Even if the cryptocurrency values have decreased somewhat in the last few months, they have been by far the most powerful asset class since the beginning of 2017! After starting out last year with an aggregate market cap of $ 17.7 billion, the combined market cap of all digital currencies as of March 26 was just over $ 303 billion. That’s better than a 1,600% gain in just under 15 months.
While Bitcoin is often credited with driving up the fee, the past six months have only been about other cryptocurrencies emerging from their shadow. One such virtual currency that has come into the spotlight is Ripple, based in San Francisco, and its XRP token.
Ripple causes a sensation
Last year, Ripple was up more than 35,500%, making it easily one of the top performers among all cryptocurrencies. Its increase is directly related to the company having forged a number of partnerships for its XRP token and / or its blockchain – the digital ledger that underlies most cryptocurrencies and is responsible for logging all transactions without any Bank is required.
Ripple had its big break in mid-November when it was revealed it had partnered with American Express (NYSE: AXP) and Santander Bank in a real cross-border payment test. Under the terms of this test, American Express users making non-card payments to UK Santander accounts using AmEx FX International will have those payments processed through Ripple’s blockchain and settled almost instantly. Ripple, which focuses solely on financial institutions, has suggested that its average turnaround time is around four seconds. Compared to the waiting times of up to five working days that can occur under the current banking system, Ripple’s blockchain offers financial institutions a groundbreaking solution.
His token is also proving to be useful for attracting potential corporate customers. In January, Ripple announced a partnership with the money transfer service MoneyGram International (NASDAQ: MGI) that would test its XRP token within the xRapid platform, which is helping financial institutions that have a need for on-demand wire transfers. In fact, MoneyGram could control the use of XRP as an intermediate currency when transferring funds across borders. For example, if those funds were converted from dollars to XRP and then from XRP to pesos, sending money between the US and Mexico could be seamless and in seconds. If successful, MoneyGram could soon have a huge competitive advantage.
In total, Ripple has won five brand partnerships and is regularly expanding bank access to its RippleNet system.
Beware of the mighty Ethereum, right?
With over 1,600 investable cryptocurrencies, the competition is fierce, even for a niche-focused virtual currency like Ripple. Quite a few people would likely suspect that Ethereum is the biggest threat to Ripple’s success – and there are strong arguments for such an idea.
Ethereum’s blockchain technology is currently being tested by 200 global organizations through the Enterprise Ethereum Alliance in a variety of industries, including banking. If there’s consolation for Ripple, it’s because Ethereum’s blockchain encounters currency and non-currency aspects, so it doesn’t have the same laser focus on financial institutions as Ripple.
However, Ethereum brings tons of partnerships, proven scalability, and smart contracts to the table. Smart contracts are protocols that aid in the review, facilitation, and enforcement of a contract. Think of them as the customizable aspect of a digital and legally binding contract. These smart contracts are a big reason why the Ethereum network is so popular.
But what if I told you that Ethereum isn’t the biggest threat to Ripple? Instead, this title should rightly go to Stellar.
Introducing Stellar, Ripple’s most direct competitor
In their early days, Stellar and Ripple were very similar, namely because Jed McCaleb helped found both cryptocurrencies. Today, however, there are distinct differences, although Stellar, like Ripple, occupies a similar niche when it comes to targeting financial services.
Stellar’s biggest hiatus came in October when IBM (NYSE: IBM) announced that it has partnered with Stellar and KlickEx in the South Pacific region to expedite payment processing in the cross-border environment. With the blockchain from IBM and the Lumens token (XLM) from Stellar, IBM wanted to accelerate the validation and processing times at 12 regional banks. While we’ve seen numerous blockchain partnerships in the financial services space, very few are willing to use the native cryptocurrencies like IBM did with Stellars Lumens.
Both Stellar and Ripple bring exceptionally fast and inexpensive transaction processing to the table. Ripple’s transactions cost a fraction of a cent and can be processed in seconds, while Stellar takes an average processing time of two to five seconds, with 100,000 transactions costing just $ 0.01. In comparison, transactions on Ethereum’s blockchain take longer and cost a lot more.
The Stellar Development Foundation is also run as a nonprofit organization that aims to address the lack of access to banking for people around the world. In addition to securing digital identities, blockchain technology offers people with a small bank account the opportunity to exchange virtual currencies without traditional bank accounts. By comparison, Ripple is a for-profit organization that primarily focuses on securing deals with large financial institutions. That’s not to say that Stellar isn’t focusing on what it can do for big companies, but rather to point out the differences between their nonprofit and for-profit approaches.
Where Stellar could really stand out and give Ripple a run for its money (pun intended) is decentralization. While somewhat argumentative, Ripple’s network is considered far more central than Stellar, although the Stellar Development Foundation also controls much of the Lumens. As noted on the Invest in Blockchain website, Ripple faced a backlash in 2015 when founder McCaleb left the company and his funds were frozen. This drew attention to the fact that the controlling members of Ripple could put the kibosh on anything they didn’t like, which is the opposite of the decentralization that is at the heart of crypto usage. Stellar has not faced nearly the same backlash from the crypto community.
While it really is everyone’s guess which virtual token will perform better – the XRP or the XLM – Ripple investors should better keep an eye on Stellar.
This article represents the opinion of the author who may disagree with the “official” referral position of a premium advisory service from the Motley Fool. We are colorful! Questioning an investment thesis – even one of our own – helps us all think critically about investing and make decisions that will help us get smarter, happier, and richer.