Stellar Vs. Ripple

Stellar vs. Ripple: Who wins the protocol battle?

In general, Stellar’s a Ripple fork that features inflation. That means the creators of Stellar (who were also involved in the creation of Ripple), made a copy of Ripple’s open-source code, changed a few technical details and re-released it as Stellar.

Stellar vs. Ripple: It’s all about inflation

For the true nerds out there, StellarTalk’s Dennis has an excellent run-down of the technical differences between Stellar and Ripple here, but I’m going to focus on the one key difference between Stellar and Ripple: inflation.

Ripple’s native currency (XRP) is finite. “The inventors of the Ripple protocol created 100 billion XRP at its inception, and no more can ever be created according to the protocol’s rules,” Ripple Labs writes. That number gradually diminishes* (by 0.000010) with each transaction on the Ripple network.

Stellar’s native currency (“stellars” or STR), on the other hand, is infinite. “To account for both economic growth and lost stellars, there is a fixed 1% annual rate of new stellar creation.” Like Ripple, Stellar destroys STRs with each transaction (0.000010) to prevent network spam.

Money printing gets a bad rap in the media, but there’s nothing inherently wrong with it so long as its not abused. In the case of the U.S. dollar, we never really know exactly how much money the Federal Reserve plans to print in the months and years to come. And their money printing arguably stopped us from sliding into a second Great Depression during the crisis in 2008.

A mild 1% annual growth rate for STRs isn’t going to move the needle much – particularly when Janet Yellen is trying and failing to get the US inflation rate up to 2%. All in all, I’d agree that Stellar’s inflation rate makes sense. STRs are lost (just like XRP). They’re also destroyed during transactions. Why not replenish the kitty over time?

Stellar vs. Ripple: A copy’s still a copy

And yet, is that enough for me to embrace Stellar? Absolutely not. A copy’s still a copy. The core functionality behind the protocol hasn’t changed, and therefore Ripple’s got an enormous first-mover advantage. A financial protocol’s worthless without banks, users and a plethora of international gateways.

Stellar’s going to have to have to hire an army of marketers and engineers to catch up with Ripple. More importantly, though, they’re got to have to find a way to cozy up to the current financial oligarchy. Without support from major international banks, neither protocol will succeed. Ripple’s understood that from the get-go. They’ve joined NACHA. They brought in Chris Larsen of e-Loan and Prosper, and they’re already got German bank Fidor using the protocol. They understand that you’ve got to work with the existing financial system in order to revolutionize it. That’s why I’m putting my chips with Ripple for now.

* If there were 1 billion XRP transactions happening every day, it’d take more than 27,000 years to destroy all 100 billion XRP.

Background image by jcam.

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3 comments

  1. Karl

    I think stellar will appeal more to the bitcoin crowd. 95% of all stellars are going to be given away, compared to only 55% of ripples. This makes stellars seem more “for the people”. But on the flip side, having less ripples on the open market could push the price up, and make them appear more desirable for traders/investors.

    Also because theres no inflation feature in ripple, prices might go up quicker than stellar. So again it could mean more people jumping on the bandwagon.

    I think the whichever protocol gets the first major breakthrough will win. Maybe one of them will sign with a major bank like HSBC or citibank, who operate in lots of countries. So I think the business approach ripple is doing is the smarter one. I don’t think anyone really cares who owns the international payments system, as long as its fast, cheap and convenient.

    If one is successful, ultimately the other one will become useless, a bit like the vhs/betamax squabble. Because you can easily exchange one for the other. The one with the widest adoption will snowball and everyone will sell off the redundant currency. Theres room for both, but no reason to, as they do the same job.

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