Table of Contents
- 1 The Basics
- 2 Performance
- 3 Who’s on the Team?
- 4 Ripple vs Ethereum: Reaching Consensus?
- 5 Comparison Table
- 6 The Story So Far
- 7 Ripple vs Ethereum: The Conclusion
The BasicsBoth Ripple and Ethereum are cryptocurrencies that run on top of blockchain technology. This allows people from any location in the world to send and receive funds in a matter of seconds.
What is Ethereum?Ethereum, launched in 2015, was founded by Russian-Canadian developer, Vitalik Buterin. Ethereum became the first blockchain project to allow people to create and enter in to smart contract agreements. As a result, it expanded on Bitcoin’s capabilities, which is only suitable for financial transactions. A smart contract is an agreement based on pre-programed conditions, which can then automatically process a transaction when these conditions are met. As a quick example, take a look at the following situation.
- John and Bob want to bet on the outcome of the soccer World Cup.
- John and Bob enter in to a smart contract which states that if Brazil win the World Cup, John gets 10 ETH. However, if they don’t win it, then Bob gets 5 ETH.
- John must then put 10 ETH in to the smart contract and Bob must put in 5 ETH.
- The Ethereum blockchain is able to search thousands of websites to find out who won the World Cup.
- As soon as the result is confirmed, the smart contract will either pay out John or Bob automatically.
- All of this is achieved without a trusted third party.
What is Ripple?The Ripple blockchain was first created in 2012, three years before Ethereum. It was designed, built and launched by a private organization called Ripple Labs. Ripple labs are located in San Francisco. The objective of the founders was to create a blockchain protocol that could challenge the cross-border payments system that is used by banks to transfer funds overseas. Interestingly, although Ripple Labs are focusing specifically on the banking industry, anyone can use the Ripple blockchain to send and receive funds. Anyone can also trade the Ripple coin (XRP) on the open market. There is often a bit of confusion about the difference between Ripple and XRP, which I will explain in simple terms. The blockchain protocol that allows people and banks to send and receive funds is called ‘Ripple’. This is the actual technology that supports the network. The name of cryptocurrency that runs on top of the Ripple blockchain is “XRP”, which is used to represent value. Just like Ethereum, the Ripple protocol requires no intermediaries or third parties to verify a movement of funds, meaning that instead, people can send and receive XRP coins on a completely peer-to-peer basis.
EthereumWhen a user decides to transfer funds to somebody else, the Ethereum blockchain is able to do this in approximately 16 seconds, no matter where the sender or receiver is located. This is actually much faster that the Bitcoin blockchain, which normally takes about 10 minutes. Just like Bitcoin, the Ethereum blockchain has become really popular, and transaction fees are starting to get a bit more expensive. During its busiest period in January 2018, transaction fees averaged $4, meaning that it became uneconomical to use Ethereum for transferring small amounts. However, at the time of writing in July 2018, this has since been reduced to less than $1. An even more worrying issue for the Ethereum developers is the network’s ability to “scale” transactions. When people talk about scalability, it is used to understand how many transactions a system can handle, and whether it can grow with the amount of transactions going through it. Even outside of the blockchain industry, each system has a maximum amount of transactions it is able to scale to. For example, payment issuer Visa is able to process a maximum of 50,000 transactions per second, which is almost 30 times more than it actually needs to process! Unfortunately, Ethereum is only able to process a maximum of 15 transactions per second. It needs to improve on this significantly if it is going to be used on a global basis, especially if it wants world-wide adoption of its smart contract technology.
RippleWhen it comes to the performance of the Ripple blockchain, there are some clear differences. When a user sends XRP coins to another person, it takes on average 4 seconds before the transaction is verified. Although Ethereum is still very good at 16 seconds, this makes the Ripple blockchain about 4 times faster. Transaction fees are also significantly lower when using the Ripple blockchain. There is a standard fee of 0.00001 XRP for each transaction. Even when XRP reached its all-time high of $3.29 in early 2018, this amounted to just $0.0000329! This amount is so low that it is practically free to send funds using Ripple. One of the most important aspects to the Ripple vs Ethereum argument regards scalability. I mentioned earlier that Ethereum can only process about 15 transactions per second. Well, Ripple XRP can actually process about 1,500 per second, which is significantly more than Ethereum!
Source: rippleUltimately, in terms of performance, Ripple is certainly the better blockchain for processing transactions. In fact, this makes Ripple’s technology highly suitable for the cross-border payments industry that they are targeting. Practically every bank in the world is currently using a financial intermediary called SWIFT, which allows banks to trade on an international basis. However, the SWIFT system is slow and expensive, meaning that Ripple is ideal for inter-bank transactions.
Who’s on the Team?
EthereumThe main team supporting the Ethereum project is the Ethereum Foundation, who are made up of a group of highly skilled developers. The Foundation are responsible for promoting, developing, supporting and educating people about the Ethereum platform. This team is led by the original founder of Ethereum, Vitalik Buterin. However, as a decentralized and open-source project, for any changes to be made to the Ethereum platform, they must receive a majority vote by the community. An example of this was the infamous ‘Ethereum Split’, which resulted in Ethereum breaking free from its original blockchain, which is now called Ethereum Classic. The majority of Ethereum users wanted to create a ‘fork’ of the original blockchain, because a hacker had stolen more than $50 million worth of ETH. If the majority of people didn’t want to do the fork, then it wouldn’t have been possible!
RippleOn the other hand, Ripple XRP is slightly different. It is managed by parent company Ripple Labs, who have the ability to make changes to the underlying technology. Ripple Labs are based in San Francisco and they are the ones that form partnerships with the financial industry. The main face of Ripple is the organizations’ CEO Brad Garlinghouse. Garlinghouse is very well-known because he often makes public appearance on live TV shows. Another well-known face of Ripple Labs is the company Chairman – Chris Larsen, who also makes regular TV appearances. According to Forbes, Larson holds 5.19 billion XRP coins. Guess how much this was worth in January 2018 when Ripple hit its all-time high? More than $16 billion! Wow…
Ripple vs Ethereum: Reaching Consensus?If you have read my Ripple vs Ethereum guide to this point, you now know that they are both decentralized, meaning that no third party or intermediary is required to verify and confirm a movement of funds. However, both blockchain projects have their own way of doing this, which I will explain below. Before I do, I just wanted to briefly explain what I mean by a “Consensus Mechanism”. As blockchains don’t have a central system that confirms transactions, they instead distribute this responsibility to multiple devices. In the world of cryptocurrency, these devices are called ‘nodes’. Before a transaction is confirmed and posted to the blockchain, a certain percentage of nodes must all agree that everything is valid. When they reach an agreement, this is called ‘consensus’. To do this, the network relies on a cryptographic algorithm, which ensures that people actually have the funds that they are trying to send, as well as ensuring that the same funds are not spent twice.
Ethereum: Proof of Work
Source: blockgeeksAlthough Ethereum was created six years after the first ever cryptocurrency, Bitcoin, it still uses the same consensus mechanism, called “Proof-of-Work”. The easiest way to understand how Proof-of-Work functions is to think about a very complex puzzle. The Ethereum blockchain creates a random puzzle that is so complex that no human could solve it on their own. As a result, ‘nodes’ are required. Every node that is hooked up to the Ethereum network attempts to solve this puzzle by trial and error. This means that the device keeps on guessing the answer to the puzzle until it is able to get the answer correct! As soon as it does, the network can confirm that the transaction is valid. It’s a bit like a game, because whichever node is able to find the answer first gets the reward, which is Ether! Essentially, the more computational power that the person decides to contribute, the more chance they have of winning the mining reward. The Proof-of-Work model used by Ethereum is actually slightly different to Bitcoin, because it uses something called “Ethash”. Ethash was installed to prevent people from using expensive hardware called ASIC’s. This is a major problem with Bitcoin, as those with the most money always have the best chance of winning the mining reward, because they are able to purchase large amounts of ASIC’s. This has resulted in just 4 mining pools regularly controlling over 50% of all the Bitcoin rewards. Ethash ensures that only basic GPU’s can be used to mine Ethereum, meaning that it is a much fairer system. However, in March 2018 it was reported that ASIC manufacturer Bitmain are in the process of building an ASIC that could be compatible with the Ethereum network.
Ripple: Federated Byzantine AgreementRipple has installed a consensus mechanism called Federated Byzantine Agreement (FBA). This particular model does things slightly differently to Proof-of-Work. A selection of nodes will only be required to trust a certain number of other nodes, which is called a “Circle”. The entire Ripple network is made up of many different circles, which overlap each other, meaning that in one way or another every node is connected. The most significant difference is that unlike Ethereum, which allows anyone with a GPU to help contribute to the network, Ripple uses something called “Transaction Validators”. The only people that can become a transaction validator is the banks that use the Ripple technology. Although this is still a decentralized system (because no single authority has control over the Ripple network), it does remove the “sense of community”, as seen in Ethereum. So now that you know how each blockchain reaches consensus, the final part of my Ripple vs Ethereum guide is going to look at how the projects have performed so far! First though, I have created a comparison table to highlight some of the differences between Ethereum vs Ripple.
|Consensus Mechanism||Transactions p/s||Market Value||Circulating Supply||Launch Date||Team/Organisation||Transaction Fees|
|Ripple||FBA||1,500||18 Bil||40 Bil||2012||Ripple Labs||<$0.01|
|Ethereum||PoW||15||44 Bil||100 Mil||July 2015||Ethereum|
The Story So Far
EthereumLet’s take a quick look at the amazing success of ETH. If you had purchased 100 ETH when it was released in 2015, it would have cost you a total of $283. If you had held this until January 2018, when it reached its all-time high of $1,389, your 100 ETH would have been worth more than $138,000! In 2017 alone, Ethereum increased its price by more than 10,000%.
Source: coinmarketcapAlthough there are other smart contract protocols that can perform better than Ethereum (otherwise known as “Ethereum killers”), it is still the second most valuable cryptocurrency behind Bitcoin. However, for Ethereum to keep its place, it really needs to solve its scalability issues. No global network can survive at just 15 transactions per second, so it is hoped that the combination of ‘Proof-of-Stake’, ‘Sharding’ and ‘Plasma’ will happen without fail.