Competition in the cryptocurrency market is intensifying. It used to be that the big worry was that cryptocurrencies wouldn’t find a place in a world dominated by fiat currency, but now there are so many cryptocurrencies active in different spaces that several battles for dominance have emerged.
In the privacy-coin space, there are Monero, Zcash, and many others in the struggle to gain a solid market position, but the cross-border payment space is going through the same thing. Ripple and Stellar are both growing fast but seem to be on a collision course for each other.
There are roughly 2 billion people who are currently unserved and unbanked, but there are also billions of dollars of payments made cross-border from developed countries. These are two sub-segments of the same target market, and it will be interesting to see how Ripple and Stellar split them up.
The price will be guided by how large the market is. Just like how Bitcoin can be valued based on the market capitalization of all the gold in the world, both these companies can be valued compared to their use function (the current amount spent on cross-border payments).
In terms of price, both cryptocurrencies are quite affordable to invest in, being valued under $1. As of today (April 19, 2018) you can buy Ripple for $0.72 and Stellar – for $0.36. Not a big deal, is it? But if you take a look at last year’s rates, you will feel the difference. On April 19, 2017 the price of Ripple was fluctuating around $0.030, while Stellar was valued at $0.0019. It sounds like a good return on investment for both assets.
In terms of market capitalization, Ripple and Stellar are currently ranked at 3rd and 8th in the world with market capitalizations of $28.4 billion and $6.7 billion, respectively.
Both of these companies are targeting cross-border payments, microtransactions, and intermediary currency functions because they know there is a large opportunity there. It currently takes hours, if not days, to complete a transaction, and both companies have the means by which to execute these in a matter of seconds.
No matter what country you are in, the protocols allow for you to match with a relevant offer in the country you intend to send your money to and use either Ripple or Lumens (Stellar’s token) to execute it.
In a weird twist of fate, both of these companies are founded by the same person, Jed McCaleb, although he was ousted from Ripple in 2014 and is still paid a weekly stipend by Ripple. In keeping with this, Stellar is actually the result of a fork from Ripple in 2014, but the similarities have begun to disappear as philosophical differences drive the companies apart.
Marketing and PR
Network effects are a considerable part of the ability of a token to dominate a market because usually one would think that once a company has achieved some sort of dominance in the marketplace, power laws will continue to apply. But if the company has artificially achieved these power laws, it is very possible that this growth drops off once the marketing ceases.
Ripple does have the current lead in terms of adoption, although it is targeting a separate segment than Stellar. However, the market capitalization is higher, and the perception of it being a winner might help sustain its continued success.
The Main Philosophical Difference
Another important difference to understand is Stellar operates as a non-profit to promote financial access and inclusion, whereas Ripple is trying to create a payments network for financial institutions. The varying strategies that result from this may inform your future investment. Non-profits can succeed and take a dominant market share, but if Ripple is purely business, then it might have the ability to scale more aggressively.
Ripple’s desire for profit isn’t in itself a bad thing, but it seems like it is on the way to mostly being a tool of the banks to make live payments cross-border. This would be a technical innovation, but not necessarily the game changer everyone needs.
In fact, with Stellar the main focus is on finding the underserved and unbanked in third-world countries and helping to bring them online. Targeting places like Africa or the Philippines significantly adds value to the customer.
Past this, you also have the defining difference of Stellar being decentralized when Ripple is not. Decentralization isn’t always a good thing in its own, but it means there is no middleman that collects a portion of the profits.
Bitcoin was originally invented to be a replacement for financial institutions, and it is only fair that financial institutions would want to hedge for this by creating their own digital currency, but as stated before, Ripple isn’t really a cryptocurrency. By not being decentralized, it suffers from all the same problems as previous solutions. However, it does serve as a technical innovation controlled by the banks, and it will still transfer consumer surplus to the customers, while maintaining their old competitive position.
The Long-Term Competitive Landscape
Both companies are in the market for cross-border payments and microtransactions, and the market looks to be big enough to sustain two large competitors, but is that sustainable? Stellar targets companies and individuals, whereas Ripple is targeting financial institutions, which leads us to think these companies may be able to co-exist and their tokens will continue to perform well.
At the same time, this may merely be part of their growth strategy, and once the target market has reached an acceptable saturation point, they may be planning to extend their reach into the domain of their competitor. Until then, both should continue to flourish and be judged on their merits as a company rather than their competitive position. However, if one begins to falter, investors could quickly move their money into the other. Perhaps this is the biggest danger for either player.