Ripple (XRP) vs. Stellar (XLM)

Although Ripple and Stellar might look similar on paper they differ plenty from each other. Read further to discover what the differences are between Ripple and Stellar and get a better understanding of how these platforms operate when sending cross-border payments.

ORGANISATION
Ripple is a for profit organization that is creating a global cross-border payments network with large financial institutions. They are closed source which means that no one can see the source code or change it. The payments are secure and in real time with end-to-end tracking. The use of the Ripple Network (RippleNet) safes the financial institutions costs and allows access to new markets that are otherwise too difficult or expensive to reach.
Stellar is a not for profit organization and an open-source technology that focuses on financial access and inclusion of the underbanked/unbanked. The use of the Stellar platform connects banks, payments systems and people. To move money quickly, secure and at almost no cost. The source code is open for anyone and there is the freedom to redistribute and adjust the code.

Stellar has also a welcoming attitude toward 3th party developers in comparison to Ripple. Due to the business model of Stellar this is not strange. They need 3th party developers to reach the individuals that are underbanked/unbanked. With that in mind Stellar also host events such as the Stellar Build Challenge to promote development on the Stellar network. They even released a program that offers partners up to $2 million in XLM grants.
How it works

The main difference in philosophy is that Ripple targets financial institutions and corporates while Stellar targets individuals as the userbase. This creates different operational cultures.

Ripple has more capital (close to $100 million in funding) in its war chest and a team of approximately 200 people. Ripple used part of their capital for marketing activities to promote their partnerships and gain name recognition. Stellar did not have had a marketing push like Ripple.
Stellar has much less capital with its $5 million funding and a much smaller team of around 20 people which consist out of top technology and finance professionals. It is been said that the team of stellar is an all-star team which is very capable.

CONSENSUS MECHANISM
Ripple uses the Proof-of-Correctness (PoC) consensus mechanism. This mechanism relies on a majority validation before a block reaches consensus. Due to the centralization Ripple has the power to determine who may act as a transaction validator on their network. If you want to read in debt about the consensus protocol of ripple you can click this link; https://ripple.com/files/ripple_consensus_whitepaper.pdf
The Stellar Consensus Protocol (SCP) is said to be the first provably safe consensus mechanism that simultaneously enjoys four key properties: decentralized control, low latency, flexible trust and asymptotic security. To read in debt about the SCP hit this link; https://www.stellar.org/papers/stellar-consensus-protocol.pdf

LEDGER PERMISSIONS
Ripple runs a permissioned ledger where the validators of transactions are chosen. Basicly you need permission to act or see what happens in the ledger.
Stellar has a permissionnless ledger that anyone can view, access and act on it. The transaction validators are not chosen as anyone can be a transaction validator.

SMART CONTRACTS
A smart contract is a computer code running on the blockchain. In other words it is a rule-based protocol where in actions are automated between parties when or if the pre-defined rules are met.
Ripple does not offer smart contracts functionality for the time being on its platform.
Stellar does already offer smart contract functionality on its platform.

CROSS-BORDER PAYMENTS – HOW IT WORKS
The currency of Ripple called XRP is used by financial institutions and multinational corporations to make international payments through the ripple network. The end result is liquidity on demand. The currency of Steller called Lumens (XLM) is used by individuals to trade money directly with each other and anchors to handle the fiat currency aspect.

Sending money overseas through a bank the money will be transferred between different banks and the process will take several days. Each bank charges fees to handle the transaction. During overseas transactions the currency might get converted a couple of times which results in loss on all the exchange rates. This makes it a longer and more expensive process then the alternatives on the blockchain.

Sending money through a bank with XRP on RippleNet. The bank converts the fiat currency into XRP and sends the XRP directly to the bank of the recipient account where it is converted to the desired fiat currency. The fee and the exchange rate are set by the bank. The banks are free to charge the amount of cost as they see fit. This means that the customer not necessarily will benefit equally from cheaper transaction costs if they will at all. That is up to the banks. However, the customer will benefit from a cross-border transaction that occurs in seconds instead of days.

After signing up on the stellar platform money can be send while the automated process finds you the best way. In this process XLM is used to fill the gaps when it is needed. The process can consist of that the algorithm looks for people who want to trade your currency to the desired currency. Your currency might get converted to XLM and exchanged on the stellar exchange for the desired currency. Stellar could also trigger a switch between different currencies if that is wat is best. Next to sending money people can also convert currency for their own purposes.

CHALLENGES
Although Ripple has an impressive list of partners it will face its own future challenges in adaptation and competition. First of all, banks may branch of to develop their own blockchain. Established players will up their game. Swift is one of these established players that has woken up to the Ripple threat and is speeding up their payment processes without the blockchain. Visa is another established player in this space that has partnered up with IBM to integrate the open-source blockchain tech from the Hyperledger Fabric Framework for cross-border payments.
As Stellar is not for profit and focuses on expanding access to low-cost financial services to fight poverty and maximize individual potential it might not go as fast as well funded for profit organizations in this area. That said we have to take in count that there are more than 2 billion people unbanked. This focus may win the hard of the people and create a preference for Stellar. Allowing thirth-party developers to develop services on their platform for those individuals might help.

FINAL THOUGHTS
As both organizations are focusing on a different user groups, they might be both successful in their chosen target area.
The danger for Ripple is that major banks may branch of to set up their own blockchain and that established organizations might strike back. Although the many partnerships might say something about expected successes in the future.
The philosophy of Stellar might keep major investors away. If Stellar manages to gain enough users and money provider companies, they might be very successful.

INVESTING
This article is written for information purposes. It is not investment advice.
If you are considering investing in either of these projects, it is good to realize that both platforms have their own strengths and weaknesses. Keep in mind that the cryptocurrency market is fluctuating heavily and that your capital might be at risk when you invest. Research and take the risks in consideration before you invest.