Better Crypto Buy: Ethereum vs. XRP

Key Points

• Ether is gaining momentum as its developer ecosystem expands.

• Now that XRP developer Ripple has put its SEC lawsuit behind it, spot XRP ETFs could finally be approved.

• Macro conditions ahead could favor both cryptos.

• 10 stocks we like better than Ethereum ›

Ether (CRYPTO: ETH) and XRP (CRYPTO: XRP) have both generated life-changing gains for their patient long-term investors. A $10,000 investment in Ether made 10 years ago and held would have blossomed into a holding worth $52.85 million today. A similar investment in XRP would be worth $4.19 million.

Both experienced steep climbs and sharp falls along the way to those impressive returns. But which of these high-flying cryptocurrencies has a brighter future?

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue »

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The differences between Ether and XRP

Ether is the native token of the Ethereum blockchain. It was once mined using an energy-intensive proof-of-work (PoW) validation mechanism like Bitcoin (CRYPTO: BTC), but Ethereum transitioned to the more energy-efficient proof-of-stake (PoS) mechanism during "The Merge" in 2022.

After that network upgrade, Ether could no longer be mined. It could only be "staked" -- locked up on the blockchain for a period of time -- a process that earns the staker interest-like rewards in the form of new tokens. It also added support for smart contracts, which can be used to develop decentralized apps (dApps), non-fungible tokens (NFTs), and other crypto assets. As a result, Ether became valued more on the growth of its developer ecosystem than on the relative scarcity of its token. Its core Layer 1 blockchain isn't as fast as newer PoS blockchains like Solana (CRYPTO: SOL), but its transactions can be bundled together and processed at much faster speeds across its Layer 2 blockchain solutions.

Ether has a circulating supply of 120.7 million tokens, and it becomes deflationary when its network activity rises because some Ether is burned (removed from circulation) with each transaction as a "gas fee." But it becomes inflationary when its network activity declines, so it needs its developers to stay active to keep tightening up the coin supply.

XRP is the native token of the XRP Ledger, a blockchain that was created by the founders of Ripple Labs -- a fintech company that promoted its blockchain as a faster, cheaper, and more secure alternative for moving money across borders than SWIFT transfers. But in 2020, the Securities and Exchange Commission (SEC) sued Ripple for selling its XRP tokens to fund its expansion and argued that XRP should be classified as a security. As a result, Ripple lost some of its top customers and the leading crypto exchanges delisted XRP.

That lawsuit dragged on for five years before finally concluding this August. In the end, the judge ruled that XRP couldn't be classified as a security for retail investors, but that it could be classified as one for institutional investors. She slapped Ripple with a lower-than-expected fine and filed an injunction that blocked it from selling more XRP tokens to institutional investors. After that battle ended, XRP's price bounced back as the top crypto exchanges relisted the token.

XRP's entire supply of 100 billion tokens was minted prior to its public debut, and it's a deflationary token because some XRP is burned off with every transaction. It doesn't natively support smart contracts like Ethereum, but it supports simpler applications through "hooks." It's often valued based on the expansion of Ripple's broader fintech ecosystem, as well as its value as a "bridge currency" for transfers between two volatile or illiquid assets.

The longer-term catalysts for Ether and XRP

The launch of new spot exchange-traded funds (ETFs) for Ether or XRP could stabilize their prices by drawing in more retail and institutional investors. The SEC approved Ether's first spot price ETFs last year, but those funds didn't include any staking features, which would have given them additional yields of 3% to 4%. The SEC hasn't approved any Ether ETFs with staking features yet, but several firms have already submitted applications for such funds. Approvals of those staking ETFs could drive Ether's price even higher.

Several firms have also submitted applications for XRP's first spot price ETFs, but the SEC hasn't approved them yet. The regulator's decisions on those applications are expected throughout October and November -- and approvals could drive even more investors toward XRP.

Ethereum's upcoming network upgrades -- dubbed "The Verge," "The Purge," and "The Splurge" -- should boost its scalability, reduce its congestion and gas fees, and improve its overall efficiency. Those improvements should keep it ahead of other developer-driven PoS blockchains. XRP's growth should be buoyed by Ripple's expansion of its own ecosystem (including its own stablecoin) as well as new sidechains that could support Ethereum-based smart contracts.

Lastly, lower interest rates should drive investors back toward both cryptocurrencies. Ether and XRP could also gain more attention as hedges against inflation and the devaluation of the U.S. dollar -- which will likely accelerate again as interest rates decline.

Which cryptocurrency is a better buy?

Ether and XRP are both compelling alternatives to Bitcoin. But if I had to choose one over the other, I'd stick with Ether because it's hosted on the most popular blockchain platform for developers, its first spot price ETFs have already been approved, and its upcoming network upgrades could further widen its lead against other developer-oriented blockchains. XRP still has a promising future, but its catalysts are a bit murkier, and it could face some competition from Alphabet's Google in the blockchain-powered financial market.

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Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Bitcoin, Ethereum, Solana, and XRP. The Motley Fool has a disclosure policy.