With the advent of crypto based technologies, many areas of the economy began to change rapidly, particularly the system of payment technology. Although one of the practical application ideas of digital assets is laid in creating a new system for currency transactions, not all crypto projects can boast of severe innovations in this area. Two of the best-known blockchain projects today are Stellar (XLM) and Ripple (XRP).
This article will discuss what XLM and XRP are, what their features and differences are, and which blockchain is better for international payment systems.
- The Ripple network uses the Proof of Correctness algorithm as a validation method, which allows it to process transactions at over 1,500 TPS within the network.
- The Stellar Consensus Protocol, an upgrade to the Practical Byzantine Fault Tolerance (PBFT) algorithm, allows a decentralized network to reach consensus in decision-making and provides intra-network transaction processing speeds of over 1000 TPS.
What is XLM?
The concept of the Stellar project is based on an open-source and fully decentralized payment algorithm that allows fast cross-border transfers between any pair of currencies. Like other cryptocurrencies, it works on the basis of shared ledger technology and has its own asset, a digital currency called Stellar Lumens (XLM). Lumen (XLM) powers the Stellar network and all of its operations, much like ether (ETH) powers the Ethereum network.
The Stellar consensus protocol allows conducting fast and cheap transactions, the reliability of which all network participants reach an agreement within a few seconds. Each participant, called a node, enters stellar transactions into the global ledger and selects its own mini-network of trusted participants with whose opinion it is willing to agree. Since these mini-networks (the so-called quorum slices) overlap each other, the entire stellar network can come to an agreement on the possibility of confirming and quickly entering certain transactions into the ledger.
One of the distinguishing features of the Stellar platform is the speed of transactions compared to other coins on the market of digital coins, especially with the main competitor of the project – Ripple. Thanks to the use of a consensus protocol developed by the Stellar Development Foundation, which is the world’s first secure voting algorithm, the network can process transactions above 1000 TPS, which is of paramount importance for many financial institutions. This technology has several main features: central platform-independent management, minimal delays in financial transactions, plastic trust, high security and low transaction fees.
What is XRP?
Ripple is a decentralized crypto project created in 2012 by Ripple Labs company. The token is designed to provide fast and low-cost international money transfers via blockchain protocols. Ripple’s native token (XRP) is currently in the top 10 most important cryptocurrencies by market capitalization, behind only Bitcoin, Ethereum, BNB and Theater.
The Ripple protocol is based on a blockchain technology called XRP Ledger. This system is supported by a Ripple network of independent validators who work together to ensure its integrity. Transactions on Ledger are processed in seconds, making them much faster than traditional money transfer methods.
Consensus ILP (InterLedger Protocol) in the Ripple system is an alternative to the shared ledger structure. This innovation is the root difference between Ripple and other participants in the crypto industry. However, the essence of the work is very similar: there is a registry (Ledger) and its most relevant form at a given time, a reflection of the state of all accounts/servers in the network – The last Close Ledger (the last recorded registry). Any exchange participant in Ripple can submit an “application” for changing the LCL by sending “ripples” through the network, as all other servers will begin to verify their data with the proposed changes. “Official” servers, licensed from Ripple Labs, are members of the entire network; their list is called the Unique Node List (UNL). Creating a list of official servers is necessary since the system’s source code is in the public domain.
What is the Difference Between Them and What is Better?
Despite the fact that both Ripple and Lumen offer the same solution for financial institutions, there are many differences. These projects differ both technically and organizationally. Let’s consider their differences in different aspects below and figure out which crypto currency is a better investment.
Transactions and Processing Speed
Stellar in its current form resulted from a hard fork in 2014. That’s when the Stellar Consensus Protocol (SCP) came into effect. The protocol uses the Federated Byzantine Agreement (FBA) algorithm, which speeds up transaction processing by using multiple trusted nodes rather than the entire network to confirm transactions.
Ripple also uses a similar consensus mechanism which is called Proof of Correctness (PoC), although they differ in how they work. One notable difference is how the Stellar network assigns trusted nodes – in fact, this process is done through a peer-to-peer mechanism, which means it is completely decentralized.
XRP is known for its speed – it processes about 1,500 transactions per second. Ripple processes transactions similarly to the Stellar network, using a consensus ledger and several approved network servers to validate transactions. Thanks to the consensus mechanism, the cost of transactions on the Ripple network is significantly lower than, for example, on the Bitcoin system, which relies on a proof-of-work mechanism.
Ripple’s consensus mechanism differs from Stellar’s in the way it works. Beyond the finer technical details, the key difference is that Ripple Labs owns many trusted nodes – the ones that approve transactions and thus form the consensus approach – which effectively means that the company itself plays an important role in authorizing transactions.
Supply and Demand
Stellar is an inflationary crypto currency. This means that it has an inflation mechanism built into its protocol. Simply put, this mechanism assumes that the fees in the Stellar network go back into circulation, which increases the amount of XLM by 1% per year. This differs from many leading cryptocurrencies, including Ripple, which use deflationary mechanisms.
Ripple differs from Stellar in that it is a deflationary cryptocurrency. A Ripple account requires a reserve deposit – this means the minimum amount of XRP that remains in the account. Accounts cannot be closed, so these reserve fees are taken out of circulation every time a new account is created. A small amount of XRP is also burned with each transaction, which means that theoretically, the XRP deficit should increase over time.
XRP is also supplied to the network directly by Ripple Labs. This company keeps huge amounts of XRP in escrow and issues up to 1 billion tokens each month to facilitate business transactions, and any unused XRP is put back into escrow. Again, this is very different from how most digital assets work and, again, has led to accusations that Ripple’s XRP is not a truly decentralized crypto currency.
Comparing XRP and XLM projects as the basis of a payment system, each has advantages and disadvantages. At the same time, each is developing by receiving substantial funding and support from various commercial and government organizations. Each currency provides an opportunity to use tools for financial transactions, whether just to transfer fiat currencies or international payments. In any case, healthy competition between these promising projects will create ideal conditions for developing crypto payment systems.