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XRP (XRP 4.73%) and Ethereum (ETH 1.90%) are two cryptocurrencies that have very different mandates. Where XRP has a narrow focus on processing international transfer payments efficiently, Ethereum's expansive ecosystem makes it the home of the decentralized finance (DeFi) world, as well as a hub for experimentation and investing on the blockchain.
Yet despite these major differences, there are two factors in particular that make XRP worth buying and Ethereum worth avoiding, or even potentially selling. Let's examine each and see how they'll affect your investing decisions.
Ease of transacting is a major concern
Everyone hates paying fees and waiting for their financial transactions to close. That's true whether we're talking about cryptocurrency, or traditional finance. It's not surprising to learn that people tend to interact with financial applications and systems where it's cheap and quick to accomplish their goals, and prefer not to interact with systems where the opposite is true. That's the biggest set of reasons to avoid Ethereum and invest in XRP instead.
As of Feb. 20, it costs about $1.10 to perform a simple swap of one token to another on Ethereum's chain. Transactions close in roughly 30 seconds. In contrast, XRP's transactions cost a fraction of a penny on average, and settle in a handful of seconds.
Notwithstanding the fact that you'd be transacting on these two chains for dramatically different purposes, which would you rather use, and which would you rather invest in?
It's obviously XRP, because the delay between sending your funds and having the transaction clear is minimal, and the price of the action is negligible. Despite years of work on the blockchain's capacity, Ethereum's gas (user) fees can go vastly higher than the figure mentioned above when the network becomes crowded with traffic. So it's very possible that you might pay $10, $20, or even $50 or more per transaction, and that you might need to wait even longer, like five minutes or more, for your transaction to close.
This is a case where it doesn't really matter that these two chains are trying to capture different users. The user experience with Ethereum is variable, costly, and often outright clunky. XRP's chain offers low costs and quick turnarounds without any hassle. Thus it's to be expected that XRP's price rose by about 300% during the past 12 months, while Ethereum's dropped by 27%.
Leadership matters, too
XRP has another big advantage over Ethereum as an investment: Strong leadership.
Ripple, the business that issues XRP, is well-connected to the traditional financial system, which it seeks to court as users, and the U.S. government, which it seeks to court to foster favorable regulations. It uses its connections with banks and other financial institutions to build its product to cater to its target users. This is part of what makes it a serious financial technology product.
On the other hand, Ethereum is -- broadly speaking -- led by the Ethereum Foundation, a nonprofit organization dedicated to promoting the chain's technological development and the expansion of its ecosystem. But the Foundation hasn't been able to resolve the issues of high gas fees and slow transaction times for years now. Furthermore, senior figures continue to be reluctant on the topic of engaging with political and regulatory authorities for the purpose of improving the chain's operating environment. Although it recently started a leadership shakeup intending to get some new talent in to potentially take yet another stab at fixing those issues, the new management could take years to have an effect.
As an investor, it makes more sense to bet on the management team that has already established itself as an effective steward of the project under its control. That's XRP, not Ethereum.
It's true that Ethereum's fortunes could improve during the coming years. But until there's evidence of real changes actually leading to concrete improvements in the chain's functionality, it makes sense to avoid investing in it.
