stellar vs ripple

Stellar vs Ripple in 2021 (XLM/XRP)


Stellar vs Ripple: they are some of the most popular cryptocurrencies in 2021. How are their prices developing and which one is a better investment?

Ripple has recently been a hot topic both due to its prolonged ongoing legal challenge and the heavy price fluctuation of its XRP token. But what about its sister project Stellar Lumens and its native XLM token? Its current price level suggests there may be ample room for an upcoming climb to $1 dollar or more.

So what is exactly is Stellar and how should a beginner or experienced investor relate to it? For a deeper dive, you might want to read our introduction of Stellar Lumens. This article in turn will provide a brief overlook of the asset in comparison to Ripple, its price development, and future potential.

Stellar is a Nonprofit Payment System

Stellar Lumens is a nonprofit payment system and project originally branched from Ripple. Jed McCaleb, a co-founder of Ripple, left the project over disagreements and in 2014 launched another one: the Stellar network. At the time of its launch, the network had 100 billion stellars or XLM tokens.

Stellar is holding the rank of the 21st largest digital currency in the world based on its market capitalization. It is also one of the world’s leading projects utilizing blockchain technology. The Ripple roots are visible in Stellar’s system. Stellar shares many of the same features but also has an independent network, foundation, and operating philosophy behind it.

Unlike Bitcoin and many other cryptocurrencies, Stellar’s confirmation is not based on mining. This means transactions can be executed notably faster and cheaper than in mining-based networks. Stellar transactions are instant and usually resolve in 5-6 seconds, as stated on the foundation’s home page. This can make it a lucrative asset for international payments by banks and financial institutions.

The same applies to retail investors who want to send money with affordable transaction fees. The base fee for all Stellar transactions is 0.00001 XLM. In other words, the base fee amounts to a mere fraction of a cent at current prices.

Stellar’s most notable collaboration partnerships so far have included IBM and KlickEx in October 2017. In January 2021, Ukraine’s Ministry of Digital Transformation announced cooperation with Stellar to develop the country’s digital infrastructure. The announcement led to a 40% value increase for the asset.

Stellar Lumens uses has an informative picture about Stellar’s potential use.

Centralized vs. Decentralized Cryptocurrencies — Stellar vs Ripple

While somewhat more decentralized, Stellar is administered by the Stellar Development Foundation, a centralized entity similar to Ripple. Stellar, therefore, does not meet the strictest criteria for a decentralized cryptocurrency. That’s why people sometimes refer to both XLM and XRP as centralized digital currencies.

While both blockchains function using distributed ledger technology, Ripple’s and Stellar’s technology works differently. The Ripple network relies on the proof-of-correctness algorithm whereas Stellar employs the consensus protocol. Major applications of the Ripple protocol involve banks and larger players. The Stellar ecosystem in turn has become a comfortable niche for individual peer-to-peer and small business transactions.

Another notable contrast is that Ripple is a profit-oriented company, while Stellar’s nonprofit status dictates the organization does not seek any financial gain. While earning profits from offering the world a utility can hardly be condemned, anyone doing the same pro bono would usually be met with a warmer welcome.

So, if the Ripple vs Stellar pair were to be seen as slightly altered twins, Stellar’s nonprofit philosophy could arguably make it the proverbial good twin. But that does not mean the other twin would be bad, or that the estranged siblings couldn’t succeed together as they have so far. It only means Stellar’s operating philosophy may be more appealing to many. This could also translate to more use and development efforts for the project.

XLM Price Development – The Past, Present, and Future

Throughout the early years of its existence, the price development of Stellar’s XLM has largely mirrored that of Ripple’s XRP. That means, the rising or falling XRP prices also uplifted or decreased XLM’s value to some degree. However, this pattern came to a halt after Ripple Labs wound up in legal trouble with the SEC in late December 2020. As several exchanges responded by delisting XRP as a security measure, its price temporarily crashed amidst a market panic. However, this time the same did not concern Stellar.

The Ripple price from mid-2020 until mid-2021. Source: coinmarketcap

Despite its usual correlation with XRP movements, Stellar’s XLM suffered more mitigated losses and even began to overtake a portion of Ripple’s bleeding markets around the beginning of 2021. XLM’s price even briefly surpassed XRP for the first time on January 6th, marking an unprecedented shift in the cryptocurrency market. After this, the XRP/XLM duo kept dueling on equal levels and consecutively overtaking each other for several weeks. Throughout 2021 so far, Stellar has shifted between lows around $0.125 dollars to its current yearly high above $0.60 dollars.

After an idle beginning, Stellar’s price rose in waves similar to bitcoin in H1 2021. ©coinmarketcap

Stellar vs Ripple: How will the prices develop?

In the ensuing months, Stellar has kept its ground while Ripple has reported greater gains and retaken the lead – until the summer-2021 correction started. The recent XRP rally also suggests something similar may be brewing for XLM sooner or later.

When comparing historical prices, it is curious to note that Ripple’s all-time high was at $3.40 dollars on January 7th, 2018. According to CoinMarketCap’s statistics, Stellar’s respective all-time high went just above $0.90 dollars on January 3rd, 2018.

This means that, while Ripple has gained more percentually in Q1 2021, Ripple is also percentually much further from its previous high than Stellar. Should Stellar surpass the milestone set more than three years ago, it could serve as a catalyst to ignite a more explosive rally to one dollar and beyond. According to some estimates, even $5 dollars could be a possible target over the span of a few years.

Source: coingecko

How do the prices of XLM and XRP correlate?

In July 2021, the 3 months correlation between Stellar and XRP is 0.94. This is what it means. The correlation between historical prices or returns on XRP and XLM is a relative statistical measure of how much these equity instruments tend to move together. That’s how we see if returns on Stellar are associated (or correlated) with XRP.

The values of the correlation coefficient range from -1 to +1. The correlation of zero (0) would mean the prices of Stellar and Ripple go up and down completely randomly. Since we have a correlation of 0.94, we know that the correlation is strong, and the prices of these coins tend to move together.

Source: macroaxis

XRP vs XLM: should you invest?

At the time of writing, the unit price of XLM is still counted in cents and could one day permanently rise above a dollar. Therefore, it might not be the worst idea to consider acquiring at least a few of these tokens in 2021. This should, of course, happen after carefully assessing the risks along with the untapped potential. While the future is shrouded in mystery, it is safe to say that the Stellar price may indeed be on its way toward a stellar price.

The following piece does not include any investment advice. It is worth noting that investing in any digital asset includes risks, which should be carefully assessed before making important decisions.

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Gavin Rens
Gavin Rens
15/05/2021 21:10

Nice article. Thanks.

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