Ripple often claims that XRP is decentralized, XRP is helping the banking system by infuses money to low-liquidity trading pairs. However Ripple says they don't intervene on how the cryptocurrency operates, their actions say something else. We will see trough this article why XRP isn't as decentralized as Ripple says.
So what is XRP and what it aims ? It is a cryptocurrency which seek to reduce the friction between foreign exchange transactions, it supports banks transfer money by increasing the liquidity of rarely used currency pairs (euro, pound,...). Ripple stakes that it can help reduce the cash that money transmitters and banks need to have on hand. This money allow the company to invest it, saving it or other uses.
"XRP Ledger is fully decentralized, the XRP Ledger is at least as decentralized as Bitcoin and Ethereum". said David Schwartz (Ripple CTO).
But, there’s evidence suggesting that XRP is controlled in large part by Ripple, let's jump into it.
First, let's see why decentralization is such a huge matter. If XRP isn't decentralized, in terms of security it could bring to awful consequences regarding exchange transactions. There is actually, in California, a case like that in moving in court system. Furthermore, it can lead to a large impact on some investors, because if Ripple decide to retract on XRP, the value if the coin will become worthless. For example Bitcoin has many contributors, so if one company drop Bitcoin, it wouldn't destroy the value of BTC.
Now, let's check the origin of XRP. The project started initially back in 2012, created by the “Newcoin Corporation”, then renamed to “OpenCoin", and again renamed to “Ripple Labs”. The project has been amalgamated with a certain corporation known as Ripple Labs (Ripple nowadays) in 2014. Initially registered by OpenCoin in 2013, Ripple is the current owner of the trademark. Even in the past, Ripple stated that it created XRP. And since then XRP value has increase and with a total volume of billion of dollars.
“Yes, Ripple created XRP, they own most of it and it was issued after company formation.” said Preston Byrne.
Let's now move on to the control of XRP Ledger. We're going to see first how its blockchain works. XRP Ledger is composed of a collection of nodes, and it's the computers that run the software supporting a blockchain. But XRP doesn't select blocks of transactions through the proof-of-work used by BTC. Instead, XRP uses its own system the Ripple Protocol Consensus Algorithm : also known as RPCA, problem is that the nodes on RCPA are uncompensated, which results in numerous losses in terms of money. There is another problem, with this algorithm, Ripple, selects the default Unique Node List, when a volunteer spins up a node, these are the ones voted for by default to achieve transactions. So in theory, Ripple has the monopoly on what volunteer will be selected, different nodes outside of those Ripple choose could be selected, it unfortunately not happening often.
XRP is therefore controlled by one fork : Ripple. In contrast, Bitcoin has had more than 100 forks, and even Ethereum has had six forks This data show why those 2 projects managed to be decentralized.
Moreover, Chris Larsen, Jed McCaleb, and Arthur Britto (Ripple funders) decided to sign an agreement allocating 80% of the total XRP supply to the company, the other part was divided between the three founders. Few years after that, the company owns more than 60 billion of these coins, which represents more than 50% of the total supply. Each quarter these tokens are sold, it represents a huge amount of money, we're talking about millions of dollars each month. To sum up, Ripple and their partners control most of the XRP supply (with a 15 billion dollars of net worth).
All in all, we can say that Ripple and its entire organization owns a huge part of XRP, they also have a lot control over XRP, all this factors show that XRP is very difficult to be considered as a decentralized cryptocurrency. Therefore all the integrity of the blockchain is compromised, a crypto that wants to be stable and serious should not concentrate all the control in a single entity.