Bitcoin vs. Ripple: A clash of different “currency philosophies”

A few years ago, a young man named Stefan Thomas, in order to find out the country of origin of the mysterious Satoshi (the originator of the concept of Bitcoin and the designer of the system), searched more than 500 speeches of Satoshi on the forum, did various data analysis and reasoning, and finally determined that he was from the UK. However, this super fan of Bitcoin recently switched sides to the Ripple camp and became the chief technology officer of Ripple Labs (a company that optimizes the Ripple payment protocol).

"Yes, I was a Bitcoin enthusiast earlier, but when I learned that Ripple solved some problems that Bitcoin could not solve, I joined the Ripple Labs team." Stefan Thomas said in an interview with the reporter of China Business News, "First of all, I think Ripple has a better reputation and is not associated with illegal transactions; secondly, the transaction confirmation time in the Ripple system only takes a few seconds, instead of dozens of minutes like Bitcoin; we also have very high-quality partners such as Google (1030.58, 0.16, 0.02%), IDG Capital, etc.; more importantly, various currencies can be circulated on the Ripple network instead of just one currency."

Stefan Thomas did point out some differences between Bitcoin and Ripple, but behind these differences are the different "monetary philosophies" of their creators. In fact, Ripple and Bitcoin are neither good nor bad. They are both innovative products that combine finance and technology, and both hope to solve some problems that the existing monetary system cannot or does not want to solve.

Different missions

"Bitcoin is a digital currency that solves problems with currency itself, such as currency depreciation caused by over-issuance by the central bank and high fees for cross-border remittances. The Ripple payment protocol solves the problem of circulation between digital currency and legal currency, and between legal currency and legal currency." Senior Bitcoin enthusiast "Baozou Prince Gong" (pen name) said in an interview with our reporter.

In fact, Bitcoin can also be used in Ripple's payment system. There is no direct competition between the two. Bitcoin is competing with a more powerful opponent: legal currency. Although many Bitcoin players believe that Bitcoin will not replace the currency of any country, but will solve some problems of the existing monetary system and exist as a supplement, the decentralized attitude of Bitcoin is inherently vigilant to the government.

"I think there are two big things that countries will always control, one is national sovereignty, and the other is the right to mint coins," said Mark Chandler, global chief foreign exchange strategist at Brown Brothers Harriman Bank, in an interview with our reporter. He believes that Bitcoin is fashionable, but it will never happen as a supplement to the existing monetary system. "People who have just come out of the economic crisis are very frustrated with the central bank. The frustration is real, but it is doubtful whether the answer is Bitcoin."

The Wall Street banker expressed pessimism about the prospects of Bitcoin as an investment and a real currency, saying: "The foreign exchange market has a daily trading volume of $5.3 trillion. If Bitcoin is only a few million dollars, it is not even a fraction of it. Its volume is too small."

The judgment of people in the traditional financial industry is not without reason. On the other hand, Bitcoin does face regulatory embarrassment.

Although there are constant calls for the legalization of Bitcoin, the government has not made any comments on it. The only one that has made a statement is the German Ministry of Finance, which only defines it as a financial instrument under the German banking regulations. "This is why Ripple has a better relationship with regulators: in the final analysis, it is a payment system." "Crash Prince Gong" told our reporter.

Of course, this does not mean that Bitcoin cannot complete payments. The proof-of-work mechanism cleverly connects Bitcoin payments and currency issuance, but this network only allows Bitcoin to circulate on it; Ripple Labs also issued Ripple coins, XRP, which can be used in the Ripple payment network, but even without XRP, the Ripple system can still operate. However, the mechanisms of the two operations are very different.

The role of credit

Credit, whether it plays a leading or supporting role in the transaction system, is the biggest difference between the Bitcoin and Ripple transaction mechanisms. Bitcoin's proof-of-work mechanism makes Bitcoin the first currency in human history that is not based on credit, but the Ripple payment system has a social DNA since its inception, that is, it must be built on a credit network.

"You don't need to trust anyone, you just need to believe the protocol written into the computer code. After six blocks are confirmed, the transaction can never be canceled, but Ripple's transaction confirmation mechanism is very different from Bitcoin." Prince Gong told our reporter.

The process of block confirmation is the so-called "mining". Since computers can only "mine" through the primitive exhaustive method, the confirmation time of each block will always remain at around 10 minutes and cannot be faster. Therefore, it will take 1 hour to wait for six blocks to be confirmed.

But Bitcoin followers do not think this is an absolute disadvantage. "Although the confirmation time of one hour sounds long, in the field of large cross-border payments, Bitcoin's advantage is still obvious, because it is almost free, and compared with wire transfers, the confirmation time of one hour is already very fast." Chang Qia (pseudonym), the webmaster of Bitcoin information website Babbitt, told our reporter. In fact, Bitcoin users can choose how many blocks need to be confirmed before the transaction information cannot be modified according to their own business model. For example, on the recently popular Bitcoin gambling website, you can participate in gambling games on the website without even confirming a block.

In contrast, the Ripple network is much faster, taking only a few seconds, and is comparable to almost all current online payment systems, but it also has the same problems as these payment systems: it cannot systematically avoid malicious defaults, and security cannot be fully guaranteed, which is the problem that the creators of Bitcoin racked their brains to solve.

In the Ripple transaction system, everyone has a ledger. If A wants to pay B $100, A's bill will reduce $100 in assets, and B's bill will show that A owes B $100. It sounds like the simplest debit and credit in accounting, and it is not a new concept. But the special thing is that in the Ripple system, the IOU from A to B can be circulated and used, provided that you trust that the IOU is valid. Therefore, any currency can be circulated on the network through accounting.

In fact, it is like a scale with security and speed on both ends, Ripple and Bitcoin make different trade-offs in the middle, and users can choose the appropriate payment method according to their needs. If security and speed are a "reconcilable contradiction", then the "centralization dispute" between Bitcoin itself and XRP is much more intense.

The battle for centralization

"You can't figure out when Ripple Labs will issue currency. Sometimes the price of XRP is already very low, but Ripple Labs continues to issue coins. When the price of XRP is very high, we can't buy coins. No one knows what the logic behind this is." Prince Gong told our reporter.

In fact, XRP did not exist in the Ripple system at first. In fact, even without XRP, the Ripple payment system can operate well. However, in order to allow various currencies to have a unified unit of measurement in the Ripple network and make transactions between different currencies simpler, Ripple Labs issued XRP after taking over the Ripple project.

Baozou Gongqinwang believes that from this perspective, XRP is more like Q coins, but the problem is that the exchange rate between XRP and legal tender, as a unified trading unit, cannot be stable. More importantly, the centralized issuance process and logic are not open and transparent, which is exactly what many Bitcoin "die-hard fans" sneer at.

However, "semi-decentralization" actually has a good side, such as easier supervision. Stefan Thomas also said in an interview with our reporter that their decentralization is actually relative to large financial institutions such as banks. He also pointed out that Ripple Labs has many investors and is not a non-profit organization, and the way to make money is to sell XRP.

In contrast, the issuance mechanism of Bitcoin is very fixed, even somewhat "rigid". The total amount of Bitcoin is gradually increasing at a predetermined rate, and the rate of increase is gradually slowing down, and will eventually reach a limit of 21 million in 2140. In the first four years, one Bitcoin was produced every ten minutes, and this number will be halved every four years. No one can change this rule.

However, although the issuance mechanism is open and transparent, the story of Bitcoin's sharp rise and fall has long been familiar to the public, and Bitcoin's small size is easily manipulated by big dealers and has also been criticized. Therefore, how to stabilize the exchange rate has always been a topic of discussion in the industry.

In an interview with our reporter, Jiang Changhao, co-founder of Bihang, said that developing easy-to-use Bitcoin application software as soon as possible to lower the threshold for using Bitcoin is one of the means to stabilize the exchange rate. However, Baozou Gongqinwang believes that it is putting the cart before the horse to talk about the application of Bitcoin when the exchange rate is still volatile. "The symbolic significance of application development is greater than its practical significance. The best way to stabilize the exchange rate is to introduce more financial instruments and formulate corresponding trading rules as soon as possible, such as allowing short selling of Bitcoin."