Crypto’s ugly duckling
Ripple is one of the cryptoverse’s most successful projects for sure. If you go by market capitalization, it’s ranked on the third spot (and it was even second for a few weeks not too long ago). If, on the other hand, you’d instead go by a coin’s profitability, XRP has been the most profitable coin for two years in a row (2017,2018) outperforming even Bitcoin.
And yet, the project remains controversial or unpopular among many cryptonauts. Why is that? Well, there are several reasons. Some of them are very valid, and some of them are just a matter of perception.
Cryptocurrencies were born when Bitcoin came online, as you surely already know. At that moment, Satoshi Nakamoto (the still unknown and mysterious hero who authored and deployed the Bitcoin network almost single-handedly) was very vocal and clear about the project’s purpose: it was to disrupt fiat currencies and the world’s traditional financial system and to get rid of them once and for all.
It’s a radical purpose that has found echoes among cryptocurrency aficionados. Ripple has worked very hard to be useful to banks and remittance services in eliminating friction from international transfers. Its endeavored to support one aspect of the traditional banking system, and that’s been construed as treason to the origins of crypto by some cryptonauts.
But how correct is this point of view? One should take into account that the best way to disrupt any system is to infiltrate it and Ripple is the only blockchain that’s managed to make way into, say, Wall Street.
Profit-seeking and centralization
Then, there’s the private company thing. Most cryptocurrency projects are open-sourced, community-driven, and supported by a non-profit organization. Not so with XRP. Ripple is a private company that aims to make a buck for its shareholders. This is not so well-liked either by many aficionados.
Decentralization is controversial another point. Because the Ripple blockchain is owned by a private company and the tokens are pre-mined (more on that later), there’s been much concern about the network’s decentralization or lack thereof. Ripple has been trying intensively to persuade anybody who will listen that the network is genuinely decentralized, but it’s still failed to do so to some extent.
Is it a security?
XRP has been charged with being a security rather than a currency. The most notorious accuser has been Dr. Craig Wright.
Dr. Wright is a man who enjoys attention and grandiloquence very deeply. He’s notorious for claiming to be none other than Satoshi Nakamoto, and he was one of the driving forces behind Bitcoin Cash’s recent fork.
So this is a man who clearly likes to create controversy. But Craig Wright doesn’t decide what a security or not is. Within the US, only SEC can do that, and SEC has not decided yet. So while there’s not that much reason to believe Dr. Wright (in this subject among many others), his opinion created enough turmoil so that now we can only wait until SEC decides to be absolutely sure.
The ownership issue
And last, but not least, there’s the token ownership issue. Every XRP token was pre-mined before the network went online. Yes, every single token was owned by Ripple in the beginning.
But a pre-mined token is not such a bad thing if you consider that Ripple is not wasting the insane amounts of electricity that Bitcoin is using to mine new blocks for the chain (the amount of energy is estimated to be as large as the whole of Ireland’s), so Ripple is greener. But crypto-purists prefer mineable coins, so they frown upon Ripple’s policy in this regard.
That’s not the worse. Most of the existing XRP in the world is still owned by Ripple. This has lead to suspicions of price manipulation by a private firm within the cryptoverse. To assuage those concerns, Ripple has locked up most of its tokens in a 52-month old smart contract that releases 1 billion XRP every month.
The idea behind that is to ensure a constant and limited flow of coins into the market that has nothing to do with decisions taken at Ripple. And this is the issue we’ll explore in this article with more depth.
You probably already have a position of your own about each of the issues as mentioned earlier regarding Ripple, and we don’t mean to change your mind (at least not for now) but let’s concentrate in a single question: is XRP controlled by Ripple? It’s a good question. David Schwartz, who was Ripple’s Chief Cryptographer and is now Chief Technical Officer answered this question (probably for the ninth time) on last Monday.
His answer: “Absolutely not.”
Okay, there’s more. Mr. Schartz elaborated thoroughly on his initial two-word answer, so let’s follow him.
He explained how the XRP ledger is open-source. It’s backed not only by Ripple but by a whole community of developers. Consequently, if Ripple, the private company, were to vanish into thin air for whatever reason, the infrastructure necessary to keep XRP and the XRP ledger running would remain in place and would keep existing and working.
XRP is a digital asset that’s 100% independent from the company. The transactions are not validated by Ripple but by the Ripple network which is decentralized in full and relies upon a consensus process. That results in a network in which it’s the stakeholders who empower the transactions for any entity.
Once Mr. Schwartz explained that in full detail he went on to write that the perception of Ripple being in “control” over XRP is rooted in nothing but misunderstandings. So he took some extra text to explain what those misconceptions are, and why they’re actually misbeliefs rather than reality. Here are the issues he mentioned:
Utility: XRP is currently used for payments (international, frictionless payments, mainly). Payments will be around regardless of Ripple’s existence, so this can’t be an issue.
Ownership: this has been a big deal for Ripple. XRP has been accused of being a security (something equivalent to holding equity over Ripple), and SEC has not issued a decision on this yet (the jury is still, literally, out on this, at least when it comes to governmental regulations) but Ripple’s position (as explained by Mr. Schwartz) is unequivocal on this. XRP doesn’t get you any shares in Ripple. You can own as many XRP as you possibly can, and you still owe nothing of Ripple.
Decentralization: the vast majority of validators in Ripple’s network are not controlled by Ripple at all. They’re independent, voluntary nodes, that validate transactions for XRP in much the same way as Bitcoin’s nodes keep the bitcoin network going. There are 150 such nodes in the network of which only 7 belong to Ripple.
Mr. Schwartz continued his answer by mentioning that while, yes, Ripple owns quite a bit of XRP, but that doesn’t give the company control over the currency because transactions must be validated by the network which, as stated before, is beyond Ripple’s control. He also explained the 55 billion XRP placed under a smart escrow contract which makes it impossible for Ripple to either flood the market with tokens or make them scarce.
And then, he ended by reminding everybody that it’s in Ripple’s interest for XRP to do well, so chances are it’s not going to try and mess things up, even if it could (which is not the case, anyway).
Image courtesy of Flickr.
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