Bitcoin has been at the centre of the cryptocurrency craze as its value has risen more than 12-fold this year but it has been significantly outperformed by a smaller rival which has seen its value rise by that amount in less than three weeks.

XRP, a cryptocurrency created by the fintech company Ripple is easily the best performing cryptocurrency of 2017, registering astonishing 37,000 per cent gains $0.0065 per token in January 2017, to $2.47 by the end of the year.

The rise has potentially catapulted its creator, Chris Larsen, high up the world’s rich list. Mr Larsen owns 5.19bn XRP coins, according to a report by Forbes, which would mean his holding is worth $12.82bn (£9.4bn).

​XRP is now the number 2 cryptocurrency by market capitalisation and has a number of potential advantages over bitcoin which is the largest.

Ripple’s technology allows transfers to be processed much faster than bitcoin’s meaning that in theory it should be able to scale much larger.

Bitcoin has experienced a number of problems as it has grown in popularity with users reporting slow transactions taking more than an hour to process. The strain on the network has also pushed up transaction processing costs.

Ripple has also formed partnerships with dozens of established financial players including American Express and UBS.

The value of bitcoin continued to fluctuate unpredictably on Tuesday, trading at $13,755 by early evening, still well down on its record high of close to $20,000 in mid-December.

On Tuesday it emerged that Russia may be planning to create its own cryptocurrency in a bid to evade international sanctions.

At a recent meeting of Russian government officials, President Putin’s economic advisor, Sergei Glazev, said a crytptocurrency could be useful to carry out “sensitive activity on behalf of the state”, according to the Financial Times. “We can settle accounts with our counterparties all over the world with no regard for sanctions,” Mr Glazev reportedly said.

What is bitcoin?

Bitcoin is a digital currency created in 2009 by a mysterious figure using the alias Satoshi Nakamoto. It can be used to buy or sell items from people and companies that accept bitcoin as payment, but it differs in several key ways from traditional currencies.

Most obviously, bitcoin doesn’t exist as a physical currency. There are no actual coins or notes. It exists only online.

“Real-world” currencies, like the dollar, are managed by a central bank such as the US Federal Reserve or the Bank of England, which manage the money supply to keep prices steady. They can print more money or withdraw some from circulation if they think it’s needed, as well as using other monetary policy controls such as adjusting interest rates.

Bitcoin has no central bank and isn’t linked to or regulated by any state. The supply of the cryptocurrency is decentralised – it can only be increased by a process known as “mining”. For each bitcoin transaction, a computer owned by a bitcoin “miner” must solve a difficult mathematical problem. The miner then receives a fraction of a bitcoin as a reward. The use of problem-solving in this way is the reason bitcoin is known as a cryptocurrency.