What are the distinctions between Bitcoin, Ethereum, and Ripple?
Even if you’re new to the cryptocurrency world, you’ve probably heard of the cryptocurrencies Bitcoin (BTC), Ethereum (ETH), and Ripple (XRP) (XRP). They are, in fact, among the top five digital assets in the world in terms of popularity. As of March 2021, Bitcoin, Ethereum, and Ripple are once again among the top 10 cryptocurrencies in terms of market valuation.
And, given that all three of these cryptocurrencies are pretty popular among crypto traders, it’s only logical to question the differences between them, so you can select which one to invest in.
There are several apparent distinctions between Bitcoin, Ethereum, and Ripple, whether it is the blockchain technology and consensus methods utilized by the protocols, the price difference between Ripple, Ethereum, and Bitcoin, the workings of the coins, or any other functional variances. Before delving into these distinctions, let’s take a quick look at each of these cryptocurrencies and their varied qualities.
How Does Bitcoin Work?
The vast majority of the worldwide cryptocurrency community considers Bitcoin to be the first cryptocurrency, founded in 2009 by the enigmatic Satoshi Nakamoto.
The fundamental goal of introducing this cryptocurrency was to allow people complete sovereignty over their own money, as opposed to typical fiat financial systems, where a centralized authority figure/institution controls everything. As a result, the Bitcoin protocol is a decentralized platform, and the technology underlying it is blockchain technology.
As previously stated, the Bitcoin blockchain is a transparent, peer-to-peer (P2P) network in which no centralized authority controls the production or circulation of bitcoins. A distributed network of computers (known as nodes) keeps a record of all Bitcoin blockchain transactions.
Despite the network’s total openness, the network’s security is assured; because every user on the network receives a copy of the ledger, it’s nearly complicated for hackers to enter the network and modify any data recorded in the blocks.
The Bitcoin protocol employs the proof-of-work (PoW) consensus process and the mining mechanism to produce new bitcoins.
Miners are a group of individuals that use specific hardware to validate transactions on the Bitcoin blockchain and add new blocks to the network. As block mining rewards, they receive newly generated bitcoins.
The entire amount of bitcoins is limited to 21 million, which means there will never be more than 21 million bitcoins in circulation.
With a market worth of more than $952 billion, Bitcoin is the most valuable cryptocurrency in the worldwide crypto markets.
How Does Ethereum Work?
Since Bitcoin’s breakthrough in 2009, various altcoins have been developed in an attempt to rival Bitcoin’s popularity. Ethereum has perhaps been the most successful of all of these initiatives thus far.
Vitalik Buterin, the Ethereum platform’s creator, was just seventeen years old when he envisioned a powerful blockchain platform allowing developers to construct ‘decentralized apps easily.’ Following that, in 2015, the Ethereum protocol was introduced.
Smart contracts and dApps – or decentralized apps – are the two main aspects that constitute Ethereum. Smart contracts are programs that self-execute when all preset criteria are satisfied and are maintained on a blockchain.
And decentralized applications (dApps) are blockchain-enabled apps that operate on many machines’ peer-to-peer (P2P) networks. dApps can range from web pages to applications or software that run on Ethereum. Smart contracts power decentralized apps.
Along with encouraging dApps, Ethereum’s creators wanted to address one of the internet’s most serious problems: the susceptibility of user data to hacker efforts. Smart contracts are Ethereum’s solution to security challenges.
Smart contracts also eliminate the need for a middleman in a transaction, which helps users save money on transaction costs.
Ethereum is the second most valuable cryptocurrency globally, trailing only Bitcoin in terms of market capitalization. At present, the market capitalization of Ethereum is slightly more than $200 billion.
Ripple: What Is It and How Does It Work?
Ripple was created in 2012 by Ripple Labs in San Francisco. Ripple is a blockchain-based digital payment system that allows transactions – including cross-border ones – to be completed at a significantly lower cost and a much faster rate than most other payment protocols. In 2019, Ripple was renamed RippleNet.
RippleNet’s inventors envisioned the XRP tokens as a link between fiat currencies during cross-border connections rather than a substitute for fiat money like Bitcoin. RippleNet’s consensus algorithm allows a poll to be run for network nodes to decide the authenticity of transactions taking place on the blockchain by agreement. This method also reduces the possibility of double-spending (cloning a crypto coin and using those copies in transactions).
Ripple began by declaring a total of 100 billion XRPs, all of which were distributed at the time of its first public offering. However, most of the XRP coins are owned by RippleNet and its partners, and RippleNet also has the authority to manufacture additional XRP if necessary. This reality has caused many in the crypto world to doubt Ripple’s decentralized technology claims.
Ripple’s market value is now about $21.5 billion, placing it in the top ten cryptocurrencies in terms of market capitalization.
Even though Bitcoin is the most popular cryptocurrency globally, the relatively high transaction fees and poor transaction speeds are still impediments to its mass adoption. Despite offering faster transaction speeds and cheaper trade fees than Bitcoin, Ethereum is not as extensively embraced by companies and suppliers. Furthermore, Ethereum, like Ripple, does not want to become a substitute for fiat money.
Of course, there is a significant disparity in the pricing of these three cryptocurrencies, with Bitcoin having the greatest value – approximately INR 38 lakhs – and Ripple having the lowest – around INR 35. This is another essential aspect to examine before deciding on a cryptocurrency to invest in.