Bitcoin(BTC) VS Ethereum(ETH) VS Ripple(XRP): A Detailed Comparison
Published September 16th, 2023
If you've ever dabbled in the vast ocean of cryptocurrency, you've likely come across the three towering titans: Bitcoin, Ethereum, and Ripple. But how do these digital giants truly compare?
Whether you're a seasoned crypto enthusiast, an investor looking to make informed decisions, or simply a curious soul seeking clarity in the crypto buzz, you've landed in the right place. Dive in as we unravel the intricacies of "Bitcoin VS Ethereum(ETH) VS Ripple(XRP): A Detailed Comparison".
What exactly are the differences between Bitcoin, Ethereum and Ripple?
Bitcoin is viewed as a reliable store of value, characterized by its decentralized nature and resilience against censorship, making it a haven for value preservation. Ethereum stands out for its adaptability and support for decentralized applications, with an ecosystem rich in DeFi platforms, NFT marketplaces, and more. In contrast, XRP focuses on efficient cross-border transactions, utilizing the Ripple Protocol Consensus Algorithm for energy efficiency. However, its centralization and tokenomics spark debates and concerns. Each cryptocurrency serves distinct purposes and audiences, requiring potential investors to evaluate their goals and priorities before investing.
In this article we'll journey through their technological foundations, explore their unique value propositions, and analyze what sets each one apart in this ever-evolving digital realm. So, grab your virtual diving gear, and let's embark on this enlightening expedition together!
Bitcoin is a decentralized digital currency that was created in 2009 by an unknown person or group using the name Satoshi Nakamoto. It is the first and most well-known cryptocurrency.
Bitcoin uses blockchain technology, which is a distributed ledger that is transparent, secure, and decentralized.
Transactions using bitcoin are recorded on the blockchain, which tracks the movement of all bitcoins in circulation. Miners verify and collect transactions into blocks, which get added to the blockchain.
Mining requires powerful computers that solve complex mathematical puzzles in order to validate transactions and create new blocks. Miners are rewarded with bitcoins for this service.
Bitcoin was conceptualized in a 2008 whitepaper by Satoshi Nakamoto.
The first bitcoins were mined in January 2009 after the bitcoin software was released. Bitcoin's early years were relatively obscure, but it started gaining mainstream attention around 2013 as the price spiked and investors took interest.
Despite price volatility, bitcoin adoption and awareness has been increasing steadily. The limited supply of 21 million bitcoins makes it potentially resistant to inflation. Bitcoin pioneered cryptocurrency and blockchain technology, serving as inspiration for many other cryptocurrencies in subsequent years.
Imagine a world where you can build decentralized applications on top of a blockchain network. That world arrived in 2015 with the launch of Ethereum, a public blockchain platform spearheaded by programmer Vitalik Buterin. Ethereum introduced smart contracts - self-executing programs that run exactly as programmed without risk of tampering or downtime.
Buterin proposed Ethereum in a 2013 whitepaper, envisioning it as a "world computer" for decentralized apps. After an initial crowd sale in 2014, the Ethereum network went live in July 2015.
Early enthusiasts were drawn to its potential for distributed computing and finance without centralized intermediaries. Applications built on Ethereum are called "dApps" and it has become a hub for crypto tokens, NFTs, DeFi apps, DAOs, and more.
Under the hood, Ethereum utilizes a blockchain to store transaction data but also a built-in Turing-complete programming language that can execute smart contracts. Whereas Bitcoin tracks payments, Ethereum can host many types of complex decentralized software.
Its native cryptocurrency "ether" is used to pay for transaction fees and computational services. Ethereum brought programmability and greater versatility to blockchain, sparking waves of innovation and new possibilities for this emerging technology.
In the world of digital assets, one innovative cryptocurrency aims to transform cross-border payments - XRP. Originally named Ripple, it was launched in 2012 by a team including programmer Jed McCaleb and entrepreneur Chris Larsen.
Their goal was to build a real-time gross settlement system and currency exchange utilizing blockchain technology and the XRP digital token.
XRP distinguishes itself from Bitcoin and other cryptocurrencies in a few key ways. Unlike Bitcoin's proof-of-work consensus, XRP uses a common shared ledger requiring validators to reach agreement rather than mining.
Transactions take 3-5 seconds to process, making XRP one of the fastest major digital assets. Additionally, all 100 billion XRP were premined at launch, avoiding the energy-intensive mining process.
Under the hood, XRP utilizes a patented consensus protocol called Ripple Protocol Consensus Algorithm (RPCA). This allows for fast, secure transactions and flexibility for specialized use cases.
While XRP can be traded like other cryptocurrencies, its core purpose is moving money across borders cheaply, quickly, and reliably. Major financial institutions have taken interest in Ripple's payment network and integrating XRP for liquidity. As global commerce rapidly evolves, innovators like XRP are positioning themselves at the frontier of finance's digital transformation.
As we've journeyed through the historical timelines and milestones of these cryptocurrencies, the moment has come to truly demystify their technological underpinnings.
Picture a bustling backstage where Bitcoin, Ethereum, and XRP prepare to spotlight their tech innovations under the glaring luminescence of scrutiny. What makes each tick?
Where do they diverge and converge in their technological aspirations? Up next, a crystal-clear table will lay bare these contrasts and parallels for you, followed by a deeper exploration into each tech narrative.
In the next table we illustrate the technological features that each network features, and some statistics about each one.
|Technological Prowess: Bitcoin VS Ethereum VS Ripple(XRP)|
|Consensus Algorithm||Proof of Work (PoW)||Proof of Stake (PoS)||Ripple Protocol consensus algorithm (RPCA)|
|Smart Contracts?||Some, but not designed for complex code||Smart contract functionality, specifically for DApps||Not natively, but introduced Hooks to support Smart contracts|
|Max Transaction Throughput||7 TPS||40 TPS||1500 TPS|
|Purpose||Store of Value||Blockchain World Computer||Cross border payments and liquidity provision|
|Basic TX fee cost||$1.2 - $30||$0.50 - $15||$0.000005|
|Total Nodes / Validators||44878||931,926||267|
|Block Time||10 Minutes||15 seconds||4 seconds|
|Security Rating (out of 10)||10 out of 10||9 out of 10||7 out of 10|
|Age(at the writing of this article)||14 years, 8 months, 13 days||8 years, 2 months, 17 days||11 years, 1 month and 14 days|
|Development Community and Ecosystem||
Looking at Bitcoin, Ethereum and XRP as payment processors, we can see that XRP is the most advanced, and has better technology for processing transactions. It is orders of magnitude better at processing transactions than Bitcoin.
Moreover, the main difference between Ethereum, Bitcoin and XRP is that Bitcoin is predominantly used as a store of value, an online savings account. Ethereum on the other hand, is used as a global computer that computes complicated decentralized applications. XRP is supposed to be used for cross-border transactions.
Ethereum isn’t really looked at as a way for people to primarily store their value, and XRP isn’t either. Rather, people usually buy Ethereum to transact within its ecosystem of Dapps.
The consensus algorithm is the heart of any blockchain, determining how transactions are confirmed. Bitcoin relies on the Proof of Work (PoW) consensus, which, while secure, is often criticized for its energy consumption.
Ethereum, acknowledging PoW's limitations, is transitioning to Proof of Stake (PoS) - a more energy-efficient approach rewarding participants for holding the cryptocurrency.
XRP, charting its own path, uses the Ripple Protocol Consensus Algorithm (RPCA), eliminating the need for energy-intensive mining, and focusing on a distributed agreement among network validators.
A significant differentiator is the ability to execute smart contracts. Bitcoin has rudimentary smart contract capabilities but wasn't crafted for intricate code implementations.
Ethereum, in contrast, was designed ground-up for this, becoming the go-to platform for decentralized applications (DApps). XRP, initially sans native smart contract functionality, has now introduced Hooks to support them, albeit not as extensively as Ethereum.
The cost of transacting is pivotal for users. Bitcoin's fees fluctuate between $1.2 to $30, primarily influenced by network congestion. Ethereum's fees, though lower, ranging from $0.50 to $15, can spike during high demand on its network. XRP remains unmatched here, with a minuscule fee of $0.000005, highlighting its appeal for frequent transactions.
The strength and security of a blockchain correlate with its nodes or validators. Bitcoin's decentralized network boasts 44,878 nodes, Ethereum overshadows this with a massive 931,926 nodes, emphasizing its global reach and decentralization.
XRP, with 267 validators, opts for a more streamlined, albeit centralized, approach. Reflecting this in security ratings, Bitcoin is the gold standard with a perfect 10/10, Ethereum trails closely at 9/10, and XRP scores 7/10.
Bitcoin, the pioneer, has been around for nearly 14 years and 9 months. Ethereum, while younger at 8 years and 2+ months, has made significant strides in the space. XRP, with over 11 years under its belt, has constantly evolved, especially in the institutional payment domain.
Ecosystems are vital for growth and innovation. Bitcoin's ecosystem is fortified with institutional tools like GBTC and CME Futures, periodic halvings, and the Lightning Network for scalability.
Ethereum is the hub of decentralized innovations, from DeFi platforms like Uniswap to GameFi and NFT platforms like OpenSea. XRP, while different, boasts a passionate XRP Army, RippleNet for global payments, and tools like xRapid for liquidity sourcing.
Tokenomics is a defining factor for cryptocurrencies. Tokenomic factors can break or make cryptocurrencies. As a matter of fact, this is one of the pivotal foundations of Bitcoin, the first cryptocurrency.
Bitcoin operates on a disinflationary monetary system, meaning that the inflation of the Supply of BTC decreases every year. It is also a fixed supply. If this economic system was not put in place, Bitcoin would not be the titan it is today, and it wouldn’t have attracted so many people.
Aside from Bitcoin, Ethereum and Ripple have different tokenomic properties that help its value accrual or retention. Let’s take a look at all of these factors in the table down below. Keep in mind, Tokenomics helps cryptocurrencies attain value, and retain value.
|Tokenomics: Bitcoin vs Ethereum vs Ripple|
|Inflation Rate Yearly||1.74%||-0.25%||15.26%|
|Max Supply||21 Million||Infinite||100 Billion|
|Projected Inflation rate (2024)||0.9%||-0.25%||14.55%|
|Projected Inflation rate (2025)||0.9%||-0.25%||12.7%|
|Projected Inflation rate (2026)||0.9%||-0.25%||11.27%|
|Projected Inflation rate (2027)||0.9%||-0.25%||10.13%|
|Projected Inflation rate (2028)||0.45%||-0.25%||9.2%|
|Coins Burnt Yearly||N/A||979,000 ETH from transaction fees||12 billion from Escrow Wallets|
|Coin Use Cases||
Tokenomic factors such as inflation play a pivotal role in the development and maturation of cryptocurrencies. Bad tokenomic factors often make it so that nascent cryptocurrencies never make past the initial stages of development.
From the table above we can see that Bitcoin and Ethereum both have favorable Inflation rates. Ripple on the other hand, has terrible inflation rates. We can conclude from this data set that it is not a great idea to Ripple over the long term because the inflation rate will devalue the currency.
Though Ethereum has a better inflation rate than BTC since the supply is actually being reduced. Ethereum burns more ETH coins than it creates as a block reward.
When it comes to tokenomics, one advantage that Bitcoin and Ripple(XRP) has over Ethereum is that their supply is capped at 21 Million and 100 Million respectively.
Ethereum supply is only being reduced because there are more transaction fees that are getting burnt than Ethereum minted as a block reward. The Bitcoin inflation halves every 4 years and Bitcoin has a maximum supply of 21 Million Bitcoin.
Theoretically, the Ethereum supply can still keep going up if there are less people using it, up to infinity. With XRP, this is also not the case, since there is a max of 100 Million XRP tokens ever in existence.
One tokenomic difference between Bitcoin, Ethereum and XRP is that Ethereum burns a large supply to offset the newly minted supply, XRP doesn’t technically burn coins, though 1 Billion is burnt every month from escrow wallets. This isn’t that significant since this supply isn’t taken out from circulation.
Ethereum truly shines when it comes to coin use-cases. More use-cases means that there will be more points of demand for the coin, effectively pushing the price of the coin upwards.
Cryptocurrencies are extremely volatile assets, and speculative at some phases of their cycle. They go up 20% in a day or lose 50% of their value in a single day, like in March 2020.
Some cryptocurrencies are more volatile than others, others just move sideways. In this section we go over risk/reward analysis of Bitcoin, Ethereum and XRP as well as value retention.
Emerging as one of the greatest innovations of the internet, Bitcoin was designed to be a store of value. Let’s put this to the test, how does Bitcoin store wealth, compared to Ethereum and Ripple?
This is somewhat relative, since it all depends on when a person buys Bitcoin, Ethereum or Ripple.
In the image below we can see that buying Bitcoin before the bull run of 2021, the individual would be up 635% to the peak of the bull market. Though they would lose 76.7% of that wealth from the top of the bull market down to the bottom of the bear market.
As this happened, most other altcoins went down even more in price, increasing the BTC dominance.
The bottom of the bear market in 2023 is still up 76.8% from the start of the previous bull market.
We can conclude on one fact from this analysis: Bitcoin is a relatively great store of value. Especially since it actually increases your wealth. Compared to other cryptocurrencies, the Bitcoin Dominance, a measure of how well BTC performs relative to other cryptocurrencies, goes up during bear markets. In the later passages we will see how Ethereum and XRP went down even more. Consequently, illustrating an increase in the BTC dominance.
Ethereum is the robin to Bitcoins Batman, the second in command. Ethereum, since the start of the last bull run went up 1911% but went down 81% since the peak of the bull run. from the start of the last bull run to the bottom of the bear market, it was up 285%.
While these are impressive numbers, we can see that Ethereum was better at appreciating value, but the question remains, how well is it at retaining value. Well, if a person had bought Ethereum at the peak of the bull market, they would be down 81% if they checked up on it at the bottom of the bear market compared to BTC which lost 77% of its value.
This could be seen in the Ethereum Dominance Chart, whereby Ethereum lost dominance during the bear market.
Our conclusion is that Ethereum gains value better than Bitcoin, but Bitcoin is still better at retaining that value throughout the bear market.
XRP is notorious in the space, it has its own community called XRP Army. XRP is like that one loud person in the room. Now how does XRP compare to Ethereum and Bitcoin? Perhaps it is a better storage of value?
Let’s take a look. From the start of the bull market, XRP went up 913% to the peak and then proceeded to fall 84.15% to the bottom of the bear market. Since the start of the bull market of 2021, XRP is up 62% to the bottom of the bear market.
XRP is an even worse store of value, compared to Bitcoin and Ethereum, considering that it has lost 84% of its value since the top of the bull market. It is quite volatile though, not as great as Ethereum. Another interesting distinction is that XRP acts like the broader altcoin market, which also fell 85-90% in value.
As XRP fell in price at precedented levels compared to Bitcoin, the Altcoin dominance similarly also fell, which is evident to how XRP acts as the broader altcoin market. Bitcoin and Ethereum act much differently than the broader altcoin market and XRP.
The Bitcoin Dominance was also showing signals that predicted this movement by XRP. Mainly because Bitcoin choses the direction of the market.
We can conclude from the 3 charts that when it comes to price appreciation, Ethereum is better than Bitcoin and XRP. XRP is better at value appreciation than Bitcoin.
We also conclude that Bitcoin retains its value better than Ethereum and XRP. Ethereum retains its value better than XRP.
From this analysis, buying XRP over Bitcoin or Ethereum has been the worst decision.
Decentralization is another important trait that matters to blockchain networks and echoes down into the value of their native currency.
Blockchain networks with more validators, or better consensus algorithms develop a higher degree of decentralization. These networks are often adopted more by retail developers, investors, and users because they offer better security against centralized actors such as the SEC, government agencies or government institutions.
Blockchain networks with high degrees of decentralization are often much better than networks with lower levels of decentralization. In this subsection we compare Bitcoin, Ethereum and XRP to figure out which networks are most decentralized.
|Decentralization: Bitcoin VS Ethereum vs XRP|
|Consensus algorithm||Proof of Work||Proof Of Stake||XRP Ledger Consensus Protocol|
|Governance||None, Last upgrade was in 2021||Ethereum Improvement Proposals||Ripple suggests amendments; validators vote|
|Central Entity Influence||None (fully decentralized)||Ethereum Foundation has influence but no full control||Ripple has significant influence but doesn't control|
|Censorship Resistance||Ultra-High (due to decentralized nature)||High but there is still some, 29% of all blocks being OFAC compliant||Medium to Low (due to UNL control)|
|Total Nodes / Validators||44,878||931,926||267|
|Total Down time in its history||0||0||About 15 minutes|
When evaluating the decentralization attributes of Bitcoin (BTC), Ethereum (ETH), and Ripple's XRP, a multitude of factors come into play that define each cryptocurrency's nature and operation.
At the heart of this comparison lies the consensus algorithm, which dictates how transactions are confirmed and how new blocks are added to their respective blockchains. Bitcoin operates on the time-tested Proof of Work (PoW) system.
This mechanism, though energy-intensive, has been pivotal in ensuring Bitcoin's decentralized status. Ethereum, in its quest to achieve scalability and energy efficiency, is transitioning to a Proof of Stake (PoS) system.
This is a significant departure from PoW and places a certain degree of trust in validators who are chosen based on the amount of cryptocurrency they hold and are willing to 'stake' as collateral. XRP, on the other hand, follows the XRP Ledger Consensus Protocol, a system reliant on agreement among trusted validators.
Governance is another critical facet of decentralization. Bitcoin, in its essence, remains a bastion of decentralization, having no central governing body. Its evolutionary pace is determined by the broader community, as evidenced by its last upgrade in 2021.
Ethereum takes a slightly different approach with its Ethereum Improvement Proposals (EIPs), through which changes are suggested and deliberated upon.
The Ethereum Foundation, while influential, doesn't exert full control over the network, maintaining a balance between guidance and decentralization. Conversely, Ripple has a more pronounced role in XRP's governance, suggesting amendments that are then voted on by validators.
Analyzing the influence of central entities, Bitcoin stands out as being fully decentralized with no single entity wielding undue power. The Ethereum Foundation has sway over Ethereum but lacks the authority for unilateral decision-making. Ripple, in contrast, holds significant clout over XRP, though it doesn't have absolute control.
Censorship resistance, a hallmark of true decentralization, is where Bitcoin excels due to its inherent design and vast, globally distributed node network. Ethereum also offers high resistance, though it's noteworthy that 29% of its blocks are OFAC compliant, introducing a potential for centralized influence.
OFAC Compliance, originating in the USA, puts centralized pressure on Ethereum. Bitcoin sees no such censorship or antagonistic pressure from the USA.
XRP's censorship resistance is arguably its weakest point, being medium to low due to the control exerted by the Unique Node List (UNL).
The sheer number of nodes or validators further emphasizes the decentralization disparity among the three. Bitcoin boasts 44,878 nodes, making its network robust and resistant to attacks.
Ethereum overshadows this with a staggering 931,926 validators, amplifying its decentralized nature. XRP lags considerably in this aspect, with a mere 267 validators, which can be a point of contention for decentralization purists.
Lastly, the resilience of a network can be gauged by its downtime. Both Bitcoin and Ethereum have stood the test of time, boasting zero downtime. XRP, however, experienced a brief interruption, amounting to about 15 minutes.
In the backdrop of technological marvels, economic underpinnings, and the essence of decentralization, Bitcoin, Ethereum, and XRP emerge as three distinct pioneers of the cryptocurrency domain.
Bitcoin, often revered as the gold standard of cryptocurrencies, stands out as a predominant store of value, bolstered by its Proof of Work consensus and a decentralized ethos that resists censorship. It remains a beacon of value retention, even amid market fluctuations.
Ethereum, on the other hand, presents itself as a versatile platform, built ground-up for decentralized applications.
Its transition to Proof of Stake demonstrates adaptability, and while it appreciates in value more robustly than Bitcoin, it faces slight challenges in retaining it during bear markets. Ethereum's ecosystem vibrantly buzzes with DeFi platforms, NFT marketplaces, and a massive validator community, painting a picture of innovation and expansive reach.
XRP, while advanced in transaction processing, primarily aims at streamlining cross-border transactions. Its technological approach, involving the Ripple Protocol Consensus Algorithm, departs from energy-intensive methods, promoting efficiency.
However, its tokenomics suggest potential challenges in long-term value retention due to unfavorable inflation rates. Additionally, from a decentralization perspective, XRP follows a more centralized approach, leading to debates among purists.
In essence, when placed side by side: