new img advantage img Cryptosomniac Advantage
Latest News >>> Binance has just announced they are to delist BSV on Monday, April 22nd, at 10AM London time. Binance said: “At Binance, we periodically review each digital asset we list to ensure that it continues…      >>> By Liquid Head of North America Nick Chong and Cointelligence Chief Strategy Officer Hosam Mazawi The prospect of cryptocurrency and blockchain technology fueling the move to a trustless economy has a…      >>> QuidaxBlockedUnblockFollowFollowing Apr 15 It’s pretty easy to get lost in the maze of buzzwords and technical terms surrounding cryptocurrencies. Often times, such words get lost in translation even…      >>>      

Ripple Vs Stellar

Cryptocurrency Review: Ripple (XRP) vs. Stellar (XLM)

January 14, 2018

Written by @trauzk (Associate Researcher). Edited by Sam & Sneh.

This report is an in-depth look comparing Ripple vs Stellar cryptocurrencies. Both protocols are widely assumed to be considered usable blockchains in legacy financial systems. This report also highlights some of the concerns surrounding decentralization vs centralization. We took a deep dive into the technology, team, and platforms of each cryptocurrency, read on for our findings.


Ripple  is a payment protocol created by the Ripple Labs company  (originally named Opencoin). It allows banks and financial services companies to transfer funds and process international payments between each other in real time without the need for a central correspondent or counterparty. Ripple protocol  may be considered as a real-time gross settlement system (RTGS), a currency exchange and also a remittance  network. According to their GitHub repository, Ripple network works through a secure database called the Ripple Consensus Ledger (RCL), which is a distributed database storing information about all Ripple accounts and is intended to offer transaction immutability and competitive exchange rates across currency pairs. It reaches consensus in a unique way through the Ripple Consensus Algorithm, which does not have the process of Mining and is very different from Bitcoin’s

Proof-of-Work  (PoW) mechanism.

As a global company, [1]  Ripple targets banks and financial institutions (such as payment networks) and was not designed to replace the existing payment ecosystem, but to improve it.

Banks are able to use the Ripple protocol on top of their existing infrastructure in order to be able to quickly and efficiently process worldwide payments and transactions between each other and across many different global currencies. When compared to Bitcoin (basically a decentralized cryptocurrency) and Ethereum (especially known as a smart contracts platform), we could consider Ripple as a quick currency exchange. It is worth mentioning that Ripple was also working towards smart contracts implementation with a project called Codius  . The project was abandoned  in 2015 and claimed  to be back last November, but the lack of activity on their blog  and GitHub  makes it very questionable.

Within the Ripple protocol, users make payments between each other using cryptographically signed transactions that are denominated in either fiat currencies or Ripple’s internal currency XRP (the actual cryptocurrency traded on exchanges). In general, these transactions have a very fast confirmation time (near instantly) and very low fees (0.00001 XRP per transaction), which makes them quite useful and suitable for real-world use (especially for banks and financial institutions).

However, to achieve these secure, fast and nearly free global transactions, they had to sacrifice many aspects of decentralization, which is considered by many as crucial in the cryptocurrency space. According to the Ripple Blog, the Ripple protocol contains 55 Validator Nodes  , which makes it highly centralized. These nodes communicate and validate the transactions without the need for a PoW or mining process.


The Validator Nodes are held by private institutions and private people, such as Microsoft, MIT, and CGI  . Ripple Labs knows and verifies each Validator Node and they are not accessible to the average Joe, which makes Ripple very reasonable for banks and private institutions.

Despite these partnership announcements, there is no real proof that these institutions are really running Validator Nodes. Moreover, there is no monetary incentive to run a Ripple Validator Node, which makes it very questionable. There is a lot of room for financial and private institutions to have control over the network and it is unclear how Ripple Labs owns and operates every single consensus node in their system.

In addition to the Ripple Protocol, Ripple Labs also created the Interledger Protocol ( ILP  ), which is a protocol for interledger payments that grants Ripple and other networks a great degree of communication (between different payment systems) and also a huge potential for scalability . The Interledger Protocol requires no global coordinating system or blockchain  and it does not have an internal currency. In other words, the ILP is a protocol for payments across all types of ledgers , no matter if they are centralized, decentralized, public or private. The ILP may solve the scalability problem by allowing many independent ledgers to coexist interconnected, removing the need for a father  protocol to watch all transactions (Fig. 1). For example, a Credit Card network can use the Interledger Protocol to communicate its own private ledger to a Blockchain network (such as Bitcoin or Ripple) (Fig. 2). Any ILP-enabled ledger/network is able to communicate with any other ILP-enabled ledger/network.

Figure 1 (adapted). Source  .

Figure 2 (adapted). 

While Ripple Consensus Ledger is part of the Ripple network, the Interledger Protocol is more like a communication platform between any kind of ledger or payment network. Ripple’s cryptocurrency XRP is meant to play a key role in this process as a bridge currency within the RCL and ILP networks. However, the XRP are not really necessary and users of the network may choose to use only the Ripple protocol or the Interledger Protocol (or both), but not the XRP. Although there are some incentives and benefits when using XRP as a bridge currency (e.g. lowers costs), banks and other financial institutions may use Ripple protocol without the XRP tokens.

Recently, Ripple has announced  a partnership with the giant company MoneyGram.

Operating in more than 200 countries, it is one of the world’s largest money transfer companies.

MoneyGram is currently testing the implementation of XRP tokens in their payment flows, which will allow users to send and complete cross-border transfers much faster and cheaper.

According to Ripple’s announcement, MoneyGram will make use of XRP to solve the liquidity issues (commonly faced by financial institutions), reducing foreign exchanges (FX) costs and fees.


The Ripple cryptocurrency is called XRP and it is the native token used within the Ripple Consensus Ledger (RCL). Ripple Labs and its founders retain the vast majority of the XRP tokens, which theoretically gives them the ability to control the circulating supply. Currently, there are 38.7 billion ripples (XRP) circulating out of the 100 billion ever created (rumors say that a great part of the circulating supply is being held by Ripple Labs). The remaining 61.3 billion XRP tokens are being privately held (not in circulation) and the Ripple team claims that 55 billion are locked up  and are not going to be released until specific conditions are met – this is achieved through the use of the Escrow Feature  offered by the Ripple protocol. However, Ripple announcements usually contains little proof or fact about these above statements with little to no transparency regarding the allocation of the XRP tokens.

In a certain way, XRP tokens were created “out of thin air” and is considered by many as the most centralized cryptocurrency that exists and also “pre-mined” in a sense. The founders and creators of Ripple simply minted 100 billion XRP tokens and distributed part of them to banks and other institutions as a way to encourage adoption.

Figure 3.

A small amount of XRP tokens is required to utilize the Ripple protocol. Users cannot participate in the network unless they maintain at least 20 XRP in their wallets. XRP tokens are also used to pay for the transactions fees (preventing network spam). These fees are not collected by anyone and the XRP are destroyed after each fee payment is made. However, the main value proposition for XRP lies in its utility as a currency for settlement.

Currently, the banking system relies on credit lines between bank accounts (the so-called IOU  networks). When Alice deposits $100 into her bank account, she basically loans that money to the bank. Then the bank incurs a liability. Alice’s bank owes her $100, which can be requested by her at any time. Each time Alice makes a deposit, she is extending a credit line to the bank (she trusts that the bank will promptly repay her for all deposits made). If Bob has a bank account in the same bank as Alice, it is very easy for her to send $100 to him. The bank internally shifts its liabilities from one creditor to another, reducing Alice’s credit in $100 and increasing Bob’s credit in $100. This system works because both Alice and Bob have extended a line of credit to the bank and they have confidence that the bank will pay the owed amount when requested. Each transaction is recorded in the bank’s internal ledger, which keeps track of how much money is owed to each client.

However, if Alice’s bank is different from Bob’s bank, the process becomes more complex. In some cases, the banks may have a trusted relationship such that Bob’s bank is willing to accept an IOU from Alice’s bank. Since these types of inter-bank transactions happen frequently, banks often exchange IOUs, settling these periodically with actual monetary transfers. This system allows transactions to happen more quickly, but unfortunately this is not always the case.

If the banks do not have a trusted relationship and do not exchange IOUs, they are required to actually exchange the money at some point or to route the transaction through a mutually trusted bank (or third party). In such cases, the processes are slower and more costly than simple IOU issuance and they become even more complex, slower and costly across borders, where banks are less likely to have trusted relationships.

As international payments and cross-border transactions are usually very slow and expensive, Ripple is proposing a new mechanism of value transferring worldwide through the use of Ripple network and XRP tokens. As previously stated, banks and users of Ripple network may choose to freely exchange IOUs on the Ripple protocol without making use of large amounts of XRP tokens. However, these exchanged IOUs must be eventually settled and if these settlements are done in fiat they are still subject to the inefficiencies of the above described banking system.

Let’s imagine that Bank A (in Mexico) wants to send money to Bank B (in South Korea)

(Fig. 3).

In this example, the transaction would rely in at least one liquidity provider (or market maker ). The market makers (or banks) that offer these kind of service, usually need accounts and balances with every institution for which they are offering to perform transactions. In cases where the transaction needs to go through several liquidity providers (or banks), the total costs are even higher and the process much slower.


When making use of Ripple protocol and network, these international transactions are very similar to the baking system used today. However, as Ripple makes use of a blockchain, they can happen much faster and far more inexpensively than they usually do.

If these transactions are denominated in XRP, the number of network participants through which transactions are routed is reduced, making it more efficient and cheaper

(Fig. 4).

Ripple supporters and enthusiasts expect that XRP will be used as a bridge currency between various assets or fiat currency pairs and that banks and financial institutions will choose to conduct transactions in XRP rather than in IOUs, since it allows faster settlements.

However, the settlement function of XRP is not something that is exclusive to the Ripple

protocol. These international settlements could be sent using any other cryptocurrency or a fiat currency issued on a blockchain, especially designed for that (some banks are already discussing  the possibilities of on-chain currency implementations).


Moreover, XRP is designed as an inter-bank settlement currency, having little to no usage outside of the Ripple network . Also, it is very likely that Ripple’s current speed and scalability advantages relative to Bitcoin and Ethereum will fade as these networks evolve. It is also worth mentioning that despite many partnership announcements made by Ripple, they do not necessarily mean XRP tokens are being used or holded.

Another concern about the Ripple protocol is the fact that Ripple accounts and balances are subject to the so-called Freeze  feature. This feature was quietly introduced in 2014 and used for the first time a few months later, when Jed McCaleb announced  he was going to sell his 9 billion XRP (earned as a founder). At that time, Ripple Labs convinced Bitstamp (as a Ripple gateway) to freeze McCaleb’s funds in order to prevent his massive sell-off. Another freezing episode happened when the chinese exchange JustCoin got hacked  and used its power as a Ripple gateway to freeze the funds of the attacker. 




– Addresses a real world problem in the finance sector;

– Makes processing international payments cheaper and easier to do;

– Different consensus mechanism (not PoW; very different from Bitcoin);

– Fast confirmations (near real time) / around 1,000 TPS

– Cheap transactions (0.00001 XRP);

– Target Banks and Financial Institutions;

– XRP can be used as a bridge currency (not trying to replace existing currencies);

– Strong team with big supporters (e.g. National Bank of Abu Dhabi and Santander);

– Working on smart contracts platform implementation (Codius)


– 55 Validators Nodes;

– “Premined” XRP;

– More centralized than any other cryptocurrency;

– Not very transparent;

– Ripple protocol has yet to be tested with a significant number of dishonest nodes;

– Questionable mechanics of the consensus protocol (uncertainty over its security);

– Incentives for running a validator node are unclear (may lead to network instability or increased centralization);

– Using Ripple Protocol does not imply XRP usage;

– XRP arbitrarily given to banks and other institutions (encouraging adoption);

– XRP tokens can be arbitrarily frozen by the corresponding Gateway;

– Partnerships do not mean usage;


Stellar  is an open-source  protocol that also targets cross border payments and transfers. It

is a global value exchange network. According to their website  , the mission of Stellar Development Foundation (SDF) is to “promote global financial access, literacy and inclusion”. Stellar was founded in 2014 by Jed McCaleb  and Joyce Kim. McCaleb was one of the founders of Ripple and the creator of Mt. Gox exchange  in 2010 (sold to Mark Karpelès  in 2011 before the well-known collapse  in 2014). Kim is the Executive Director of Stellar Foundation and according to her  , “Stellar is a decentralized database that helps people (everyone) connects to the world’s global economy, while also ensuring the integrity of financial transactions”. Some say McCaleb and Kim are dating and that their close relationship was one of the reasons they left Ripple and founded Stellar (as a rival company). There is a lot of controversy around McCaleb’s behavior and his relationship with Ripple Labs.

Stellar  was first launched on the Ripple protocol, but after several changes on the consensus code, it forked into its own network (it is basically a hardfork of Ripple). Just like Ripple, the Stellar Consensus Protocol ( SCP  ) has no mining process and its ledger is maintained by a select number of “gateway” institutions (such as IBM). The Stellar network also sacrifices many aspects of decentralization to achieve fast and cheap transactions. However, the Stellar network has its particularities and is considered by many as a less centralized version of Ripple.

Stellar does not only target banks and financial institutions, but also focuses on distribution of wealth to the world population. Ripple is more related to saving costs and increased efficiency for the financial and payment networks (especially banks), while Stellar claims to work towards increased financial efficiency and access to everyone. Moreover, the Stellar platform supports smart contract implementation and may also be used to launch tokens (ICOs) through the so-called SaaS (software-as-a-service).

The native asset (currency) of the Stellar network is called Lumens  (XLM). Similar to Ripple tokens (XRP), the 100 billion XLM tokens were “premined” when the project was launched and they are expected to be used within the Stellar network (but not mandatory to use the Stellar protocol). Accounts need to hold a minimum balance of 20 XLM tokens to use the network and each transaction has a fee of 0.00001 XLM to prevent malicious activity (i.e. network spam).

Lumens are also used as a bridge currency, facilitating trades between a great variety of currency pairs. Unlike Ripple, however, 95 billion XLM tokens are being constantly distributed worldwide (for free) in many different ways  (around 8 billion distributed  so far). Only 5 billion tokens are being held by the Stellar team

(Fig. 5).




– Addresses a real world problem in the finance sector;

– Makes processing international payments cheaper and easier to do;

– Different consensus mechanism (not PoW; similar to Ripple);

– Fast confirmations (near real time) / around 1,000 TPS;

– Cheap transactions (0.00001 XLM);

– Targets everyone (not only banks and financial institutions);

– Supports smart contract implementation;

– SaaS (software-as-a-service) platform for tokens launch (e.g. ICOs);

– XLM can be used as a bridge currency (not trying to replace existing currencies);

– Wide token distribution (less centralized but not minable);

– Actively engaged with potential partners in Japan, Southeast Asia and Middle East.

– Strong team with big supporters (e.g. IBM, Stripe);


– Select number of “gateway” nodes;

– “Premined” XLM;

– Considerably centralized;

– Stellar protocol has yet to be tested with a significant number of dishonest nodes;

– Questionable mechanics of the consensus protocol (uncertainty over its security);

– Incentives for running a “gateway” node are unclear (may lead to network instability or increased centralization);

– Using Stellar Protocol does not imply XLM usage;

– XLM arbitrarily distributed in a sense (not minable);

– Partnerships do not mean usage;


Ripple and Stellar are very similar platforms with many shared pros and cons. However, Stellar seems to be more decentralized (especially on the tokens distribution). On the other hand, Ripple is considered by many as a less risky investment (considerably established project with higher market capitalization value). Both the Stellar and Ripple projects have a strong team and interesting technology that are designed to tackle real world problems (with real use cases, but questionable token utility). Despite being interesting projects, both give me a feeling of centralization and non-transparency (especially Ripple) that raises some red flags – a feeling that is commonly found in traditional banking systems. In terms of profitability, XLM and XRP may still be reasonable long-term investments, but I find it personally hard to trust on projects that lacks transparency and are strongly supported by huge private institutions. It becomes even harder if we consider the principles of wealth and power distribution (that many cryptocurrency enthusiasts defend) and that support the ideas behind decentralized cryptocurrencies like Bitcoin.

Ultimately, if you are seeking return on investment, and are not interested in the centralized ideology behind the technology, we at Cryptosomniac feel Ripple and Stellar could be a good diversification of your portfolio, but are not the biggest fans of either project.

It is also interesting to note that Ripple and Coinbase headquarters are within walking distance from one another. To be precise, about 600 feet. We believe a lot of the recent price action has been due to circulating rumors of Ripple being added to Coinbase. Coinbase has recently stated it has no intentions to add coins in the immediate future (likely meaning this month or quarter), but the CEO has stated there are plans to add “many” new cryptocurrencies to Coinbase in 2018. Stay tuned…

. . . . .

Thank you for reading.

Written by @trauzk  (Associate Researcher), edited by Sam & Sneh.  Feedback is appreciated.



[1] Ripple offices can be found in the US (San Francisco and New York), UK (London), India,

Sydney, Luxembourg and Singapore.


– Ripple website –

≠†Ripple Protocol on Wikipedia

– Real-time Gross Settlement (RTGS) –

– Remittance (Wikipedia) –

– Ripple GitHub Repository –

– Ripple Consensus Ledger (RCL) –

– Ripple Consensus Process (YouTube explanation) –

– Bitcoin Proof-of-Work –

– Codius –

– The death of Codius –

– Codius blog –

– Codius GitHub –

– Ripple Insights about Validator Nodes –

– Microsoft VN –

– CGI VN –

– Reasons to run a VN –

– Interledger Protocol (ILP) –

– Interledger Protocol Whitepaper –

– MoneyGram website –

– Ripple & MoneyGram partnership –

– 55 billion XRP locked up –

– Ripple Escrow Feature –

– IOU (Wikipedia) –

– Market Maker (Wikipedia) –

– Singapore Tokenizes Fiat Currency –

– Ripple Freeze Feature –

– Ripple Freeze Feature (Gateway Bulletin) –

– Jed McCaleb announcement of 9 billion XRP sell-off –

– JustCoin Exchange hack –

– “Ripple freezes $1m in user funds” (2015) –

REFERENCES (Continued)

– Ripple Analysis by MultiCoin Capital –

– Stellar website –

– Stellar GitHub Repository –

– Stellar Mandate –

– Jed McCaleb GitHub –

– Mt. Gox Exchange (Wikipedia) –

– Mark Karpelès (Wikipedia) –

– Mt. Gox Exchange Collapse –

– Joyce Kim’s explanation of Stellar (video) –

– The controversial relationship of Ripple, Jed McCaleb and Joyce Kim –

– Stellar (Wikipedia) –

– Stellar Consensus Protocol (SCP) –

– Stellar Lumens (XLM) –

– Stellar Dashboard –

– Stellar Blog (XLM distribution) –


Information provided by Cryptosomniac, LLC is not intended to be utilized in making any financial decisions and are not a solicitation, nor recommendation to buy, hold, and/or sell a particular product,  digital asset, or ICO.  Cryptosomniac, LLC website, newsletter, email communications, and discussion groups/chats should be used at your own risk.

Opinions expressed by Cryptosomniac, LLC are based on personal experience and do not claim to guarantee any results, nor do they imply a recommendation. Before utilizing any ideas or strategies, make to sure contact a professional financial adviser, tax professional, attorney or law firm as Cryptosomniac, LLC. is not, and does not claim to be an investment advisory firm, financial advisors, tax professionals, lawyers and neither are they affiliated with them.

The information in this communication is produced for informational purposes only and should not be disclosed to any other person. It may not be reproduced in whole, or in part, nor may any of the

information contained therein be disclosed without the prior consent of Cryptosomniac, LLC.

You can access a full review of our disclaimers and terms of services Here:

© 2018 Cryptosomniac LLC | | [email protected]

Copyright © 2018. All Rights Reserved.



Notice: Submission of this form includes an automatic subscription to the Cryptosomniac newsletter Cryptosomniac Privacy Policy