its transactions are considered validated and irreversible.

Bitcoin's ability to facilitate secure, low-cost transactions as a peer-to-peer currency has attracted a user base worldwide. Bitcoin has become recognized as a viable alternative to traditional fiat currencies and investment classes, presenting individuals and businesses with greater control over their finances, faster and more robust cross-border payments, and new opportunities for wealth accumulation.

Bitcoin History

Bitcoin was first introduced to the public in 2008, but it resulted from years of research and development by computer scientists and programmers. Distributed ledgers were nothing new then, and cryptography had existed for much longer. Bitcoin's edge was merging the concept with money and solving an enduring problem to make it practical—preventing currency issued on a distributed ledger from being duplicated or used more than once in double-spending.
Attempts to put electronic money on distributed ledgers can be traced back to the late 1980s, when David Chaum, a cryptographer and computer scientist, initially proposed the concept of digital cash. Chaum's idea of a secure, anonymous digital currency laid the foundation for subsequent developments in electronic money.2
In 1998, a computer engineer, Wei Dai proposed the concept of b-money, a decentralized, anonymous digital currency that also utilized cryptography to secure transactions. While b-money never gained widespread adoption, it served as a precursor to Bitcoin and advanced the concept of a decentralized cryptocurrency.
In 2008, an anonymous individual or group under the pseudonym Satoshi Nakamoto published a whitepaper titled "Bitcoin: A Peer-to-Peer Electronic Cash System," outlining the principles and architecture of a decentralized digital currency.3
 Several months later, in 2009, the first open-source Bitcoin client software was released, marking the official launch of Bitcoin.
The early years of bitcoin were characterized by slow adoption and a relatively small user base. However, Bitcoin's popularity gradually grew to attract individuals, businesses, and investors alike. Today, bitcoin is used around the world to transfer money in areas with unstable currency pegs and financial infrastructure issues and to profit from mining and from investing and speculation.

Ripple Labs and XRP

As Bitcoin became more widely used, it received criticism for perceived flaws related to the network's payment speed, engineering design, network security, and environmental impact. Competitors were formed to address these shortcomings, including Ripple Labs, the company behind the cryptocurrency token XRP and its underlying blockchain technology, the XRP Ledger.
Unlike Bitcoin, which relies on ongoing mining, the total historical supply of XRP was completely pre-mined, or minted before the token was launched, eliminating the need for complex power-intensive mining computation and promoting energy sustainability. Additionally, the XRP Ledger employs a more efficient consensus mechanism, enabling rapid transaction validation and reducing transaction costs.4

Because Ripple Labs operates as a company, it has been able to collaborate with the financial industry, partnering with numerous banks, payment providers, and financial institutions worldwide to streamline cross-border payment solutions and international money transfers.5
XRP bills itself as a decentralized cryptocurrency. However, proponents of bitcoin believe its corporate backing from Ripple Labs undermines the promise of decentralized cryptocurrencies to distance financial systems from centralized entities.
Ripple's technology has been designed to resemble much of the financial services sector. The XRP Ledger network can be used for payment settlement, asset exchanges, and remittance systems that work more like SWIFT.6
 SWIFT is a service for international money and security transfers used by a network of banks and financial intermediaries.
While XRP's primary use case is facilitating international payments, it has also attracted attention from speculators and investors due to its potential for price appreciation. XRP's trading volume on cryptocurrency exchanges is substantial.

Ripple Labs History

Ripple Labs was originally called RipplePay and was founded in 2004 as a peer-to-peer trust network by NewCoin, a company helmed by software developer Ryan Fugger. The RipplePay network sought to enable users to bypass traditional banking institutions, engage in direct lending, and establish credit lines with each other. While RipplePay garnered attention, it ultimately failed to take off.7
In 2012, RipplePay underwent a rebranding, adopting the name OpenCoin, bringing on software developers Chris Larsen, David Schwartz, Jed McCaleb, and Arthur Britto, and shifted their strategy to focus on a more specific niche: international money transfers.4
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 OpenCoin targeted large businesses and finance companies as its primary clientele, positioning itself as a solution for efficient cross-border payments.
To facilitate this new system, OpenCoin distributed 80 billion XRP tokens to the company and 20 billion XRP tokens to its co-founders through a distributed ledger system called the XRP Ledger.7
 XRP, the native cryptocurrency of the XRP Ledger, was designed to serve as an intermediate currency for transactions covering multiple crypto-assets and networks.8
In 2013, OpenCoin underwent another brand overhaul, shedding its previous moniker and management for Ripple Labs and new executives. Under this new identity, Ripple continued to expand its reach under chief executive officer (CEO) Brad Garlinghouse, onboarding a roster of institutional clients, including retail banks, commercial banks, payment processors, and financial services firms.7
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XRP, the network's native cryptocurrency, gained prominence as a payment solution between enterprise businesses, facilitating rapid currency conversions and cross-border transactions.
As word spread, XRP became traded on the open market as an investment asset by speculators and investors seeking to capitalize on its market value. Cryptocurrency investors also realized they could use XRP Ledger to consolidate multiple tokens in one easy-to-access place with the XRP wallet's support for several crypto-assets.
"XRP" and "Ripple" are often erroneously used interchangeably. Ripple Labs is a company and XRP is the name of the cryptocurrency that circulates on XRP Ledger, a distributed ledger run by Ripple Labs.

Key Differences

While Bitcoin and XRP both are highly transparent, allowing users to track their funds, verify transactions, and hold the network accountable for its operations, they have key differences in their underlying technological and market features, the degree to which they can stay resistant to manipulation and censorship, and their prevailing use cases.

Consensus Mechanisms, Speed, and Costs

Bitcoin's PoW consensus mechanism for validating transactions relies on a network of miners to computationally solve complex cryptographic puzzles. The Bitcoin mining process is electricity-intensive and can result in high network fees and slow transaction and block creation times that make the blockchain hard to scale.
Instead of relying on mining, the Ripple network employs a social governance consensus mechanism, the Ripple Consensus Protocol (RCP), which consumes negligible amounts of energy. Participating nodes verify the authenticity of transactions by conducting polls, enabling near-instantaneous confirmations, cheaper built-in transaction fees, and increased network scalability. Network transaction fees are not to be confused with exchange or broker transaction fees.
XRP transactions are typically processed and confirmed within 3 to 5 seconds, while Bitcoin transactions can take anywhere from 10 minutes to several hours to confirm.11
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 The median fee for an XRP transaction has floated around 0.000001 XRP, which is equivalent to about $0.00000004.13
 The median fee for a Bitcoin transaction has been as high as $62.79 and was around $0.10 in November 2023.14

Cryptographic Algorithms

Cryptographic algorithms are fundamental to the security and reliability of Bitcoin and XRP. These algorithms provide protection through encryption against various attacks, such as data tampering, transaction forgery, and unauthorized access to sensitive information. The algorithms also ensure the integrity and authenticity of transactions, maintaining the trust and confidence of users.
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).15
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 The XRP Ledger's cryptographic algorithms are SHA-256, Ed25519, and the Advanced Encryption Standard 256 (AES-256).17
ECDSA was developed for digital signature applications. The Bitcoin blockchain uses ECDSA to support digital transaction signing and verification.
SHA-256 and RipeMD160 are both cryptographic hash functions. In Bitcoin, SHA-256 helps generate transaction IDs, verify block headers, and ensure data integrity. RipeMD160 generates Bitcoin addresses from public keys and prevents collisions that could lead to address reuse.
XRP also uses SHA-256 to generate unique identifiers for transactions. However, instead of using ECDSA to sign transactions, XRP uses Ed25519, a modern algorithm that is considered faster and more efficient and secure. Both ECDSA and Ed25519 provide non-repudiation, ensuring only the rightful owner can initiate transactions to prevent fraudulent activity.
AES-256 is an encryption algorithm that offers a strong level of protection for sensitive data. AES-256 encrypts user account and transaction data stored on the XRP Ledger. Both SHA-256 and AES-256 prevent malicious actors from altering transaction records or other critical data.

Multiple Users and Tokens

Crypto accounts, also known as crypto wallets, are unique identifiers that represent a user's control over their crypto holdings. Accounts, or wallets, are derived from a pair of cryptographic keys, one public and one private.
The public key is used to generate a cryptocurrency address, which serves as the user's receiving address for payments. The private key, which should be kept secret, is used to generate digital signatures that authorize transactions.
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 directly stored on the blockchain itself, making account details more transparent, unlike Bitcoin accounts, which are stored externally, such as on crypto exchanges.18
 Because Bitcoin wallets are kept off the blockchain, only transactions associated with a particular Bitcoin address, not the account itself, are recorded.19
XRP Ledger accounts can have more than one signer, allowing for increased security and delegation of control, a particularly useful feature for institutional or multi-party accounts.20
 The Bitcoin blockchain itself doesn't support multi-signature wallets, which has spurred developers to build workaround solutions off-chain.21
XRP Ledger accounts are more versatile than Bitcoin accounts and can store asset types other than XRP, such as altcoins, stablecoins, utility tokens, and security tokens.22
 Bitcoin accounts are limited to holding and buying Bitcoin.

Market Characteristics 

While the financial markets for Bitcoin and XRP both have experienced significant growth and volatility over the years, their market behaviors exhibit distinct patterns.
XRP has a circulating supply of 46.6 billion XRP and a total supply of 100 billion XRP, while Bitcoin has a circulating supply of 19 million BTC and a total supply of 21 million BTC.23
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 More XRP tokens are in circulation than bitcoins and only 21 million bitcoins will ever be in existence, while there could be up to 100 billion XRP in circulation.
Differences in XRP's and Bitcoin's circulating supply are due to contrasting network consensus mechanisms and the fact that XRP was pre-mined. Bitcoin didn't have a pre-mine and is mined as-you-go. However, both XRP and Bitcoin have a fixed supply to help ensure their cryptocurrencies aren't subject to inflation, which can erode its value, predictability, and stability over time.
Circulating supply and total supply affect a financial asset's supply and demand dynamics and market capitalization. Market capitalization is calculated by multiplying the price of an asset by its circulating supply. Changes to the supply and demand of an asset in turn contribute to inflation and pricing.
If the total supply of an asset is high, it can be difficult for the price, and by extension market cap, to increase significantly. If a large number of units of an asset is in circulation, it would be difficult for demand to exceed supply.
In general, assets with a low circulating supply and high demand tend to have higher prices and market caps. However, other factors can affect the pricing and market cap, such as the asset's utility and the overall health of the cryptocurrency market.
Bitcoin has a larger market capitalization and price than XRP because bitcoin is a more established cryptocurrency with a larger following. In November 2023, the price of bitcoin was around $37,371.41 at a market capitalization of $730 billion, and the price of XRP was around $0.62 at a market capitalization of $33.3 billion.23
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With more users than any other cryptocurrency and widespread adoption that has made it a household name, bitcoin enjoys the highest liquidity and brand recognition as a digital asset, making it easier to buy and sell, and contributing to its price discovery and market sentiment.

Circulation Dynamics

New bitcoins are placed into circulation in real-time as miners verify transaction data, close a block, and open a new one. Bitcoin by design can neither release a pre-set amount of bitcoins nor retract bitcoins from the circulating supply.
The exact date for when Bitcoin will achieve its maximum circulating supply of 21 million is unknown. However, based on the current issuance schedule and halving events, it is estimated that it will occur sometime around the year 2140.25
Bitcoin's issuance is gradually reduced over time through a process called halving. With each bitcoin halving, the amount of new bitcoins issued is reduced by half. Halving events occur roughly every four years and will continue until all 21 million bitcoins have been mined. The last halving event occurred in May 2020. The next halving event is expected to occur in May 2024.25
A smart contract adds 1 billion XRP tokens to the circulating supply each month. Ripple has decided to only release a portion of its total supply in order to control the price of XRP and prevent it from becoming too volatile.26
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Any unused portion of XRP in a given month goes into an escrow account. It will take many years before all 100 billion XRP tokens from the total supply are available on the market.26
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Centralization Risks

Bitcoin is considered more decentralized than XRP because no single entity controls the Bitcoin network. Ripple Labs is a company and it controls a large portion of the XRP supply and the XRP Ledger, XRP's underlying blockchain technology.
Ripple Labs could use this control to censor XRP transactions, change the rules of the XRP Ledger network, and manipulate or dump XRP on the market, causing liquidity to drop and the price of XRP to fluctuate or crash. Ripple Labs has said XRP's total supply is fixed at 100 billion XRP, but it is possible for the company to change it in the future.
Ripple may want to increase supply to make XRP more accessible to buy or more liquid to to trade. It may want to decrease supply to make XRP more scarce, drive up the price, or increase the value of the company's holdings of XRP. Or it may decide to use XRP in its escrow account to fund developments in the XRP ecosystem, which could substantially reduce the amount of circulating XRP and cause the price to go up.
It is important to note that Ripple Labs has not announced any plans to change XRP's total supply.  If Ripple Labs does decide to change the supply, it would need to do so through a consensus mechanism agreed upon by a majority of XRP holders. However, it is possible for Ripple and allies, who could vote as the company sees fit, to buy up XRP to amass more market share and game the consensus mechanism.
Ripple Labs is a for-profit company subject to regulation. That means the company is motivated to make decisions that will benefit its shareholders or comply with regulators, even if it does not benefit XRP holders as a whole.28
Ripple has faced several notable regulatory warnings and actions in recent years brought by various regulatory bodies around the world, including the U.S. Securities and Exchange Commission (SEC), the Financial Conduct Authority (FCA) in the UK, and the Monetary Authority of Singapore (MAS).
In December 2020, the SEC alleged in a lawsuit that Ripple Labs had failed to register as a securities dealer and sold XRP as an unregistered security in a $1.3 billion initial coin offering (ICO), or token sale. The SEC also alleged that Ripple Labs had made misleading statements about XRP.29
The SEC's lawsuit against Ripple Labs is ongoing, and it is unclear how it will be resolved. However, it has had a significant impact on the price of XRP, which has fallen by over 80% since the lawsuit was filed.24
XRP's price slightly recovered in July 2023, after a federal judge issued a mixed judgment in the ongoing lawsuit. The judge ruled that XRP purchased as cryptocurrency on an exchange by retail investors wasn't a security, but XRP sold to institutional investors in private sales had to be registered as a security with the SEC.30
In October 2023, the SEC dropped the lawsuit's charges against Ripple Labs CEO Brad Garlinghouse and co-founder Chris Larsen, who were accused of aiding and abetting the company's alleged sale of unregistered securities. The agency cited several reasons for its decision, including the July 2023 court ruling.31

Use Cases

Bitcoin's decentralized model and lack of a central point of failure play a significant role in its adoption as a buy-and-hold investment and a store of value. These characteristics contribute to its perceived resilience, security, and potential for long-term capital appreciation.
The narrative suggests that Bitcoin's scarcity and decreasing inflation rate make its long-term value seem desirable, similar to traditional stores of value like gold. Stores of value appeal to investors seeking a hedge against inflation or economic uncertainty, such as residents of countries with unpredictable exchange rates, currency devaluation, and transaction risk.
Without a central point of failure, Bitcoin is less susceptible to disruptions or shutdowns. Even if parts of the network experience outages, the overall system remains operational, ensuring the continuity of transactions and the preservation of value. Bitcoin is known for having a culture of open-source development and public service.
In contrast, XRP's focus on utility, payment efficiency, and institutional partnerships has driven its adoption as a medium of exchange and reputation as a corporate private good catering to customer relationships and business-to-business (B2B) enterprise.
The demise of Ripple Labs could affect the value and survival of XRP, the cryptocurrency. Ripple Labs provides a number of important services to the XRP ecosystem, such as RippleNet. If Ripple Labs were to collapse, it is possible these services could be discontinued and harm the XRP ecosystem.
XRP has a strong nonprofit advocacy organization, the XRP Ledger Foundation, and community of developers who are committed to the project. These developers could potentially keep XRP alive in the spirit of promoting a public good, even if Ripple Labs were to disappear, but this outcome isn't guaranteed.32
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What Is a Cryptocurrency?

A cryptocurrency is a digital or virtual currency that uses cryptography for security. It is decentralized, meaning it is not subject to government, corporate, or other institutional influence. Cryptocurrencies can be traded on exchanges, held as investments, and used to purchase goods and services.

What Is a Blockchain?

A blockchain is a distributed database that maintains a continuously growing list of records, called blocks. These blocks are linked and secured using cryptography with the aim of remaining resistant to tampering and fraud. Each block contains a timestamp and a link to the previous block. Blockchain technology has been used to develop a variety of applications, including financial services, healthcare, data management, supply chain, insurance, and voting systems.

What Is Market Capitalization?

Market capitalization, or market cap, is the number of outstanding shares or units of an asset or company multiplied by a single share's or unit's quoted price. For example, a company with 50 million shares and a stock price of $100 per share has a market cap of $5 billion. Market capitalization helps define value when analyzing investment opportunities.

The Bottom Line

Bitcoin and Ripple are popular digital currencies with different characteristics. Choosing between the two cryptocurrencies and deciding whether these features are advantages or disadvantages depends on the specific needs and preferences of the user.
Ripple's faster processing times, cheaper transaction fees, and flexible multi-signature capabilities are conducive to instant and cheap payments for a wider range of cryptocurrency assets. Bitcoin's decentralization and economics foster a truly public recordkeeping of transactions and predictable market that can't be corrupted by a central authority.
The comments, opinions, and analyses expressed on Investopedia are for informational purposes online. Read our warranty and liability disclaimer for more info.
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