Bitcoin vs. XRP: What's the Difference?

Bitcoin vs. XRP: An Overview

Bitcoin is the most well-known of all the cryptocurrencies with the highest market value. It is designed to be used to transfer value and make payments.

XRP is another cryptocurrency designed to be a faster and cheaper payment system for businesses and financial institutions. It is the native token for the XRP Ledger and is maintained by the XRPL Foundation.

Bitcoin

Bitcoin is a blockchain and cryptocurrency. Transactions are recorded and verified on a public ledger called a blockchain. To secure the integrity of the blockchain and prevent fraudulent transactions, Bitcoin employs a consensus mechanism called Proof-of-Work (PoW). In this system, network participants, known as miners, compete to solve complex cryptographic puzzles using powerful computers. While they solve these puzzles, they are also validating transactions and information from preceding blocks.

The first miner to solve the puzzle successfully is rewarded with bitcoins. Their block is added to the blockchain and revalidated by the rest of the network.

XRP Ledger and XRP

XRP is the native cryptocurrency of the XRP Ledger blockchain. Like many other blockchains, it functions to securely store transactional data with distributed consensus. XRP was designed to serve as an intermediate currency for transactions covering multiple crypto-assets and networks between businesses.

The consensus protocol on the XRP Ledger is much different from that of other blockchains. Different types of servers (nodes) exist on the XRP Ledger network. While all nodes play a part in reaching consensus, there are three distinct types:

• Validator: Validate the order of transactions by comparing their versions of the ledger
• Hub: Information relays that broadcast transactions and state changes
• Stock: Connectivity nodes for application developers

Validator and Hub nodes work together to build ledgers and deterministically sort transactions in the order in which they were conducted. All nodes build and maintain lists of trusted validator nodes, with operators removing and adding them as they see fit. The validator nodes achieve consensus by, in a sense, comparing notes.

XRP is not rewarded to network participants like other blockchains and cryptocurrencies. When the blockchain was released, a fixed amount of 100 billion XRP was created—80 billion XRP was given to the company Ripple, and the rest went to the developers.

Ripple periodically releases XRP from its escrow accounts to fund its operations.

Key Differences

While Bitcoin and XRP both are highly transparent, allowing users to track their funds, verify transactions, and hold the network accountable for its operations, they have key differences in their underlying technological and market features, the degree to which they can stay resistant to manipulation and censorship, and their prevailing use cases.

Consensus Mechanisms, Speed, and Costs

Bitcoin's PoW consensus mechanism for validating transactions relies on a network of miners to computationally solve cryptographic puzzles. The Bitcoin mining process is electricity-intensive and can result in high network fees and slow transaction and block creation times that make the blockchain hard to scale.

Instead of relying on mining, the XRPL network employs a social governance consensus mechanism, the XRPL Consensus Protocol, which consumes negligible amounts of energy. Participating nodes verify the authenticity of transactions by conducting polls, enabling near-instantaneous confirmations, cheaper built-in transaction fees, and increased network scalability. Network transaction fees are not to be confused with exchange or broker transaction fees.

XRP transactions are typically processed and confirmed within 3 to 5 seconds, while Bitcoin transactions can take anywhere from 10 minutes to several hours to confirm. XRP transactions do not have fees the way Bitcoin does; instead, users are required to pay a small amount of XRP, which is burned by the network. The standard amount burned is 0.00001 XRP. The median fee for a Bitcoin transaction has been as high as $128.45 and was around $6 in May 2024.

Cryptographic Algorithms

The cryptographic algorithms used in the Bitcoin blockchain are the Secure Hash Algorithm 256 (SHA-256), the Elliptic Curve Digital Signature Algorithm (ECDSA), and the Race Integrity Primitives for Message Digest (RipeMD160). The XRP Ledger supports the following cryptographic algorithms: SHA-512 (only keeping the first 16 bytes), EdDSA, and ECDSA (secp256k1).

Multiple Tokens

XRP Ledger accounts, also known as XRP addresses, are similar to Bitcoin accounts in that they represent a user's identity and holdings on the XRP Ledger. However, they differ in several key aspects.

XRP Ledger accounts are more versatile than Bitcoin accounts and can tokenize asset types, such as other cryptocurrencies, stablecoins, utility tokens, and security tokens. Although second-layer blockchains can tokenize other assets, Bitcoin accounts are limited to holding and buying only bitcoin.

Market Characteristics 

XRP has a total supply of 100 billion XRP, while Bitcoin has a total supply of 21 million BTC. Bitcoin has a larger market capitalization and price than XRP because investors have decided it is more valuable.

Circulation Dynamics

In 2017, 55 billion XRP were locked into escrow accounts on the blockchain. Ripple has reportedly said it would release 1 billion XRP tokens to the circulating supply each month (supposedly for 55 months after they were locked, a period which has long since passed). Any unused portion of the released XRP in a given month goes back into an escrow account.

This was done to maintain a somewhat predictable rate of new XRP entering circulation and to fund Ripple's operations.

The Bottom Line

Bitcoin and XRP are popular digital currencies with different use cases. Choosing between the two cryptocurrencies and deciding whether these features are advantages or disadvantages depends on the specific needs and preferences of the user.

XRP's faster processing times, cheaper transaction fees, and flexible multi-signature capabilities facilitate instant and cheap payments for a wider range of cryptocurrency assets. Bitcoin's decentralization and economics foster a truly public recordkeeping of transactions and a predictable market that can't be corrupted by a central authority.

The comments, opinions, and analyses expressed on Investopedia are for informational purposes online. Read our warranty and liability disclaimer for more info. As of the date this article was written, the author owns BTC, ADA, ETH, and XRP.