OPINION: The XRP Ledger has been bashed by many members of the cryptocurrency community since its genesis. From wanting to work with regulators amongst the anarchism of Bitcoin [BTC] to being a pre-mined currency during the reign of Proof-of-Work, XRP has been an outlier to Bitcoin maximalists and proponents of decentralization alike. Therein lies the question: Is the XRP Ledger decentralized?
First, it is necessary to understand what decentralization means. It is also important to understand that decentralization cannot be measured by an absolute value, and instead can be measured on a spectrum. There are a variety of factors that determine the degree of decentralization.
Consensus on the validity of transactions:
Who decides whether transactions are valid or not on a network is the primary deciding factor of decentralization in a cryptocurrency blockchain. If one party can determine that all processed transactions are invalid, then all the other factors of decentralization are not applicable.
Bitcoin utilizes Proof-of-Work as its consensus mechanism, through the incentivization of specific nodes to package transactions into blocks and add them to the chain of existing blocks. These nodes are known as miners and are rewarded with Bitcoin for the processing power and electricity they utilize for their assigned processes. Currently, the top 3 largest mining pools in Bitcoin, out of which two are owned by the same organization can coordinate to effectively shut down the network.
The XRP Ledger, in contrast, utilizes an algorithm known as the Byzantine Consensus Algorithm. The validators come to an agreement, otherwise known as ‘Consensus’, agree about the transaction set and order the transactions. This is conducted according to deterministic rules, which is then accepted as the next ledger on the network. These validator rules are enforced by all nodes on the network.
The list of validators to be consulted for each transaction can be changed using a feature known as Unique Node Lists. Every node on the network can choose its own UNL or conform to the UNL provided by Ripple. This effectively provides decentralization in the form of redundancy mechanisms for trusted nodes.
Network Majority Control:
By the very definition of the word, a network cannot be considered decentralized if a majority of it is controlled by one organization. If a network is controlled by one individual or organization, then it effectively becomes non-democratic in principle.
Bitcoin is at the risk of losing 51% of its power to Bitmain, the company who operates close to 42% of its hashpower. Due to its reliance on the Proof-of-Work consensus mechanism, any organization or individual with more than 51% of the total processing power on the blockchain will effectively control the network.
The XRP Ledger does not have any risk of hashpower centralization, as it does not depend on hashpower for validation. Even as the network relies on a collective trust in the recommended list of validators, every node in the network can also collectively decide to change to a completely different UNL. Moreover, maintaining a validator node does not require exorbitant amounts of electricity or specialized hardware.
The ownership of the network is also an important part of decentralization. If any one organization or individual has ownership over the network, they could effectively shut it down.
Many believe that Ripple could shut down the XRP Ledger if it wanted to but due to the existence of UNLs, it is possible for the network to function as long as the minimum amount of validator nodes are functional. Moreover, the XRP Ledger is open-source, which means that even the intellectual property rights relating to the software of the Ledger is not covered under licenses.
Ripple’s decentralization strategy:
Ripple Labs has focused on the speed and dependability of the XRP Ledger since its inception and is focusing on decentralizing the Ledger since late last year. This is referred to as their decentralization strategy.
Currently, there are 3 third-party validators in the recommended UNL with Ripple planning to remove 1 Ripple validator for every 2 third-party validators. This will come after the diversification of the validators. The recommended UNL will be updated until “no entity operates a majority of trusted nodes on the XRP Ledger”.
The XRP Ledger requires 16 third-party validators to have the same level of decentralization as Bitcoin and Ethereum [ETH] and currently requires only one more to surpass them. This is the culmination of their decentralization strategy.
Ripple’s David Schwartz, one of the original architects of the XRP Ledger, said with regard to decentralization:
“What makes a system decentralized is not how it solves the double spend problem but whether anyone has a legal right to run the system or can exploit information asymmetry to run the system or otherwise coerce the users of the system to accept rules they don’t want.
Even as many proponents state that the XRP Ledger is centralized around Ripple Labs, it is apparent that redundancy mechanisms exist to ensure the continued operation of the XRP Ledger even if Ripple shuts down.
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