XLM vs XRP: What's the difference?

Written by
Updated on
June 15, 2023
6 min read

Ripple (XRP) and Stellar Lumens (XLM) are both digital assets designed to facilitate cross-border payments and financial transactions. While they share some similarities, such as being blockchain-based and having fast transaction processing times, there are significant differences between the two. So, XLM vs XRP, how are they different from each other?

XRP is primarily used for interbank settlements and is backed by a centralized company, Ripple, while XLM is more decentralized and focuses on providing financial services to individuals and small businesses. In this article, we will explore these differences in more detail and help you understand which asset may be better suited for your needs.

What is Ripple (XRP)? 

Ripple (XRP) is a digital currency and payment protocol created by the American technology company, Ripple Labs. The platform aims to provide fast, secure, and low-cost cross-border payment solutions for financial institutions across the globe. Ripple aims to solve many of the problems with traditional cross-border payment systems which are often slow, expensive, and unreliable. Ripple's payment protocol uses blockchain technology to provide instant, secure, and low-cost transactions between banks and other financial institutions. The system has become increasingly popular with financial institutions due to its potential to reduce the cost of cross-border payments and the time it takes to settle transactions.

One of the key features of Ripple is its cryptocurrency, XRP. Unlike other cryptocurrencies, XRP is not mined or created through a cryptographic process; instead, the entire supply of XRP (100 billion) was created at the time of the launch of the Ripple payment network.

The XRP token is used as a bridge currency for facilitating cross-border transactions, allowing banks and other financial institutions to convert fiat currency into XRP quickly and cheaply before transferring it to the destination currency. Additionally, XRP serves as a means of value transfer within the Ripple network, facilitating the transfer of assets across borders without the need for intermediaries or centralized authorities.

Diagram showing how XRP international payment system works
XRP international payments diagram. Source: Ripple official website

What is Stellar Lumens (XLM)? 

Stellar Lumens is a decentralized platform designed to facilitate international payments and enable the creation of custom financial products. The project was launched in 2014 by Jed McCaleb, one of the co-founders of Ripple, and Joyce Kim, an accomplished attorney, and entrepreneur. Stellar aims to be an open, accessible infrastructure for low-cost, high-speed transactions, connecting people and institutions across the globe. 

The platform uses a native token, XLM, as a means of value transfer and exchange.

The Stellar network is maintained by a decentralized network of validators, similar to nodes in other blockchain-based systems, that reach consensus on transactions. The validators are verified nodes trusted by stakeholders in the system, including other validators and XLM holders. This setup allows for fast and highly secure transaction processing, as no single entity controls the network.

stellar money transfer
Diagram showing the money transfer process on Stellar Network. Source: Official Stellar website

XLM vs. XRP: Similarities 

XRP and XLM share some similarities. Aside from having Jed McCaleb involved in the creation of both, XRP and XLM share some similarities when it comes to their overall goals. 

As mentioned earlier, both Stellar and Ripple are designed to facilitate cross-border payments and financial transactions with a particular focus on making sure these transactions are fast, secure, and cheap for individuals and institutions across the globe. 

Additionally, both tokens have formed partnerships with technology companies, banks, and financial institutions to promote the adoption and use of their platforms. 

XLM vs. XRP: Key differences 

Despite the similarities in the overall goals of XRP and XLM, there are significant differences between the two, ranging from their distribution and design to their target audience and use cases. Understanding these differences can help individuals and institutions better choose the digital asset that meets their specific needs.

Design and target audience

XRP is backed by a private company, Ripple. Ripple requires people to receive permission to use it, meaning it is mostly banks and financial institutions that use the blockchain. The goal here is to provide a way for financial institutions to make international transfers without using the SWIFT system. Banks, as you can imagine, are a huge market that can bring a lot of profit.

Meanwhile, XLM is fully decentralized and focuses on providing financial services to individuals and small businesses, especially in developing countries. Thus Stellar Lumens aims to give unbanked people the ability to interact with the market at a global level. In light of that, Stellar refers to its business model as “not for profit”. Stellar Development Foundation considers itself a platform that helps people rather than a platform that wants to make a profit.

To sum up, XRP aims to serve the needs of financial institutions, and XLM aims to serve the needs of individuals.

Token distribution

One of the key differences between XRP and XLM is their distribution.

XRP's entire supply of tokens was created at the time of the launch of the Ripple payment network, while XLM has been released gradually through various means, such as initial coin offerings (ICOs) and airdrops. This distribution model affects the supply and demand dynamics of each asset, with XRP having a much larger circulating supply and market capitalization than XLM.

When Stellar Lumens was launched, 100 billion XLM tokens were minted. The regulations of the network permit an annual increase of no more than 1% until the limit of 105 billion tokens is reached. Nevertheless, Stellar users voted to decrease the number of tokens to 50 billion. Thus, the rate of inflation determines prices on the blockchain.

In contrast, Ripple was introduced with its maximum supply of 100 billion XRP, which cannot be altered, resulting in the token being deflationary.

Consensus mechanism

XRP's payment protocol uses a consensus algorithm called the Ripple Protocol Consensus Algorithm (RPCA), while Stellar's payment protocol uses a consensus algorithm called the Stellar Consensus Protocol (SCP). While both consensus algorithms are designed for fast and secure transaction processing, they differ in their approach to achieving consensus.

Stellar Consensus Protocol is using a federated voting process. In short, nodes on the Stellar network are grouped into small federations, each with its list of trusted nodes. Transactions are then broadcasted to all federations, and each group independently validates and votes on the transaction. A transaction is considered validated when it receives a threshold number of votes from several federations.

The Ripple Protocol Consensus Algorithm (RPCA) is a consensus algorithm used by the Ripple network to achieve consensus between nodes and validate transactions. RPCA uses multiple rounds of voting and agreement protocols to ensure that the transaction records in the XRPL ledger are accurate and secure. Unlike SCP, RPCA uses the Unique Node List (UNL) to validate transactions. RPCA also differs from other consensus algorithms as it doesn't rely on mining or staking, making it less energy-intensive and more efficient for transaction processing.

XLM vs XRP: The Present

When it comes to what's going on with both cryptocurrencies right now, the spotlight is of course on Ripple and its ongoing court battle with the Securities and Exchange Commission.

The SEC lawsuit against Ripple Labs has been going on since December 2020. The company and its two executives—Brad Garlinghouse and Chris Larsen—are being sued for selling 1.3 billion dollars of unregistered securities.

Stellar Lumens on the other hand has managed to steer clear of any regulatory concerns. On the contrary, the Stellar platform even managed to get regulatory approval from the New York Department of Financial Services.

XLM vs XRP: The Future

The results of the SEC lawsuit will be felt throughout the entire crypto market, no doubt, but for Ripple especially. As was stated by Ripple Labs executive Brad Garlinghouse, should the court rule in favor of the SEC, Ripple will leave the US market. The US market accounts for about 25% of Ripple's business, so losing that would deal a serious blow to the company. Ripple (XRP) tokens would most likely see a decline in price even if only temporarily.

Another 'threat' from the government comes in the form of FedNow. It's a new payment system launched by the Federal Reserve that is going to utilize blockchain technology, allowing users to swiftly transfer fiat currencies and convert them to stablecoins. Many already see it as a direct competition to Stellar and Ripple. Depending on how successful this venture by Federal Reserve the two coins might see considerable price swings.

XLM vs XRP: What's the better investment?

Atomic Wallet is not here to provide financial or investment advice, but in all fairness, the answer will depend on what type of investor you are and your preferences when it comes to potential risks and goals.

Fast and Furious

If we look at the market capitalization and capital raised, Ripple definitely seems like a good investment. It's a well-established network, backed by a private company that has connections to banking and payment providers all over the globe.

But the court's decision on the Ripple case is a true Sword of Damocles that may tip the scale in any direction. If the SEC rules in favor of Ripple Labs, the chances of XRP eventually reaching a $100 price are very high. If you're willing to risk it, now would be a good time to buy some XRP tokens, since as long as the lawsuit continues, the price is going to stay low.

Slow and steady

Stellar Lumens, on the other hand, doesn't face similar challenges and any potential growth or decline will be much slower and smoother. XLM might be better than XRP for you if you prefer a long-term investment and are ready to wait patiently for the return on your investment.

While Ripple is bogged down with the SEC lawsuit, Stellar Lumens have announced their partnership with VISA, Tala, and Circle which bumped up the Stellar (XLM) price by 13.4% on the day of the announcement. It is only logical to assume that as Stellar builds new partnerships, its price will continue to grow, eventually reaching $1. Now seems to be as

Buy XLM and XRP in Atomic Wallet

If you decided to invest in one of these coins (or perhaps both?), Atomic Wallet provides the opportunity to buy and store them in a stellar wallet or ripple wallet in a fully decentralized manner without any additional charges while also earning cashback!

Atomic Wallet 'Buy Crypto' tab

If you choose to go ahead with this route, you will need to provide some information, like your name, billing information, etc. You will also have to undergo a verification process, done by our partners to prevent fraud and money laundering. You can pay with a debit or a credit card.

In summary

In conclusion, both XRP and XLM are strong contenders in the cryptocurrency world, each with its own unique advantages and use cases.

XRP's focus on bridging fiat currencies and settling cross-border payments quickly and efficiently makes it a popular choice for financial institutions. On the other hand, XLM's emphasis on providing financial services to the unbanked and allowing for easy peer-to-peer transactions has gained a loyal following.

Both tokens have strong partnerships and continue to innovate in their respective fields. Ultimately, it is up to individual investors and businesses to assess their specific needs and determine which cryptocurrency is the best fit for them.

If you want to know more about the differences between other cryptocurrencies read our comparison of Ethereum vs Bitcoin and also Solana vs Ethereum.

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