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XRP: A Technical Comparison for Beginners

There are several ways to carry out transactions on a blockchain (shared digital ledger). The two most well-known ways are Proof of Work (PoW – e.g., Bitcoin) and Proof of Stake (PoS – e.g. Cardano):

What Are The Two Most Famous Consensus Protocols?

PoW (Proof-of-Work) works with an open computer network, i.e., anyone can participate in the network. These computers validate each transaction on the blockchain and are rewarded (in bitcoin, for example) for the work they do. This process is known to many as mining. Transactions have a high fee as a result of this phenomenon. It ensures that the miners are rewarded for their efforts. In addition, since validating a transaction requires substantial computer calculations it is a costly process in both time and resources (e.g. electricity). 

PoS (Proof-of-Stake) functions by allowing the holders of cryptocurrencies to stake their coins. Staking means locking the coins up in such a manner that they are no longer accessible to the user (until he/she decides to unstake them). Individuals that stake their coins gain benefits ranging from validating power to earned interest. Hence, everyone who owns the cryptocurrency can validate if they stake enough of it. For the validators and stakers to be compensated, transaction fees for this transaction mechanism are still very high. This is also why validating a transaction takes a lot of calculation. However, despite not being fast, it consumes less power than PoW.

Why Does The XRP Ledger Stand Out From Other blockchains?

The XRP Ledger uses a different method to verify transactions: Federated Consensus, which relies on the trust of “validators”, who run the network to confirm transactions. Anyone can download and run an XRP Ledger validator — from financial institutions, universities, developers to exchange platforms. Unlike other validation methods, Federated Consensus does not reward validator nodes with incentives. Instead, validator nodes choose to participate due to their interest in the XRP Ledger making headway in its development. 

Since they do not get rewarded for approving transactions, these entities rarely have ulterior motives apart from contributing to the system as a whole. Otherwise, things like MEV would come into play. This is also one of the reasons why transactions are very fast and consume negligible amounts of energy, making it an excellent example of a blockchain that has very little ecological impact.With a high degree of scalability (1,500 transactions/s), a fast transaction speed (approximately 3-4 seconds), and negligible transaction fees (0.0003 XRP per transaction) you end up with a very competitive blockchain, with an unparalleled use case, that has continued to prove its usefulness ever since its inception.