So you think you’re cool because you accept bitcoin?
Bitcoin’s transaction times and fees are ridiculous (but you already knew that). Enter Stellar and Ripple.
“One medium coffee, no room for cream. Two twenty-five, please.”
“Do you take bitcoin?”
“We do. Do you have a bitcoin wallet on your phone?”
“Yup.”
“Just scan the QR code with your bitcoin wallet app, then confirm the transaction.” the cashier says, pointing down at the POS terminal in front of you.
You look down with a little bit of shock:
You feel like being cool anyway, so you scan the QR code and touch the green “OK” button on your phone. After ten minutes of you and the cashier awkwardly staring at the floor while the Bitcoin blockchain network processes the transaction, you finally get your lukewarm $16 bitcoin coffee. Fail.
The story would be a bit less ridiculous for ethereum but still annoying, with a current median transaction fee of around $1.50 and a transaction time of 15–20 seconds. About the same awkward staring time as with some debit card transactions, but still too expensive.
Even if unearned millions have been made by lucky hodlers of bitcoin and ethereum, the underlying fundamentals of the first two big open source experiments in blockchain currencies (although Ripple arguably came before either of them) don’t really help anybody buy a cup of coffee with their smartphone. That said, the high friction of bitcoin and ethereum transactions have proven to prevent some price volatility relative to other cryptoassets. This makes them less well adapted to buying pizza or coffee, but arguably more effective as stores of value. Only time will tell.
For real-time, low-cost small transactions, the most obvious cryptocurrency alternatives right now (Jan. 2018) for bitcoin and ethereum would be Ripple (XRP) and Stellar Lumens (XLM). Either network can process transactions in five seconds or less, and Ripple even claims to be real-time, whatever that means. Ripple processes transactions for around $0.00001, and Stellar for even less at around $0.000004/transaction. Ripple is a bit faster, while Stellar is cheaper.
So why isn’t Mark Cuban talking about allowing people to pay in lumens or ripples for tickets to his NBA basketball team, the Dallas Mavericks? Why isn’t the Arizona legislature considering a proposal to accept lumens to pay taxes? The explicit intentions of the organization behind the Stellar network, the Stellar Development Foundation (stellar.org), seem to be overriding any inherent utility as a cup of coffee currency. Stellar’s lead developer and CTO Jed McCaleb states that the Stellar network plays a different role from Bitcoin, which he says is intended to be a currency. “[Stellar] is more of a common language or protocol between different financial institutions and currencies.” You would certainly know best, Jed, but there’s no denying that Stellar leaves Bitcoin in the dust as a cup of coffee currency network. Either way, this suppression of obvious utility strongly implies some long game strategy for Stellar.
Ripple CEO Brad Garlinghouse describes XRP as a digital asset that can be used by banks and money transmitters in place of the trillions of dollars of liquidity held up in nostro and vostro accounts. So Ripple and Stellar are transaction networks that contain their own native digital currencies, but because of their intended use cases (which in most aspects are quite similar, even if they are achieved through different implementations), so far these currencies have been somewhat difficult to obtain and this may continue indefinitely for nebulous reasons.
Playing with your own lumens and ripples
In the Wild West of cryptoassets, it’s far from impossible to get your hands on some lumens and ripple and play around with them, but it isn’t exactly easy, either. The leading US cryptocurrency exchange Coinbase currently offers bitcoin, bitcoin cash, ethereum, and litecoin for sale, and Hong Kong-based Binance allows trading of bitcoin (bad idea!) and ethereum for XLM and XRP. The cheapest and fastest way to do this through the Coinbase — Binance channel (for US residents) is to buy litecoin with fiat for a fee through Coinbase, send the LTC to Binance, convert to ETH, and buy XLM or XRP on their exchange. Although fairly easy to use, Binance is not as much of an entry-level platform as Coinbase is.
A few things need to be kept in mind when trading on Binance. First, it’s risky to leave your cryptocurrency sitting on any exchange, particularly one that is technically on Chinese territory, even if it’s based in Hong Kong and its servers are in Korea. Cryptocurrency exchanges are natural targets for hacking (Mt. Gox), regulatory shutdowns (Bitconnect), and sudden, unexplained and prolonged outages (Kraken). And you have to trust the operator of the exchange. It seems paradoxical that so much trust is required to gain access to so-called trustless networks. With most exchanges you don’t even get to know what your private keys are, so if a cryptometeor (i.e. a hack or police raid) were to strike you would be up a creek.
To further complicate things, on Binance there are nontrivial minimum transaction amounts required for withdrawal from various currency accounts. For example, to send XRP to your own private wallet, a minimum of 21 XRP (today about $24) has to be sent. So you have to buy at least this much XRP to ever be able to get it out of Binance in the form of ripples. The other caveat with Binance is that it usually forces you to trade in whole number amounts, leaving unclaimable “crumbs” in your various currency accounts. One can only guess what will happen to all those crumbs scattered across Binance’s user wallets.
To offload your fresh and fast Stellar or Ripple cryptocurrency to your own virtual hands, you need to set up XLM and XRP wallets of your own, a process inherently fraught with security risks (keyloggers? screen capture? hackable printers?) and/or costs and time (hardware wallet). There’s no question that wallet security is the weakest link in the cryptocurrency chain, whether managed by yourself via paper, software, or hardware wallets, or you trust in the goodness of the universe and are willing to allow an uninsured, dubiously legal exchange to maintain your digital assets.
To set up your own wallet, stellar.org provides a tool on their website for generating key sets. But as our favorite hammock-shitting innocent fugitive John McAfee claims, if you’ve ever visited a porn site or inadvertently clicked a malicious link, somebody’s probably keylogging and screenshotting your PC, sniffing private keys and who knows what else. So be warned and try to find a safe way to generate and save your private key. Setting up a Ripple wallet is a bit more difficult to set up than a Stellar lumens wallet. Unless you have the necessary programming skills to work with their API, you will have to trust a nonaffiliated website or wallet or download an open-source tool from Github. Maybe it’s a coincidence, but my home network slowed to a halt right after I launched a certain open source tool with 100+ positive reviews on GitHub. I really won’t be surprised if I eventually get fleeced somehow. Maybe it was Evil Corp. For all I know, half of a hacker battalion is now surreptitiously logging every letter I’m typing right now, snapping screenshots as I go, waiting to blackmail me or suck my wallets dry. Or maybe it’s just a government spying on my private affairs without a warrant. Something certainly smells, but then again maybe I’m just paranoid. Justifiably paranoid.
Alright. Once you’ve passed through the gauntlet of setting up your own XLM and XRP wallets (it’s actually not that hard once you decide how you’re going to do it), you need to meticulously type or paste the appropriate public key details into Binance’s withdraw function and hope you’re putting in all the right memos. Ready to watch your cryptocurrency disappear into the ether (pun?) or into Binance founder Changpeng Zhao’s pockets (or the Chinese government’s for that matter), you hit confirm, enter the code from your authenticator app (don’t even think about using SMS authentication!) and start your stopwatch. Easy, right?!
Binance is quite slow to respond, but as soon as you get the autogenerated response twenty minutes later saying that Binance has withdrawn the funds, the ripples and lumens will show up in your wallet within five seconds, auto-updating on their respective account viewers. Lightning fast! Money from Binance’s servers in Korea all the way to the land of the free in no time flat.
But there’s a catch: to set up a wallet, Stellar’s network currently requires a minimum reserve balance of 0.5 lumens. That’s tolerable, especially since today that’s less than $0.25. (That number of lumens was worth more like $0.50 just yesterday, but that’s another story). The required wallet reserve minimum has been decreasing with time as Stellar stakeholders democratically choose to reduce that figure in response to the increasing value of the Stellar network. But Ripple wallets have a reserve requirement of 21 XRP, money that you simply can’t take out unless Ripple someday decides, somewhat more authoritatively, to lower the minimum. So if you decide to play with ripple, you’ll have to contend with a nonrefundable deposit that has ranged between $20–50 as the price has fluctuated throughout January 2018. Think of it as a one-time nonrefundable account deposit.
Because of the reserve requirement on ripple, you might not feel like testing transactions between XRP wallets and leave that for Evil Corp’s developers and contractors. But you can easily test payments with Stellar lumens, and you will be happy to verify that transactions take less than 5 seconds and cost just four millionths of a cent. This is nothing short of a miracle!
Although its code is now open source, Ripple is fairly centralized and controlled by a for-profit entity, which has led some to call it an “evil banker coin.” The fact that the BitLicense guy, former New York Superintendent of Financial Services Ben Lawsky, is now on the Ripple board bodes well for the payment protocol, at least with regard to regulatory compliance.
But Stellar is decentralized, non-profit, and also open source. Stellar’s accomplishment seems underappreciated: it provides a bankless global currency with fast transaction processing and negligible transaction costs, without all of Bitcoin’s wasted time, money, GPUs, and energy. If anything, it seems to actually fulfill Bitcoin’s vision even better than the real thing: Stellar provides a democratized, open source, fast, secure, and practically zero-cost payment system. Unless some entity successfully declares war on it, it seems like Stellar could change the world.
So if I wanna be cool, I should accept lumens?
It is hard to tell if you’ll ever see ripples or lumens directly accepted in a coffee shop near you, or at a Dallas Mavericks game, or by the state of Arizona for taxes, even if that would all be nice. Neither have a friendly and secure customer interface, and their names are kind of weird. So far they are really aiming to be platforms for fintech development, not currencies, which is a shame because apart from their inherent price volatility, they would be great for buying a cup of joe. But it does seem very likely that the Stellar and Ripple networks (or clones of them) will be used to process fiat currency transactions behind the scenes for a thousandth or a millionth of a penny, before you even have time to have an awkward floor-staring contest with a cashier.
