Is XRP centralized? Yes, it is. Does that matter? YES, IT DOES!
After multiple arguments with cryptocurrency traders and XRP holders, I decided to look into the many claims about XRP's centralization, nature and price potential.
I created this analysis to address many of the rumors that were floating around unbacked by sources and evidence, and use it as a centralized repository of criticism and data.
A quick note: I do not know or claim that Ripple Labs has acted fraudulently, and it is not my position to claim so. However, tremendous derangement exits within the XRP community about what is currently going on with their project. Do not be surprised to hear from them that the ongoing Ripple lawsuit is a "good thing" that cleans up weak investors for the real visionary HODLers of XRP who will get super rich.
So, in this post, I will try to breakdown the claim that XRP is centralized, and why that matters. I will present data on the distribution of XRP ownership, the distribution of validators and their process of joining the network and reaching consensus, the nature of Ripple’s involvement with XRP development, and how all the above enhance the positions I’ve stated before – XRP is not investment panacea.
First of all, let's talk about the distribution of XRP currently. The total supply of XRP in circulation currently is 45bn XRPs. The total circulation of XRPs will be 100bn.
The projections are that out of the total 100bn XRPs, Ripple will own at least 60bn with 20-30bn XRP already in their possession.
The founder, Chris Larsen, owns around 6bn XRPs in his personal wallet, if not more, and owns 17% of Ripple. Brad Garlinghouse, the current CEO of Ripple, also owns 6% of the company and an unknown but significant amount of XRP.
In total, the founding team behind Ripple own 20% of all XRP in circulation, and Ripple itself owns 60% all XRP ever. Although some of these number may have changed, the breakdown of XRP ownership remains significantly centralized.
The first analysis on these data is valuable for traders and investors. With 100bn XRP in total supply, a ~20x increase from Dec. 20th, 2020 prices to 10USD would make the network’s value close to 1tn USD.
Currently, there are 5 public corporations that are valued at 1tn USD or more and these are Amazon, Apple, Alphabet, Microsoft and, the odd one out, PetroChina.
Do you believe that XRP’s value will be on par with these behemoth tech companies anytime soon? I do not. If you seek a 20x return, you could have gained that in the DeFi micro bubble from earlier in the year. A return multiple that is above 20x is and will remain very unlikely for XRP over the coming decade.
Second point, the validators. Currently, XRP’s network is quite limited, namely to 150+ validators. The reason these nodes are so limited is because Ripple maintains a Unique Node List (UNL) and controls 100% of all nodes that are added to their ledger.
Out of those 150+ nodes, 70 are fully owned by Ripple and few more by other partners. All five of the recommended validator nodes are also owned and operated by Ripple. Furthermore, XRP uses the XRP Ledger Consensus Protocol, a private consensus mechanism that is owned entirely by Ripple.
In other words, Ripple, the company, is tied extremely close to the development and operation of the XRP ledger and the XRP price, while also owning the vast majority of it.
This means that a criminal lawsuit against the company, like the one that was announced on December 22nd, 2020, can significantly affect the development of both the XRP network and the price of the coin. Trusted third party risk is also a continuously present risk.
Additionally, Brad Garlinghouse himself has stated multiple times that the sale of XRP is necessary for the constant development and profitability of Ripple.
XRP sales from their escrow accounts. If the supply was not artificially choked, would XRP price be this high? Probably not.
Furthermore, Ripple has publicly stated that its goal is to compete with the SWIFT platform for financial settlement. The idea is that XRP can be the coin used to facilitate all such transactions and then get exchanged to the local currency of choice.
That would be a fantastic use case, however the emergence of CBDCs as a solution for mainstream banking needs has completely invalidated Ripple potential use case. CBDCs will be able to do the same exact thing XRP does with no cost or third party ownership.
I know this because I have been blessed to discuss CBDCs with a number of people working on this in the federal and international level. I am also a member the Digital Euro Association and I have been selected as a CBDC expert by the EU Blockchain Observatory and Forum.
Lastly, the absolutely worse thing about XRP is the Ripple community. Time after time after time they make invalid insane claims that intentionally play on the FOMO of people and the desire to make easy profits.
Rhetoric about “the Great Reset” and backdoor deals with policy makers for Ripple ownership are the biggest joke in actual stakeholder conversations. If you want to know what policy makers actually think, please attend virtual seminaries organized with or by the ECB, the BIS, the IMF, World Bank and other major stakeholders.
You can find all sources linked below. As always, do your own research and, as always, buyer beware.
MIT Tech Review - No, Ripple Isn’t the Next Bitcoin: https://www.technologyreview.com/2018/01/11/146252/no-ripple-isnt-the-next-bitcoin/
Total and Current Supply: https://www.coingecko.com/en/coins/xrp
XRP Nodes and Validators: https://www.coindesk.com/xrps-tech-differs-crypto-assets;
Ripple & XRP Ownership Breakdown: https://en.cryptonomist.ch/2020/01/25/ripple-who-owns-the-most-xrp/
XRP Validator list: https://xrpcharts.ripple.com/#/validators
FinCEN’s Fine Press Release and Statement that Ripple owns XRP: https://www.fincen.gov/news/news-releases/fincen-fines-ripple-labs-inc-first-civil-enforcement-action-against-virtual
More breakdown on Ripple’s Trusted Third Party risk: https://www.cnbc.com/2018/01/16/why-ripple-is-not-cashing-out-its-xrp-holdings.html
Breakdown of all Ripple owned accounts (91%+ ownership): https://docs.google.com/spreadsheets/d/17_Wgo4iwGoPB1JenxD5fHtJ0HQYLpb669zaNemPojG4/edit#gid=0
Fraudulent Advertising and Statements from the XRP Community: https://www.youtube.com/c/DigitalAssetsDaily/videos?view=0&sort=p&flow=grid
PS: Big thank you to the rest of the community for compiling a number of data into sources that I could use in this analysis.