Over the years, XRP has been criticized and accused of being “centralized” and a “bankers' coin”, among other things. But what is the actual truth and why do many people avoid doing their own research⁉️
Let's begin with the history of XRP. In 2011, three bitcoin developers, David Schwartz, Jed McCaleb and Arthur Britto, began developing a blockchain technology that would not use Proof-of-Work and mining to validate transactions and would not have its limitations. They called this technology XRP Ledger (XRPL). It was a public, open-source, permissionless blockchain network. The goal was to create a better bitcoin, with a more sustainable and efficient consensus algorithm, to transfer value almost instantly and inexpesnively. And they did it. They built the XRPL based on the Federated Byzantine Agreement (FBA) consensus algorithm. The XRPL settles transactions in 3 seconds with a transaction cost of less than a cent (0.0001 XRP on average), can process 1500+ transactions per second and is energy-efficient. XRP is also deflationary, as every transaction fee is burned/destroyed, which slowly reduces its supply.
On June 2nd 2012, they created 100 billion XRP, with no way to create more, and later they decided to start a company (now called Ripple) to work with the community and also pursue its own mission and business model building on top of XRPL. It was still the early days, so they were trying to figure out what worked best and how to do the distribution of tokens as it was the first of its kind. They started with a vision of creating a global decentralized exchange for any type of asset, but ultimately, they decided to focus on cross-border payments and improving the banking infrastructure, as the banking system was running on an old, broken and corrupted system (SWIFT). They wanted to improve the financial system and solve a multi-trillion dollar problem.
Today, Ripple uses XRP and the XRP Ledger mainly for cross-border payments and liquidity management and, through it, it offers instant payments and settlement to financial institutions. There are tens of financial instutions, at the moment, that are using XRP on daily basis though Ripple's On Demand Liquidity (ODL) solution.
Most importantly, Ripple is currently just one of the hundrends of projects building on top of XRP Ledger and using XRP.
XRP vs Ripple vs XRP Ledger vs RippleNet
Ripple is a company building a payments infrastructure, crypto solutions and software. RippleNet is their own system that financial institutions use. It's like SWIFT has its own system and network of financial institutions. RippleNet consists of many products/services, with the main ones being xCurrent and On-Demand Liquidity. The XRP Ledger is the underlying blockchain technology of XRP. So, do not confuse these 4 different things.
XRP is the native cryptocurrency of the XRP Ledger (XRPL) — an open-source, permissionless and decentralized blockchain technology. Ripple might be an important party in the XRP ecosystem, as everything began from them, but they are not alone. Right now, XRP and its technology are being leveraged by an increasing number of other companies and developers. There are already hundrends of projects that are building projects on top of XRP's blockchain technology and are using XRP for many different use cases. Some of the use cases that XRP is used right now are settlement, micropayments, DeFi, tokenization, NFTs, and more. In fact, there are far more projects/apps for individuals and retail investors than there are for institutions and banks. Ripple is only 1 of the hundrends of projects.
Centralized or Decentralized?
One of the biggest misconceptions is that XRP is centralized and that Ripple controls most of the nodes or that the UNL leads to centralization. But let's look at the facts. XRP's blockchain, XRP Ledger, uses a consensus protocol that relies on validator nodes to record and verify transactions without incentivizing any party. The XRP Ledger uses a form of the Federated Byzantine Agreement (FBA) consensus algorithm. Validators are nodes running as a validating server – meaning they are configured to participate in the consensus process for validating transactions and the governance of the network. Validators are different from miners in Proof of Work that bitcoin uses, because they aren’t paid when they order and validate transactions. On the XRP Ledger there are two kinds of nodes – 1. Validators, which were explained above, and 2. Stock nodes, which protect the validators, store the ledger's history and allow API calls. Today, there are over 150 validators and 600 nodes that operate at locations across the globe and are run by a broad range of community members, developers, universities, institutions and exchanges. For consensus to be reached on the network, at least 80% of the validators must agree. Ripple runs only 4 validators and controls less than 2% of all validators on the network, which gives them no power whatsoever on the XRP Ledger. Furthermore, on Bitcoin network whichever miner finds the blocks, they are unilaterally responsible for which transactions are approved and go into that block, while on the XRP network (XRP Ledger) the transactions and changes have to be approved by all the validator nodes (>80% for consensus) and not by a single node like it happens with miners on Bitcoin. This means that the XRP network is highly decentralized and it has a better, more robust and more decentralized structure than Bitcoin and Ethereum.