Many people like to compare the two; while XRP and XLM share many similarities, they also have many key differences. Here, we explore the main differences between these two important cryptocurrencies.
First, what is XRP (Ripple)?
XRP is a cryptocurrency created in 2012. It was conceived by developers David Schwartz, Jed McCaleb, and Arthur Britto, who were interested in Bitcoin but aimed to create an alternative digital currency that could provide more efficient payments.
The three founders of XRP quickly created a company with investor Chris Larsen, which is today known as Ripple. They allocated 80 billion XRP (80% of the supply) to the company as a 'gift'.
Currently, Ripple still holds a large portion of the XRP supply, although most of the XRP they hold is still locked in escrow accounts, so they can only access them under certain conditions.
The XRP cryptocurrency uses a unique consensus mechanism called the XRP Ledger Consensus Protocol. This design enables very efficient transaction processing. XRP transaction fees are less than 0.001 USD, and users can see their transactions confirmed in less than 5 seconds.
Ripple integrates XRP into its various products. One of the most notable products supported by XRP is on-demand liquidity, which facilitates efficient cross-border fund transfers with the help of XRP.
What is XLM (Lumens)?
Stellar is a cryptocurrency project founded by Joyce Kim and Jed McCaleb, who also played a significant role in the creation of XRP. The technical foundation of XLM is very similar to that of XRP, although there has been some divergence between the two projects in the years following Stellar's launch in 2014.
Similar to XRP, XLM adopts a unique consensus mechanism that is not based on proof of work or proof of stake. This allows it to provide extremely efficient transactions, with the minimum transaction fee being just 0.00001 XLM. In practice, users will pay about 0.0001 XLM in transaction fees, which, at current prices, is still only about 0.00001239 USD.
The Stellar protocol has built-in decentralized trading features, allowing users to easily buy and sell different types of digital assets issued on the Stellar network. Since 2022, the Stellar Development Foundation has been developing a smart contract platform called Soroban, which will bring more advanced smart contract capabilities to the Stellar blockchain.
When XLM was initially launched, its supply was 100 billion coins, with an annual supply inflation rate of 1%. In 2019, more than half of the XLM supply was destroyed, effectively reducing the maximum supply of XLM to 50 billion coins. Meanwhile, the inflation mechanism in the Stellar protocol was removed.
The main differences between XRP and XLM:
Let's start with a comparison chart highlighting key facts about each coin.
Supply Distribution
An important difference between the XRP and Stellar projects lies in the organizations that play key roles in the development of each project. The most important player in the XRP ecosystem is Ripple, a U.S. fintech company. Meanwhile, Stellar's development is led by the Stellar Development Foundation, a nonprofit organization.
Decentralization
Both the XRP Ledger and Stellar network have similar degrees of decentralization, although XRP has an advantage in the number of active validator nodes.
According to Stellarbeat, as of the time of writing, there are currently 41 active validator nodes on the Stellar network. Meanwhile, data from XRPScan shows there are 116 active validator nodes on the XRP mainnet.
A warning about the number of XRP nodes is that the default UNL (Unique Node List) only has 35 nodes. Although users can choose to customize their trusted node list, most participants in the XRP network use the default UNL.
Both XRP and Stellar have very low transaction fees. In fact, they are among the cheapest cryptocurrencies to transfer on the market.
The transaction fee mechanisms of both networks are primarily designed to prevent spam attacks rather than to incentivize validators to secure the network.
Essentially, the motivation for people to act as validators on XRP or Stellar is simply to help maintain the stability of their respective networks. For example, businesses relying on the XRP Ledger have an incentive to contribute to enhancing network security.
Minimum Reserve Requirements
Another difference between Stellar and XRP is the number of tokens users need to reserve for each address. An XRP account must hold a reserve of at least 10 XRP, which is approximately 5.2 USD at current prices. Meanwhile, Stellar has a lower minimum reserve requirement of 1 XLM, which is about 0.12 USD. Although both networks have relatively low requirements, Stellar is more accessible.
Regulations
In terms of regulation, Stellar has an advantage over XRP as it has not faced too much controversy. XRP is at the center of a lawsuit between Ripple and the U.S. securities regulator, the SEC.
The U.S. Securities and Exchange Commission (SEC) has accused Ripple of selling XRP cryptocurrency as an unregistered securities offering, while Ripple argues that XRP is not a security. Although Ripple has recently made some positive progress in this legal battle, the lawsuit is not over, and the outcome for Ripple and XRP may still be unfavorable.
If you are concerned about the potential negative impact of regulation on cryptocurrencies, Stellar may currently be a better choice than XRP.
Market Position
In terms of market position, XRP easily dominates XLM. As of the time of writing, XRP ranks fourth among all crypto assets, with a market cap of 136.6 billion USD. Meanwhile, XLM ranks fourteenth with a market cap of 13.3 billion USD.
XRP's market capitalization is significantly larger than that of XLM, but this may mean that XLM has greater room for growth. Nevertheless, it is hard to deny that XRP currently has an advantage over XLM, as there is a huge scale difference between the two currencies.