Stellar and Ripple (XLM and XRP, respectively) were both founded by Jed McCaleb, but they each take a very different approach to solving the problem of slow, expensive payments.
It’s important to note that the below differences are not meant to imply that one is better than the other. You can decide for yourself if you prefer inflation vs deflation, non-profit vs for-profit, etc.
Inflation
Ripple’s transaction fees serve as a burning mechanism for XRP. Once XRP is spent on a transaction, it disappears. This causes the supply of XRP to slowly deflate. Deflation causes people to be more likely to hold a currency instead of use it because the value of the asset slowly increases as supply decreases.
Fees on the Stellar network are recycled back into circulation through the network’s built-in inflation mechanism, which, on top of returning the recycled fees, inflates the number of lumens by 1% annually. Moderate inflation causes people to use a currency.
Marketing to Retail Investors
Ripple is very good at marketing to retail investors, and the Ripple team often talks about how XRP will increase in value.
Stellar’s retail investor marketing activities pale in comparison, and the team talks about how lumens are not an investment.
Legal Entity
Ripple Labs is a for-profit entity with big name investors like Blockchain Capital, Accenture, and CME Ventures.
Stellar Development Foundation is a non-profit entity similar to the Linux Foundation. It’s registered as a non-stock nonprofit corporation in the U.S. State of Delaware, but not with the US federal government. This means that no one owns the entity or could financially benefit from the sale of the entity, and that it cannot accept tax-deductible donations directly.
Token Distribution
The founders of Ripple received about 20% of all XRP created, and the rest is held by Ripple Labs for selling to retail investors and partners to fund its operations.
The Stellar Development Foundation allotted 5% of lumens to itself and is selling those lumens to fund its operations. The remaining lumens are being distributed for free to users and businesses to incentivize network adoption.
Consensus
Both Ripple and Stellar use message passing to reach consensus.
Ripple uses a byzantine fault tolerance protocol with a recommended validator list.
Stellar uses a federated byzantine agreement protocol with quorum slices.
Decentralization
Because Ripple has a recommended validator list, its network is centralized. When you download the software to become a node, Ripple gives you a list of nodes to trust that it defines.
Stellar’s network is not as decentralized as a more developed network like Ethereum. That said, it’s construction - quorum slices and no central authority building a recommended validator list - allows for growing decentralization as more validators join the network and new quorum slices form.
Image source: Bitmex
