The market for cross-border payments, microtransactions, and intermediary currency functionality is huge, like trillions huge, and both companies are tackling it with superior technology. For example, if someone is looking to trade U.S. dollars for Euros, either network could facilitate the conversion by matching relevant offers and using Ripple or Lumens to quickly execute the trade. Today it can take hours or days.
The Founder Connection
Jed McCaleb, the founder of Stellar was an initial co-founder of Ripple in 2011 before he eventually left in 2013 to develop Stellar in 2014. Name sound familiar? Yes, this is the same individual who created the peer-to-peer technologies such as eDonkey and Overnet, as well as the bitcoin exchange Mt. Gox (which was then sold to Mark Karpelès). Stellar's code base started out as a git fork of Ripple's but the software code for both have since diverged considerably (though the underlying tech remains largely the same). That software, called stellard, is still running in production. However, about half a year after launching, Stellar subsequently released a completely unrelated payment system called stellar-core. Stellar core is based on a new consensus algorithm (called SCP), and an entirely new code base.
The founder and technology link is often a reason the two are seen as similar. As discussed in a previous article, the forthcoming of regulation will support competition to which both Ripple and Stellar will thrive in innovation and market competition.
Now, let's dive into why they are different and as an investor, having holdings in both might be beneficial. Think Coca-Cola vs Pepsi. Some people prefer one over the other which is fine, and yet, they both are similar products.
Stellar is a non-profit open-source technology that primarily serves to promote financial access and inclusion. SDF partners with global money transfer operators and financial institutions, with an emphasis on helping to serve the under served and un-banked. SDF already has live payments, starting from Europe to the Philippines. They’re planning to begin live payments with some areas of Africa and GCC next. Stellar casts a group of start-up veterans like WordPress founder Matt Mullenweg and Y Combinator President Sam Altman.
By comparison, Ripple is a for-profit entity that is creating a payments network with large financial institutions. It currently has over 75 big banks on its network, including big names like Bank of America, RBC, Standard Chartered, and UBS. Ripple wants all banks to perform settlements on the Ripple network. It’s unclear whether there are live payments on Ripple yet — larger banks tend to be a much more conservative batch, and it’s possible that some will branch off to build their own technology and networks. Ripple consists of ex-bankers and an advisory board of global financial institutions.
Stellar was a fork of Ripple back in 2014, but now there is almost no shared code (though there there may be some shared semantics). The Stellar Consensus Mechanism was developed by David Mazieres, Professor of Computer Science, and is biased towards safety and correctness at the expensive of liveness. Stellar has an open ledger that anyone can view, access, and join. Anyone could be a transaction validator on Stellar, though some validators may not be relied upon by all parties. Stellar is much friendlier towards third party developers. It hosts programs such as the Stellar Build Challenge to reward builders who create useful technologies on the Stellar network. They also released a Partnerships Program that offers partners up to $2 million in lumen grants. Stellar is explicitly inflationary, with 1% new coins being created every year and all fees being recycled. Also, Stellar uses the Ed25519 signature scheme (basically Schnorr) and 32-byte public keys as addresses
Meanwhile, Ripple uses probabilistic voting, a very different mechanism that relies on majority validation and may lead to temporary ledger forks. Ripple is arguably much more centralized than Stellar. It runs a permissioned ledger where Ripple itself determines who may act as a transaction validator on their network. Ripple destroys fees, meaning the total number of XRP in existence is slowly diminishing over time and uses ECDSA and 20-byte hashes as addresses.
Ripple (XRP) Stellar Lumens (XLM)
|Market Cap||~ $30.3 Billion||~$6.6 Billion|
|Trading Volume||~$887 Million||~$122 Million|
|Target Market||Financial Institutions||Companies & Individuals|
|Transaction Clearance||2-4 seconds||2-4 seconds|
|Major Partner||Bank of China, BOA, Merrill Lynch, etc.||IBM|
|Inflation||Static/Deflationary||1% Inflation per year|
In conclusion, Stellar is actively working on awesome partnerships with live impact, but don’t have as much of a marketing and PR machine behind them. They’re also focused less on big brand banks and more dedicated to smaller money transfer operators. Ripple, on the other hand, has a huge team, lots of capital, and is generating a lot of publicity with big name partnerships.
Stellar and Ripple serve different markets and feature different technology, so there’s really no saying who is “better” overall — either one may be more appropriate depending on the context.