Ripple vs. Paypal

Ripple is an open source protocol which is used for making digital financial transactions, through an online 'wallet'.

Because Ripple has its own digital currency - XRP or Ripples - it is often compared to the various 'cryptocurrencies' out there, such as Devcoins, Bitcoin, and so on (and on, and on, and on…). But in actual fact this may be a misleading comparison, as the digital currency used by Ripple is intended primarily to provide liquidity between other currencies, rather than as an actual currency which people would use to pay for things (although this is also possible). Ripple, and its ecosystem of dependent services, should be thought of as more of a financial services network than as a currency. Because of this, I would like to suggest that a more accurate comparison to make would be between Ripple and something like Paypal.

Although there are a myriad of different possibilities for how people will use Ripple, from international remittances to forex trading, one of the most obvious and likely uses is for Ripple is as an online payment system similar to the way Paypal is used now.

Similarities Between Paypal And Ripple

The main 'raison d'etre' of Paypal is to allow people to easily pay for things over the internet with just a username (your email address) and password. Many people have noted that digital currencies also allow for this, letting you send money easily and cheaply from your wallet to any merchant anywhere in the world. But with most digital currencies, you can only use the wallet to pay for things using that particular digital currency. Also many digital currencies, like Bitcoin, have very long transaction times, whereas both Paypal and Ripple are virtually instant.

Like paypal, Ripple allows you to hold money in a range of different national (fiat) currencies. You can have multiple balances in different currencies, and you can use this money to make payments. You can even pay for something in one currency using a balance you hold in another currency. This is very convenient and facilitates international business - and all of these features are shared by both Paypal and Ripple.

You can also choose to exchange currency from one balance to another at the current exchange rate, and of course you can send money to anybody else who also has an account.

The Advantages of Ripple Over Paypal

Perhaps the main advantage of Ripple over Paypal is cost. Ripple transaction costs, set at around two thousands of an XRP (1 XRP is currently worth less than $0.02) for any transaction of any size, are substantially lower than those imposed by Paypal. This should allow merchants to offer cheaper prices to consumers choosing to pay using their Ripple wallet.

Whereas Paypal uses an exchange rate set by banks, and it is the banks who take a profit from providing the currency exchange service, within Ripple the exchange rate is set by a peer to peer market, and anybody can offer to act as a 'market maker' and make a small profit by providing exchange services when no match can be made between regular retail users. This open market is integrated into the Ripple wallet, which can be used as a currency exchange platform as well as a payment system.

Another advantage if Ripple is the range of different currencies which you can use within the system, including digital currencies. Although Paypal has indicated that it may allow users to hold digital currency balances in their account at some point in the future, this is already a well established and popular feature of Ripple. And although not all fiat currencies are currently available within ripple, there are no limitations to what can be added and the number of currencies is growing every month. Unlike Paypal there are also no countries from which you are not allowed to open an account.

Ripple is peer to peer, and open source, giving it the additional advantage of a distributed network of individuals running services rather than just a central corporation.

It also has its own digital currency, which paypal obviously does not have. But even more than this, it allows anybody to issue a new 'currency' into the system, which makes it easy for merchants to set up their own rewards points system using their Ripple account - something which Paypal does not offer.

Challenges for Ripple

Although the Ripple protocol has tonnes of potential, it is still in beta and obviously a long way from being a mass market hit. If Paypal does start supporting Bitcoin and other digital currencies then this could remove one of the most unique aspects of Ripple compared to Paypal - although it is very unlikely that Paypal will ever support as large a range of currencies as Ripple (I can't imagine them including Devcoins, for example).

Of course it is also very hard for a new start-up with limited resources (Ripple Labs, who run the protocol, have no income - their only value is the XRP they hold from the initial 'pre-mine') to compete with a massive multi-national corporation like Paypal.

Another major challenge is for Ripple to win support from the digital currency community, which should provide its main user-base but which has broadly speaking turned against the open source protocol due to the 'pre-mine' and the perception that it is less decentralized than digital currencies are.


I have absolutely no idea what the future holds, but I really hope that Ripple succeeds - not as a digital currency and competitor to Bitcoins and other 'alt coins', but as a digital currency inspired and digital currency friendly payment system, and open source competitor to corporate giants like Paypal.

Categories: Ripple | E-Currency

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