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Ripple vs Stellar - Disrupting The Financial Ecosystem

ripple vs stellar

Blockchain-based startups including Ripple & Stellar have been trying to disrupt the financial ecosystem since the advent of Blockchain technology, with the introduction of Bitcoin in 2009.

Created by Satoshi Nakamoto, Bitcoin aimed to be a global, peer-to-peer, and decentralized digital currency that by-passed the jurisdictional and legal hurdles that were set forth by traditional fiat currencies.

Since then, Bitcoin has witnessed incredible success (in terms of gaining market capitalization and growing investor interest) but has largely failed to become a global currency as Satoshi envisioned.

Over the years, several other Blockchain-based startups popped up aiming to succeed at what Bitcoin has so far failed to do. Two of them stand-out for some very obvious reasons which we’ll get into later.

Ripple and Stellar are two Blockchain-based FinTech companies founded years after Bitcoin. What’s interesting is, both companies are aiming to solve the problem of making cross-border payments using cryptocurrency.

Ripple vs Stellar - Common Founders

Jed McCaleb founded Ripple in the year May 2011 which is a cross-border payment system. A decentralized cross-border system that doesn’t depend on mining. After some misunderstanding McCaleb along with Joyce Kim, in 2014 forked off from Ripple protocol and created The Stellar Development Foundation.

Key Highlights:

Ripple (Market cap - $13.3 billion, 15th July 2019)

· May 2011: Jed McCaleb and Chris Larsen discover the organization behind Ripple convention, OpenCoin.
· 2012: Ripple gets released.
· 2014: Jed McCaleb forks from Ripple to shape Stellar Protocol.
· April 2015: Brad Garlinghouse joins Ripple as CEO.
· April 2015: Ripple workplaces open in Sydney.
· Walk 2016: Offices open up in London.
· May 2016: Santander turns into the first U.K. bank to utilize Ripple for cross-border payments.


Ripple Vs Stellar - Price action and market cap

ripple vs stellar price action

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In terms of Market capitalization Ripple stands at a whopping $13.3 billion while Stellar is valued at $1.67 billion, a staggering difference considering both companies offer the same service and was founded just two-years apart.

Ripple beats Stellar, not just in market cap, but also in daily trading volume (in USD) and spot trading price of each digital token.


Stellar (Market Cap - $1.67 billion, 15th July 2019)

· 2014: Jed McCaleb launches the Stellar network.
· August 2014: Mercado Bitcoin, the main Brazilian bitcoin exchange, declared it would utilize the Stellar network.
· January 2015, Stellar had roughly 3 million registered client accounts on its platform and its market cap was nearly $15 million.
· April 2015: The Stellar Development Foundation released a redesigned protocol with another consensus algorithm called Stellar Consensus Protocol (SCP).
· November 2015: Stellar with the new algorithm goes live.
· May 2017: Lightyear.io, a revenue-driven entity of Stellar otherwise known as Stellar's commercial arm, gets launched.
· September 2017: Stellar declares an advantages program, some portion of its Stellar Partnership Grant Program, which would award partners up to $2 million worth of Lumens for project development.
· In October 2017, Stellar banded together with IBM and KlickEx to encourage cross-border transactions in the South Pacific area. The cross-border transaction framework created by IBM incorporates partnerships with banks in the area.
· September 2018, Lightyear Corporation acquired Chain, Inc and the consolidated organization was named Interstella.

Ripple vs stellar: The Key Differences

There are some categories Ripple and stellar can be differentiated and they are as follows:
· Purpose
· Consensus Algorithm
· Token Distribution

Ripple vs Stellar - Purpose of each

Looking into the reasons behind the building of Ripple and Stellar.

Ripple

Firstly, let’s get some things right, that is Ripple and XRP are two different entities. Ripple which is also known as Ripple Labs is a private enterprise company that has its own executive team and aims in creating and enabling a global network of banks and all the other financial institutes.

Whereas, XRP is a digital currency which is also known as Ripple and is used to power the XRP ledger. It is an open-source product that is built by Ripple and aims in connecting banks in order to enable efficient and fast international payments with minimal extra charges. Ripple was invented in the first place to solve the problem of the cross-border payment system.

Problems in International Payments

With the world winding up progressively connected and with constant innovations in communications and transportations, numerous organizations have ventured into foreign markets. Be that as it may, they are still hampered by the way that they can't indulge in essential and efficient cross-border payments. Here are probably the most widely recognized issues with international installments:

· Bloated Transaction Fees: International payment frameworks like SWIFT tend to have numerous banks going about as extensions between the origin bank and the destination bank. These banks charge you commission expenses for passage. The charges will, in general, add up and get incredibly bloated towards the end.
· Exchange Rates: Importers and exporters are both influenced by exchange rates. Banks charge a premium on foreign trade, which is frequently a significant margin above the mid-market exchange rate.
· Tracking of Payments: It is difficult to follow the payments between the various parties.
· Time: The whole procedure takes a long amount of time.

$155 trillion moves across borders each year. The financial institution makes a whole lot of cash from these transactions. Remember that regardless of whether banks gather only 2% of the transaction’s charges, that is an incredible $3.1 trillion.

About all the cryptocurrencies have been made to raze the corrupt banking system to the ground, with the exception of Ripple. Ripple’s methodology is to work closely with the banks and help them make a change from the inside. RippleNet is a system of institutional payment-providers (banks, MSBs, and so on.) that use solutions created by Ripple. Ripple has three products:

· xRapid: It is a commercial item that will enable banks to utilize the XRP token to transfer cash universally. This will help banks exploit its low transaction fees and scalability.
· xCurrent: Connects banks to transfer cash all around while having the option to track how and where it moves. xCurrent doesn't make use of XRP tokens.
· xVia: A payment interface intended to make the client experience xCurrent and xRapid more intuitive and presents more abstraction. xVia doesn't use XRP tokens.

Ripple has officially made some intriguing POCs. Let’s look at, ATB Financial, the biggest Alberta-based financial institution, has merged with SAP SE, Ripple Labs Inc. and, ReiseBank AG in Germany to send the first real worldwide blockchain payment from Canada to Germany. They sent 1000 CAD, which would have normally taken 2-5 working days, within 20 seconds! To make matters all the more stunning, they improved their POC and cut the transaction time significantly further to 10 seconds.

Stellar

While Ripple is working closely with banks and institutions to disrupt cross-border payments, Stellar’s approach is to concentrate on the unbanked masses of the world. It turns out that around 2 billion people in the world don’t have a bank account. Out of these around 438 million people are from the SE Asia region.

One of the studies done by McKinsey shows that the economic contribution will increase from $17 billion to $52 billion by 2030 just by reaching this ASEAN region of the unbanked population. Stellar is trying to reach out to all these people in order to give them control over their money.

Let’s take an example, Alex wants to send money to John. Alex lives in the United States and John lives in Nigeria. She wants to send $100 to John which will be converted into Nigerian currency Naira. Alex’s Bank A is in the United States and John’s Bank B is in Nigeria. Both these banks connect to the Stellar network and “Anchors.” Let’s see how Stellar works:

· Alex sends John $100 and the exchange intent is sent to Bank B within seconds to check whether John is compliant or not.
· The minute Bank A gets the green sign from Bank B, they deduct the funds from Alex's personal account.
· The USD is then moved to Bank A's pool account and afterward moved into the Stellar system as credits otherwise known as Lumens, the native Stellar tokens.
· Once inside, the network searches for the best exchange rate to use to convert over the Lumens into Naira.
· The money at that point moves to Bank B's base account which at that point gets credited to Bob's record.

Ripple vs Stellar - Funding

ripple vs stellar funding graph

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Source: InWara’s Market Intelligence Platform

Ripple has raised a whopping $93 million in funding so far while Stellar has only raised $3 million. What’s interesting about both companies is, despite being Blockchain-based startups, both companies have turned to traditional Venture Capital for raising funds while the usual norm is to raise funds via a public token offering.

Ripple vs Stellar - Consensus Algorithm

Ripple

There are two terms that we need to know before looking into Ripple Consensus Algorithm working that is Server and Unique Node List.
The server participates in Ripple consensus process and is any entity that runs the Ripple Server Software. Unique Node List is a set of other servers that are maintained by each severer. The members of a server's Unique Node List are responsible for voting and determining consensus.

How does the Ripple Consensus Algorithm work?
· Every server takes every one of the transactions available toward the start 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 at that point sends this transaction set to every one of the servers in its UNL. The UNL members at that point vote on the validity of each transaction.
· At the point 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 incredibly quick as it accomplishes 1,500 transactions for every second. Professor David Mazières from Stanford and prime supporter of Stellar Development Foundation recommended that there are a few defects in the RPCA.

Firstly, he claims that the Fischer Lynch Paterson (FLP) impossibility result expressed that any deterministic asynchronous consensus system can only have two of the accompanying three properties:
· Safety
· Guaranteed termination or liveness
· Fault Tolerance

As per him, the Ripple Consensus Algorithm was sacrificing Safety over the other two.

Secondly, the issue of "Provable Correctness." He inquired about the whole framework and discovered that the algorithm fails to be safe under all conditions.

Stellar

Stellar used to implement Ripple’s consensus algorithm but now they have their own protocol called Consensus Protocol (SCP). It is a Federated Byzantine Agreement protocol that guarantees that it’s despite the presence of malicious node its well-behaved nodes can sustain in the network which means it is Byzantine Fault Tolerant. The core idea behind SCP and the way it can achieve it is because of Federated Voting.

Federated Voting

Every node v in the system can decide in favor of a statement "a" provided "a" is predictable with the past explanations that have been agreed upon beforehand. Let's assume we have a quorum U which includes node v, at that point, we have the following two conditions of ratification:
· U ratifies ‘a’ if and only if each member from U ratifies ‘a’.
· Node v ratifies ‘a’ if and only if the quorum U ratifies ‘a’.

The hypothesis behind this is extremely direct. In the event that we without a doubt have a Byzantine shortcoming tolerant framework, at that point regardless of having malicious nodes, the statement "a" can, in any case, be ratified. However, even then we have two scenarios of failure:
· Node 'v' may not really decide in favor of 'a'.
· A few nodes that have decided in favor of a may stop working.

Thus, this is known as Federated Voting.

Ripple vs Stellar - Token Distribution

XRP distribution

The XRP token is primarily utilized as a utility token inside the system. Obviously, there has been a lot of contentions floating around as of recently about whether the XRP token is a security or not. A formal choice should still be taken, be that as it may, all signs point to the contrary. A security token represents that you claim a specific part of the organization that issues it. Be that as it may, XRP and the XRP blockchain can theoretically still run if the Ripple company closes down.

Let’s look at some of the things about XRP.
· Ripple has been totally pre-mined. Ripple has no miners or stakers in its system.
· 20 billion XRP tokens have been retained by the creators.
· The remaining 80% were given to Ripple Labs to increase the liquidity available and strengthen the overall market.
· To regulate the supply of the tokens within the system, 55 billion XRP is secured up in a rolling 5-year escrow that releases 1 billion XRP every month and returns the unused/unsold part to escrow, including an extra month toward the finish of the set up five years.

XLM distribution

100 billion XLM has just been pre-mined. The Stellar Development Foundation (SDF) should administer the distribution of the 95 billion lumens (95%). The distribution will happen this way:
· 50% to be given in little additions to as many individuals as possible be 10 years. More the distribution, more decentralized the system.
· 25% to be given to different organizations and non-benefits to contact individuals that Stellar wouldn't generally have the option to reach through the Direct Signup program.
· 20% will go to Ripple and bitcoin holders.
· 5% will be held by Stellar for future development and other operating expenses.
Stellar has worked in fixed inflation framework. Consistently the total lumens count increases by 1%.

Stellar additionally has another exciting feature imbued in it called "Spam Fees. “Spamming a network with transactions to hinder the framework can be dangerous. To stop this attack, Stellar does two things.

· Right off the bat, Stellar charges a small fee for each transaction. This will prevent spammers from doing different exchanges since it won't be economically viable. These spam fees are added to the inflation pool. Any individual who holds lumens can decide on where the funds in the pool will go. Consistently, the lumen is distributed to any account which gets over .05% of the votes from the accounts.
· Furthermore, every account in the Stellar system mostly holds at least 20 XLM. This guarantees the authenticity of the account.

In any case, while their functionality might be quite similar, their core ways of thinking are totally unique and they are both fixing issues that should be fixed. Ripple is fixing cross-border payments for institutions while Stellar is doing the same at an individual level.

Everything considered, they are both important projects who are bringing in important utility into the cryptosystem.

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