Ripple vs Ethereum: [Must Read Step-by-Step Comparison Guide]

Rajarshi Mitra

4 months ago
Ripple vs Ethereum: Must Read Comparison Guide

Ethereum and Ripple are among the top three coins in the world by market cap. While one projects ushered in an era of decentralized applications, the other is looking to disrupt the way international transactions and banks operate. In this guide, Ripple vs Ethereum we are going to look into these two heavyweights and see how they differ with each other.

Ripple vs Ethereum – Ripple at a Glance

Ripple VS Litecoin

Key Highlights

  • May 2011: Jed McCaleb and Chris Larsen find the company behind Ripple protocol, OpenCoin.
  • 2012:  Ripple gets released.
  • 2014: Jed McCaleb forks away from Ripple to form Stellar Protocol.
  • April 2015: Brad Garlinghouse joins Ripple as CEO.
  • April 2015: Ripple offices open in Sydney.
  • March 2016: Offices open up in London.
  • May 2016: Santander becomes the first U.K. bank to use Ripple for cross-border payments.

Ripple vs Ethereum – Ethereum  at a Glance

Ripple VS Litecoin
November 2013: Vitalik Buterin publishes the Ethereum whitepaper.Key Highlights

  • January 2014: The development of the Ethereum platform was publicly announced. The original Ethereum development team consisted of Vitalik Buterin, Mihai Alisie, Anthony Di Iorio, and Charles Hoskinson.
  • August 2014: Ethereum ends their ICO and raises $18.4 million.
  • May 2015: “Olympic” the Ethereum testnet releases.
  • July 30, 2015: The first stage of Ethereum’s development, “Frontier” was released.
  • March 14, 2016: Homestead, the first “stable” Ethereum release, went out on block 1,150,000.
  • June 2016: The DAO hack happens and the $50 million worth of Ether, which was 15% of the total Ether in circulation back at the time.
  • October 25, 2016: Ethereum Classic forks away from the original Ethereum protocol.
  • October 16, 2017: The Metropolis Byzantium hardfork update happens.
  • February 28, 2019: The Metropolis Constantinople hardfork update happens.

Ripple vs Ethereum: The Differences

The differences between Ripple and Ethereum will be among the following categories:

  • Purpose.
  • Token Utility, Distribution, and Generation.
  • Performance.
  • Consensus Algorithm.

#1 Ripple vs Ethereum – Purpose

Firstly, let’s look into the reasons behind the creation of Ripple and Ethereum.

Ripple

Ripple vs Ethereum: Must Read Comparison Guide

First thing you must understand is that Ripple and XRP and two completely different entities. Ripple aka Ripple Labs is a privately-held enterprise company with its own executive team which aims to create and enable a global network of financial institutions and banks.

XRP is a digital currency, also known as Ripple, which is used to power the XRP ledger. The ledger is an open-source product created by Ripple, which aims to connect banks in a network to enable fast and efficient international payments with minimal extra costs.

So, why was Ripple needed in the first place? The short answer, international payments as we know it is broken.

The Problem with International Payments

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With the world becoming increasingly connected and with constant innovations in communications and transportations, many companies have expanded into foreign markets. However, they are still hampered by the fact that they can’t indulge in basic and efficient cross-border payments. Here are some of the most common issues with international payments:

  • Bloated Transaction Fees: International payment systems like SWIFT tends to have multiple banks acting as bridges between the origin bank and the destination bank. These banks charge you some commission fees for passage. The fees tend to add up and get extremely bloated towards the end.
  •  Exchange Rates: Importers and exporters are both affected by exchange rates. Banks charge a premium on foreign exchange, which is often a significant margin above the mid-market exchange rate.
  • Tracking of Payments: It is impossible to track the payments between the different parties.
  • Time: The entire process takes a long amount of time.

$155 trillion dollars moves across borders every year. Financial institutions make a whole lot of money from these transactions. Keep in mind that even if banks collect just 2% of the transactions fees, that’s a whopping $3.1 trillion. Nearly all the cryptocurrencies have been created to raze the corrupt banking system to the ground, except Ripple. Ripple’s approach is to work closely with the banks and help them create change from within.

Ethereum

Ripple vs Ethereum: Must Read Comparison Guide

Ethereum, on the other hand, wants to build a decentralized ecosystem. Ethereum founder Vitalik Buterin believes that the blockchain has more utility than just being a payment-service provider. Buterin thought that by leveraging the blockchain technology, developers can create real-world applications on top of it. The way they can do that is by creating smart contracts and executing them on top of Ethereum.

Smart Contract is a computer code running on top of a blockchain containing a set of rules under which the participants of the contract agree to interact with each other. There are certain features of smart contract interactions:

  • The participants of the smart contract can directly interact with each other without the need for a middleman or a third-party.
  • Each step of a smart contract can only be implemented after the execution of the immediate former step.
  • The smart contract acts as a blueprint for a decentralized application (DApp).
  • All the contents and data inside a DApp is not owned by one single entity.

#2

Ripple vs Ethereum – Token Utility, Distribution, and Generation

Up next, we are going to look into the role of the token in the ecosystem. How do Ripple and Ethereum utilize XRP and ETH within their ecosystem? Before we continue, there is one thing that you need to know. More the role that the token can take up in the ecosystem, more will it be its overall strength.

The XRP Token

The XRP token is primarily used as a utility token within the ecosystem. Of course, there has been a lot of controversies floating around recently about whether the XRP token is a security or not. A formal decision still needs to be taken, however, all signs point to the contrary. A security token represents the fact that you own a certain part of the company that issues it. However, XRP and the XRP blockchain can theoretically still run if the Ripple company shuts down.

  • Before we go any further, there are certain things that you need to know about XRP. Ripple has already been completely pre-mined. Ripple has no miners or stakers in its ecosystem.
  • 20 billion XRP tokens have been withheld by the creators.
  • The remaining 80% were handed to Ripple Labs in order to increase the liquidity available and strengthen the overall market.
  • To regulate the supply of the tokens within the ecosystem, 55 billion XRP are locked up in a rolling 5-year escrow that releases 1 billion XRP per month and returns the unused/unsold portion to escrow, adding an additional month at the end of the established five years.

So, what about the tokens that are in circulation? How do they transmit within the ecosystem? For that, you need to learn about RippleNet. RippleNet is a network of institutional payment-providers (banks, MSBs, etc.) that use solutions developed by Ripple. Ripple has three main products:

  • xRapid: It is a commercial product that will allow banks to use the XRP token to transfer money globally. This will help banks take full advantage of its low transaction fees and scalability.
  • xCurrent: Connects banks to transfer money globally while being able to track how and where it moves. xCurrent doesn’t use XRP tokens.
  • xVia: A payment interface designed to make the user experience of xCurrent and xRapid more intuitive and introduces more abstraction. xVia doesn’t use XRP tokens.

The ETH Token

The ETH token is primarily a utility token. The main roles that it takes up are:

  • Paying the gas fees during the execution of a decentralized application.
  • Used during token sales such as ICOs.
  • As a payment token to pay for different services.
  • As transaction fees for miners.
  • As block reward for miners who can successfully mine a block.

Unlike Ripple, Ethereum doesn’t have a maximum cap limit. Ethereum is trying to be a platform for decentralized services, which is why they didn’t keep a capped supply. Ethereum’s block reward has reduced from 3 ETH to 2 ETH as per Ethereum-Improvement-protocol (EIP) 1234. Since the block reward is so low as compared to Litecoin and Bitcoin, the total supply of Ethereum won’t go out of control.

Now that Ethereum is going to bring in Proof-of-Stake, it brings in another dimension to their token utility.

Most of the tokens out there in the market as simple “medium-of-exchange” tokens, i.e., they don’t have any utility outside of being a simple payment token. As such, these tokens change hands and get transacted very frequently. In other words, they have high velocity.

If you were to define Token Velocity in strictly mathematical terms, then it would look like this:

Token Velocity = Total Transactional Volume / Average Network Value.

If we were to flip the formula then:

Average Network Value = Total Transactional Volume / Token Velocity.

Now, that leads to two conclusions:

  • More the token velocity, less the average network value.
  • More the transactional volume, more the token velocity.

There are several mechanisms that one can use to decrease their token’s velocity. One of the most effective methods is to bring in a staking element into the ecosystem. Ethereum is doing that by utilizing Proof-of-Stake.

#3  Ripple vs Ethereum -Performance

Let’s look at the performance of both the Ripple and Ethereum blockchain. We will be looking at the performance of their token asset and their blockchain as well.

Ripple Performance

XRP/USD Monthly Performance

Ripple vs Ethereum: Must Read Comparison Guide

After reaching a peak of $3.84 in January 2018, the bears came back strong and XRP saw 11 bearish months out of the next 14. However, it looks like May 2019 will be the first time XRP managed to string together two bullish months in a row since December.

Ripple Blockchain Performance

Ripple has a semi-permissioned blockchain, as all the banks who are part of the Ripple Network can utilize its ledger. This is why it is extremely fast and only takes four seconds for transaction verification. XRP also has very low transaction fees. Even at its all-time high, its transaction fees amounted to just $0.0000329. Ripple’s blockchain can also do 1,500 transactions per second.

Ethereum Performance

ETH/USD Monthly Performance

Ripple vs Ethereum: Must Read Comparison Guide

After hitting its peak in December 2017, the value of Ethereum went down considerably. However, they managed to have five bullish months in the last six, stringing together four in a row.

Ethereum Blockchain Performance

Ethereum uses a public blockchain, which means anyone, any time can become a node of the network. Ethereum has a block generation time of 15 seconds which makes it nearly 4 times slower than Ripple. During January 2018, its transaction fees went up to $4, which makes it impractical for microtransactions.

The main problem that Ethereum is facing is the lack of scalability. Ethereum can only do 15-20 transactions per second, which is absolutely abysmal when compared to Ripple. Ethereum is currently working on layer-1 and layer-2 scalability techniques like sharding, Raiden, and Plasma to help rectify this situation.

Ripple vs Ethereum stats comparison

Data set exists from 8th May to 14th May.

Avg. Transaction Fees (in USD)

Ripple vs Ethereum: Must Read Comparison Guide

As strange as it may seem, the graph above actually shows the side-by-side average transaction fees of both Ripple and Ethereum. The reason why you could only see Ethereum’s bars is because Ripple’s avg. transaction fees are negligible in comparison. Checkout the table below to get a more accurate data-reading:

Ripple VS Litecoin

As you can see, Ethereum’s transaction fees are way higher than Ripple’s.

Transactions Sent per Day

Ripple vs Ethereum: Must Read Comparison Guide

As you can see in the graphs above, Ethereum is far busier than Ripple. Ethereum has always seen more 24-hour transactions than Ripple, throughout our dataset.

#4 Ripple and Ethereum Consensus Mechanism

Ripple Consensus Mechanism

Before we understand how Ripple Consensus Algorithm (RPCA) works, there are some terms that you should familiarize yourself with:

  • Server: Any entity that runs the Ripple Server software and participates in its consensus process is called a server.
  • Unique Node List (UNL): UNL is a set of other servers that is maintained by each server. The members of a server’s UNL are responsible for voting and determining consensus.

So, let’s look at how RPCA works. The RPCA occurs in rounds.

  • Each server takes all the transactions available at the beginning of the consensus process. These transactions could either be new, leftovers from the previous round, or they didn’t get the required number of confirmations previously.
  • The server then sends this transaction set to all the servers in its UNL. The UNL members then vote on the validity of each transaction.
  • When at least 80% of the members of a UNL agree on the validity of a transaction, the transaction gets added to the ledger.

The RPCA is extremely fast as it achieves 1,500 transactions per second.

Professor David Mazières from Stanford suggested that there are some flaws in the RPCA.

Firstly, he claims that the Fischer Lynch Paterson (FLP) impossibility result stated that any deterministic asynchronous consensus system can only have two of the following three properties:

  • Safety.
  • Guaranteed termination or liveness.
  • Fault Tolerance.

According to him, the Ripple Consensus Algorithm was sacrificing Safety over the other two. He concludes, “This means it prioritizes ledger closes and availability over everyone actually agreeing on what the ledger is—thus opening up several potential risk scenarios.”

Secondly, the issue of “Provable Correctness.” He researched the entire system and found out that the algorithm fails to be safe under all circumstances.

Note: Ripple has responded to Professor Mazières’ research which you can read over here.

Ethereum Consensus Mechanism

Ethereum currently uses POW consensus mechanism for mining, however, as mentioned before, they are looking to move onto Proof-of-stake (POS) mechanism using Casper Protocol.

Proof of stake will make the entire mining process virtual and replace miners with validators.

This is how the process will work:

  • The validators will have to lock up some of their coins as stake.
  • After that, they will start validating the blocks. Meaning, when they discover a block which they think can be added to the chain, they will validate it by placing a bet on it.
  • If the block gets appended, then the validators will get a reward proportionate to their bets.

As you can see, the POS protocol is a lot more resource-friendly than POW. In POW you NEED to waste a lot of resources to go along with the protocol, it is resource wastage for the sake of resource wastage.

Casper is the POS protocol that Ethereum has chosen to go with. While there has been an entire team busy creating it, Vlad Zamfir is often credited as being the “Face of Casper.”

Ripple vs Ethereum: Must Read Comparison Guide

So how is Casper different from other Proof of Stake protocols?

Casper has implemented a process by which they can punish all malicious elements. This is how POS under Casper would work:

  • The validators stake a portion of their Ethers as stake.
  • After that, they will start validating the blocks. Meaning, when they discover a block which they think can be added to the chain, they will validate it by placing a bet on it.
  • If the block gets appended, then the validators will get a reward proportionate to their bets.
  • However, if a validator acts maliciously and tries to do a “nothing at stake,” they will immediately be reprimanded, and their entire stake slashed.

As you can see, Casper is designed to work in a trustless system and be more Byzantine Fault Tolerant.

Anyone who acts in a malicious/Byzantine manner will get immediately punished by having their stake slashed off. This is where it differs from most other POS protocols. Malicious elements have something to lose so it is impossible for there to be nothing at stake.

Flawlessly implementing Casper and Proof Of Stake will be critical if Ethereum plans to scale up.

Ripple vs Ethereum -Conclusion

So, which one should you buy between Ripple and Ethereum? Both the projects are unique and revolutionary in their own ways. While Ripple is disrupting the cross-border transaction space, Ethereum is a smart contract platform which has more utility than being just a payment protocol. The following table will give you a quick overview of the differences:

Ripple vs Ethereum: Must Read Comparison Guide

Ripple vs Ethereum: Must Read Comparison Guide

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