XRP is a currency that’s now primarily used by Ripple to facilitate payments between banks in different government-issued currencies. In 2011, three engineers named David Schwartz, Jed McCaleb, and Arthur Britto set out to create an alternative to Bitcoin that required less energy—in the form of computing power—to produce and would be easier to use to make payments.
The engineers developed a distributed ledger—a database that is shared among many participants in different locations who must develop a consensus on the validity of transactions—called the XRP Ledger. This distributed ledger has an open-source code and was used to create digital assets the engineers called ripples and were later renamed XRP. Along with Chris Larsen, Schwartz, McCaleb, and Britto went on to form a company, now called Ripple, that was given 80% of the 100 billion XRP the ledger produced. Ripple utilizes the XRP Ledger and XRP to make cross-currency payments for financial industry customers that use its RippleNet system.
Ripple started out with 80 billion XRP. The company put 55 billion XRP in a series of escrows and may release as many as 1 billion a month.
Bitcoin were created in 2009 by a person or people using the pseudonym Satoshi Nakamoto. Bitcoin is the first successful decentralized cryptocurrency of its generation and the first to use a blockchain type of distributed ledger.
In a blockchain, new records of transactions are added in blocks of information that are strung together in a chain. Each new block contains a shorthand code that links it to the previous one. If someone wanted to alter one block, they’d also have to alter the one before it. And if they wanted to alter that next one, they’d have to alter the one before it. And so on.
Like the XRP Ledger, Bitcoin’s blockchain ledger relies on multiple participants who all have access to the same information to help maintain its security. That makes it decentralized and not reliant on one authority—like a federal government—to give it credence.
Bitcoins are created in a process called mining as a reward for lending computing power to the task of verifying transactions. Once a series of recent transactions are verified, they are permanently added as a block in the chain, and the successful miner who created the block is rewarded with 6.25 bitcoin.3XRP
- Currency code: XRP
- Price as of Oct. 9, 2020: $0.2566
- Trading volume on Oct. 9, 2020: $18,703,730
- Facilitates payments between banks in different government-backed currencies. Like other currencies and cryptocurrencies, it may be traded as a speculative investment.
- The XRP Ledger created 100 billion XRP all at once.
- An XRP consists of 1 million drops, the only subunits of the currency.
- Currency code: XBT or BTC
- Price as of Oct. 9, 2020: $11,341
- Trading volume on Oct. 9, 2020: $220,623,590
- Provides an alternative, decentralized currency for making purchases. Like other currencies and cryptocurrencies, it may be traded as a speculative investment.
- Twenty-one million bitcoin will eventually be created by forming new blocks in the blockchain.
- A bitcoin consists of 1,000 millibits or millibitcoins, 1 million microbits or microbitcoins, and 100 million satoshi, the smallest division of a bitcoin that can be recorded in the blockchain.
Value of XRP and Bitcoin
As of Oct. 9, 2020, the value of a single bitcoin was much higher than a single XRP: $11,341 compared with about 25 cents.
The all-time high price of XRP varies depending on pricing source, but according to various media reports, it was above $3 in early January 2018. Coindesk says XRP’s highest price was $3.40 but doesn’t provide the date.
Coindesk says Bitcoin’s highest price was $19,665.39, also without providing a date. Media reports say the peak price was achieved in mid-December 2017. By early February 2018, the price had fallen to around $6,000.4
The federal government provides little oversight of spot trading (meaning real-time trading, as opposed to futures trading) of cryptocurrencies. However, state governments and parts of the federal government do play roles in regulating virtual currencies—including bitcoin and XRP—and prosecuting those suspected of fraud related to virtual currencies.
State bank regulators are tasked with overseeing cryptocurrency spot exchanges based on individual states’ money transfer laws. The Internal Revenue Service requires traders of virtual currencies to pay tax on capital gains made by buying and selling cryptocurrencies. The Treasury Department’s Financial Crimes Enforcement Network monitors trades in virtual currencies for indications of money laundering. The Securities and Exchange Commission (SEC) requires most initial coin offerings—the currency equivalent of initial public offerings of stocks—to be registered, and the SEC has prosecuted unregistered issuers of new cryptocurrencies. And the Commodity Futures Trading Commission (CFTC) has prosecuted companies and individuals for misrepresenting the risks of cryptocurrencies and for manipulating their value.5 6
The CFTC says you may have no recourse if someone steals your virtual currency, and it warns that cryptocurrency trading platforms may lack safeguards against market manipulation and other means of protecting traders.7
Payments made using XRP can be completed in 3-5 seconds, while those made using bitcoin take an average of 9.2 minutes.
The average fee for an XRP transaction on Oct. 9, 2020, was 295 drips, and total fees amounted to 224.996033 XRP. There were 759,558 XRP transactions that day.
Every time an XRP transaction is completed, a small number of drips is destroyed. To defend the XRP Ledger from spam or denial of service attacks, the transaction cost increases as the load on the ledger increases.
The average fee for a bitcoin transaction that same day was $3.429, while the average total transaction cost was $37.01 or 0.0033 BTC. There were 329,634 bitcoin transactions completed that day.
In addition to the bitcoins mined by completing a block, the miner receives any fees associated with the transactions they verified.
How to Buy XRP
Both XRP and Bitcoin are traded on cryptocurrency exchanges. You will need to create an account with the exchange and provide documentation to verify your identity.
Some exchanges may not enable you to trade XRP for certain currencies and cryptocurrencies. When choosing an exchange, make sure it offers the precise services you are looking for.
In order to trade and use XRP, you’ll need a wallet that stores your means of accessing your holdings. The wallet contains a cryptographic key that encrypts and decrypts data and makes it difficult for thieves to steal your currencies.
Many traders use hardware wallets that you connect to your computer only when needed. Software wallets are less secure because they are typically connected to the internet at all times.
The Bottom Line
Ripple’s XRP and Bitcoin are both cryptocurrencies that are tradable like government-issued currencies. You can also use both to buy goods and services, though the number of companies that will accept them for payment is limited.
Ripple, the company that holds the vast majority of XRP, uses the cryptocurrency to facilitate transactions between banks using different currencies. XRP are much less likely to be used by consumers than Bitcoin, which was intended to be an alternative to government-backed currencies.
The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.