Introduction to ripple and Ethereum
While they are commonly thought of as cryptocurrencies, both ripple and Ethereum are much more – and these terms actually have wider meanings.
Introduction to ripple
Ripple is a cryptocurrency, which is commonly identified by the three-letter "XRP" code. It works on RippleNet, a blockchain network that connects to the banks' software and allows them to communicate directly with each other to confirm transactions. Cryptocurrency, software and the network are tightly controlled by Ripple Labs (sometimes called "Ripple" for short), so any bank or institution joining RippleNet must be approved by this company.
What distinguishes RippleNet is that every bank in the network is a "gateway" through which money and other resources can enter and exit the system. Each gateway approves the other gateways it trusts, with the network then establishing trust lines across the network to facilitate payments. Payments can be made using any currency or asset, with the network selecting the cheapest route. XRP is the common currency of the network and is used to provide liquidity when needed, for example, if you convert the GBP into an exotic currency.
Find out more about how ripple works
Introduction to Ethereum
The word Ethereum is commonly used to refer to cryptocurrency ether (ETH). But, strictly speaking, such uses are not accurate. Ethereum is really the name of a decentralized network, which is supported by the cryptocurrency. Both were invented by the co-founder of Ethereum, Vitalik Buterin.
What distinguishes the Ethereum network from most others is that it allows users to create decentralized apps ("dapps") and smart contracts. Dapps are essentially software applications that run through a computer network and therefore work without the possibility of interference or downtime (at least according to the Ethereum Foundation). Smart contracts are binding agreements, which are written as lines of code and can therefore automatically enforce their own clauses. Ether is used to process transactions on the network, including those automated by dapps and smart contracts.
Find out more about how Ethereum works
How do you compare the technology for ripple and ether?
Both ripple and ether are powered by blockchain technology, which allows the respective networks to validate the transactions. It does this by defining a protocol by which the transaction order is checked against a shared transaction history and agreed by the network. This prevents users from spending their cryptocurrency tokens more than once, because all pending transactions are verified against the history of shared transactions and are immediately rejected if they do not align with them.
However, while both cryptocurrencies solve this so-called "double-expense problem" using blockchain, the way in which the respective systems validate transactions could not be more different. Let's have a look at each method in turn.
What is ripple technology (XRP)?
RippleNet uses an unusual form of blockchain technology, which approves transactions using what defines a "consent" or "distributed agreement" protocol. This essentially requires the gateway network to agree on an order for transactions, simply by taking the majority.
Ripple Labs claims that this system has a number of advantages over other systems. For example, it is less energetic than the "proof of work" algorithms used by bitcoins and ether, while also allowing multiple participants to add transactions to each block. However, this is only possible because Ripple Labs approves gateways, which has led critics to argue that this is not a decentralized cryptocurrency.
What is the technology for ether (ETH)?
Ether uses a "work proof" algorithm to approve transactions, which means that computers in the Ethereum network compete to validate pending transactions. Each controls a group of pending transactions against the shared history of the network and compiles those that align with this in a new block. Then they try to generate a cryptographic signature for their block, based on the data contained in it, through a process known as "mining".
This system works because these cryptographic signatures (known as hashes) are very difficult to generate, but easy to verify for other machines on the network. The difficulty of generating them is regulated so that only one complete block is generated every 15 seconds approximately on the entire network. This leaves enough time for other machines to check the validity of the block and update their records, ensuring that the order of transactions is agreed across the network.
While this system is very secure and truly decentralized, it can be very energy-intensive.
Ripple vs ether: pros and cons
With such different offers, it is not surprising that both ripple and ether have different advantages and disadvantages:
- RippleNet has been widely adopted by banks and other financial institutions
- It offers very fast transaction speed
- The XRP can provide liquidity in any currency
- RippleNet can work without XRP
- Ripple Labs controls the network, so some argue that it is not really decentralized
- RippleNet uses a consent algorithm, which could be open to exploitation by groups of gateways (mainly banks) if they were able to agree to work together
The professionals of the ether:
- It works on the Ethereum network, which allows users to create smart apps and contracts
- Ether is essential for processing transactions on the network
- Fast transaction speed
- Non-capped supply means it could be inflationary
- At the moment it is possible to process only about 20 transactions per second
- It uses a working test algorithm, which is energy intensive
What influences the value of ripple (XRP) and ether (ETH)?
Cryptocurrency markets tend to be very volatile and ether and undulation are no exception. For this reason, it is essential to understand how supply and demand factors can affect their prices. Here we take a look at each of them.
What is the offer of ripple and ether?
Like traditional "fiat" currencies, the offer of ripple and ether varies over time with these changes that influence their ratings. If the demand were completely static, their prices would decrease as the offer increased and increased as the demand declined.
Of course, in reality, things are not as simple as the question changes over time – though as a general principle it tends to remain true. Cryptocurrency tokens tend to be more valuable when there is a limited supply, compared to when there is a more abundant supply.
What is the circulating and maximum ripple supply (XRP)?
The circulating offer of ripple is close to 40 billion coins (starting from October 2018). The maximum bid is 100 billion.
Ripple Labs previously controlled all the remaining currencies, but in December 2017, 55 billion were transferred to a escrow account. From this pool, one billion coins are made available to the network every month. All those who remain unclaimed are put back into storage and stored for a future month. The idea is to provide some degree of certainty about how many coins can enter the market at any given time.
What is the current and maximum offer for the ether (ETH)?
Currently there are more than 102 million coins in circulation, and there is no maximum supply. However, it is possible to create a maximum of 18 million new coins every year. These are given to users as a reward for "mining" (the process by which transactions are verified).
When thinking about the supply of ether, it is also important to consider that a small amount is "burned" as "gas" in every transaction, which means that some of the ether is destroyed. This creates a cost that prevents users from sending spam to the network. It is expected that about 1% of the ether will be burned this way every year, so this deflationary pressure should be offset by inflation from mining for many years to come.
What influences the demand for ripple (XRP) and ether (ETH)?
The demand for ripple and ether depends on a wide variety of factors, including:
Integration and adoption
With the ripple used on RippleNet and ethereal linked to Ethereum, the future of both cryptocurrencies risks heavily dependent on the spread of these networks. Ripple's assessment, for example, is likely to be strongly influenced by any news of banking integration, while the ether could see its value go up the back of a popular first. However, it is important to remember that RippleNet can work without XRP, so the evaluation of the cryptocurrency may not always be related to the success of the network.
The market capitalization of these coins will probably have an effect on demand. If the market capitalization of both currencies begins to approach bitcoin, for example, we may see an increase in the demand for that currency. This would probably happen in anticipation of "flippening" – a theoretical day in the future in which a cryptocurrency surpasses bitcoin as the number one by market capitalization.
The press, both good and bad, can have a marked effect on cryptocurrency assessments because it can change public perception and, in turn, demand. As a result, ether and ripple are likely to see their prices moving in response to any major press coverage. This could include exposures related to controversy such as exchange hackers or security flaws, or opinions on how cryptocurrencies could be adopted.
The price of ether and undulation can also move in response to key events or announcements. These include technological developments, forks, cryptocurrency regulations and even competitors entering the market. Like other asset classes, these cryptocurrencies may also move in response to macroeconomic releases.