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Bitcoin vs Ripple: from founders to pump and dump schemes

By Drew McConville

15:45, 12 April 2019

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Bitcoin vs Ripple

Bitcoin and Ripple are two of the biggest cryptocurrencies in terms of market capitalisation. Along with Ethereum, they make up around 70% of the entire crypto market. Aside from being two of the largest cryptos, Bitcoin and Ripple couldn’t be less similar if they tried.

Ripple, or XRP as the crypto is formally known, has been gaining popularity among investors and crypto fans since its inception in 2012. However, much of the crypto community is sceptical of Ripple. Some say it isn’t a true cryptocurrency due to its lack of decentralisation and others go as far to suggest it’s a pump-and-dump scheme.

Why were Bitcoin and Ripple developed?

Bitcoin was the first cryptocurrency to be developed and paved the way for the entire cryptomarket. Bitcoin was developed as a decentralised digital currency by an individual or group acting under the pseudonym Satoshi Nakamoto. It requires no central bank or single administrator and can be sent from user to user on the peer-to-peer Bitcoin network without the need for intermediaries.

Ripple, or XRP, on the other hand is a real-time payment and currency exchange network developed by Ripple Labs, where XRP is used to process transactions. The idea behind Ripple was to create a network that could process direct asset transfers in real-time in a cheaper and more transparent way than existing systems, such as the SWIFT. Ripple was created primarily for banks and payment networks.

Who developed these cryptos?

Bitcoin was developed anonymously and is maintained by its own community of passionate developers. There is no company or central authority to run the network, it is completely decentralised and community-led. Ripple, on the other hand, is developed by a company (of the same name) who have investors and set objectives.

Bitcoin vs Ripple

Ripple vs Bitcoin: different underlying technologies

Bitcoin uses a mining mechanism to incentivise the network’s upkeep. The proof-of-work mechanism allows the development of the blockchain, preventing double spending, by offering Bitcoin to ‘miners’. The supply of Bitcoin increases as it is mined. Alternatively, the Ripple network is managed by a string of independent servers that compare their transactions constantly, so a new ledger of Ripple is created every second. Ripple is considered to be ‘premined’ because the entire supply of XRP was established at launch. However only a certain amount of XRP is available on the market. This is due to the fact that the company and its founders own a substantial amount of XRP themselves. This is in direct contrast to Bitcoin, where coins are spread out across the community.

Difference in utilising BTC and XRP

Bitcoin was primarily designed to be used as an alternative to traditional fiat monies. Ripple’s goal was to be used to help transfer money, currency or commodities such as oil and gold over a quicker network. Incidentally, Ripple’s transaction speed is substantially quicker than that of Bitcoin’s, with confirmation taking five seconds opposed to Bitcoin’s on-average time of 10 minutes.

Bitcoin vs Ripple (BTC vs XRP)

Characteristic

Bitcoin (BTC)

Ripple (XRP)

Ownership

Public network

Private company

Transaction speed

10 minutes

5 seconds

Number of transactions per second

Approximately 0.1

Approximately 1.5

Algorithm

Proof-of-work

Consensus mechanism

Inflation

Coin supply raising to 21 million by 2140

Almost deflationary (a very small amount of XRP can be destroyed in each transaction)

Coin supply

21 million

100 billion

“Ripple isn’t crypto”: why the community is upset

If you’ve spent any time on online forums relating to Ripple at all, one of the things you will often come across is someone proclaiming: “Ripple isn’t a true cryptocurrency”. There is no precise definition of what constitutes a cryptocurrency, but following Bitcoin’s lead, it is fair to define a crypto as a digital asset that is designed to be used as a medium of exchange and uses cryptography to secure transactions on a decentralised network. The reason that leads sceptics to claim Ripple isn’t a crypto is that the Ripple company has control over who can actually process XRP transactions. This renders the Ripple network a centralised and permissioned network, making XRP a centralised crypto. This lack of the decentralisation causes much controversy about Ripple’s status within the crypto community.

Oil - Crude

80.51 Price
+1.940% 1D Chg, %
Long position overnight fee -0.0095%
Short position overnight fee -0.0042%
Overnight fee time 22:00 (UTC)
Spread 0.03

US100

11,511.80 Price
+0.150% 1D Chg, %
Long position overnight fee -0.0166%
Short position overnight fee 0.0059%
Overnight fee time 22:00 (UTC)
Spread 1.8

XRP/USD

0.40 Price
-1.010% 1D Chg, %
Long position overnight fee -0.0500%
Short position overnight fee 0.0140%
Overnight fee time 22:00 (UTC)
Spread 0.00327

BTC/USD

16,817.05 Price
+1.890% 1D Chg, %
Long position overnight fee -0.0500%
Short position overnight fee 0.0140%
Overnight fee time 22:00 (UTC)
Spread 66.00

Is XRP a pump and dump scam?

There is a substantial and growing voice within the crypto community that is convinced that Ripple and XRP are just one big scam. The argument for the Ripple business being a pump and dump scheme is as follows. It must be noted that Ripple partakes in numerous activities to increase the value of XRP, but unlike traditional pump and dumps, Ripple attempts to obscure their link to XRP.

The alleged scam begins with the issuance of 100 billion XRP tokens at once that have no value independent of the Ripple project – they are only used within the Ripple network to process transactions. This is a good time to mention that Ripple offers two main products for cross border payments: xCurrent and xRapid. xCurrent, the more popular product, doesn’t use XRP to process transactions. In an attempt to hide behind the scheme’s intentions, the company claimed that XRP was issued by an open source ‘community’. Technically, Ripple (the company) didn't issue XRP, however 20% of XRP was kept by the founders, Chris Larsen and Jeb McCaleb, and the remaining 80% was gifted to the company.

To this day, the company holds around 60% of the total amount of XRP.

Ripple boasts a vast array of institutional clients such as Nomura and Santander, but under further examination it would seem that most companies are ‘partners’ as opposed to clients, who receive XRP as a reward. In short, Ripple is using its share of XRP to create the mirage that it has paying customers.

Now this isn’t to say that the Ripple network itself is useless. Ripple provides a quick and easy international payment system by all accounts. But the idea of holding XRP akin to the way people hold Bitcoin is ludicrous according to the sceptics of the crypto community. Seeing as most XRP is held by the founders and the company, who regularly publicise just how great the Ripple network is, often leading to surges in price, it is easy to buy into this idea of a pump and dump.

If one thing is clear, it’s that Ripple (XRP) was designed to process transactions and that owning XRP is not the same as owning equity in Ripple. Given the bizarre price movements of Ripple, it might seem that it is not a ‘cryptocurrency’ to be holding, but one to be swing trading with the utmost caution.

Trade Bitcoin and Ripple CFDs with Capital.com.

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