Ripple's XRP: Giving the Third-Largest Cryptocurrency a Second Look

It's not news that coindesk is very biased against Ripple. But publishing such an article is a bit crossed the line. This author either really doesn't know Ripple well, or he just wants to mislead people. It's a shame for coindesk to publish such a garbage.

I will refute some of the claims made in that article.

"Instead of using proof-of-work, it relied on a new, unproven consensus protocol."
Calling ripple consensus protocol is unproven is a bold assertion. Yet it didn't even try to back it up. On the other hand, XRP ledger has been in use for years and there has been no reports that it doesn't work. And it has defended itself against Stellar's attack once.
"This protocol requires users to extend trust to validating servers that produce this consensus."
False. Users only need to trust gateway. Users never need to trust validator. Validators need to trust validators. Each validator keeps its trusted peers in UNL. The consensus is achieved if 80% of the validators agree on a set of transactions. The UNL for each validator can be different.
"Relying on trust, rather than proof-of-work, kind of makes sense for Ripple, because you need similar trust relationships anyway for IOUs to work."
It doesn't make sense to compare trust with proof-of-work. Because consensus in Ripple is not achieved through trust. I just discussed how consensus is achieve in the previous point. Whether or not a single trusted validator validates a transaction doesn't mean anything.
"Instead of needing to trust only the mathematics of proof-of-work, you can only trust the XRP token by setting up trust lines that almost inevitably end at Ripple."
This is completely nonsense. XRP doesn't need trust. XRP is the native asset on XRP ledger. It doesn't need trust lines. And, trust (whatever he means by it) doesn't bear any resemblance to proof-of-work.
"And while in theory anyone can set up such a server, if Ripple does not include your server in their trust lines, then you're not part of the consensus-making process."
This is nonsense too. There is no such thing as including a server in trust line. However, a validator does need to be trusted by other validators to participate in the consensus process. But Ripple, the company, doesn't decide whether a validator is trusted or not. Each validator choose their own trusted validators. Ripple, the company, currently does recommend a list of trusted validators. But that doesn't mean everyone must use it.
"So, Ripple is highly centralized and XRP is more akin to a PayPal account than a trustless system like bitcoin."
The argument that Ripple is centralized only makes sense at this moment if you are referring to the fact that most validators currently trust the UNL that Ripple the company recommends. However, that will change. See It should be noted that it's actually much easier (you read it right, easier) to gain super power in bitcoin network than in ripple network, because in bitcoin network, all you need is the sheer computing power, but in ripple network, you need to make people trust you. It's much harder to gain people's trust.

Also XRP is not like PayPal at all. Anyone can create a ripple wallet. And there are many ways to activate it. No one can control it but the owner of the wallet. On the other hand, a PayPal account can be terminated by PayPal at any time.
"why would liquidity providers not use any other common (reserve) currency like US dollars for that, especially considering the highly volatile price of XRP ?"
Market maker would use XRP instead of USD for bridging asset for the following reasons:
  1. USD is inflationary, XRP is deflationary
  2. XRP has some features which make it a better bridging currency on ILP:
    1. Autobridging
    2. Escrow
The high volatility is not an issue. This is already taken into consideration. See the following graph, using high volatility XRP, Ripple's customers (banks) just need to pay more for currency hedging, but still it's cheaper than not using XRP. If XRP market becomes stable, the customer will save even more money.

"In short, it's hard to come up with any rational reason why XRP exists in the Ripple protocol, other than as a means for Ripple to make money."
It's just clueless for him to say XRP is just a means for Ripple to make money. Ripple, the company, doesn't make money by selling XRP. Their employees doesn't make money by selling XRP. XRP helps Ripple to sell their software to banks which is how it makes money.

"That's like ignoring the estimated 1 million bitcoin in [bitcoin creator] Satoshi Nakamoto's wallet just because they are not circulating at the moment, and may never circulate. "
That's totally different. XRP supports escrow. Bitcoin doesn't. If some XRP is put into escrow, it's just impossible for them to go into circulation. Just no way. There is no such guarantee for Satoshi's bitcoin.
"ILP was also developed by Ripple, and appears to be a fairly impressive piece of technology to bridge between various blockchains and systems. It's open source, hosted by the Linux Foundation and could become a part of the Hyperledger framework."
ILP is not hosted by Linux Foundation. ILP is a protocol to connect ledgers (like implementations of Hyperledger). So it couldn't become a part of a single ledger.

"But note that ILP itself has no native token; it doesn't depend on XRP and doesn't add value to it. Even if ILP finds wide adoption in the fintech industry, it will do precious little for XRP."
ILP provides a level playground for bridging assets in which XRP by far seems to be the single player. Using bridging asset will have great benefits for banks because banks doesn't need to keep cash in nostro accounts any more.
"As for the moonshot of replacing Swift; first of all, I highly doubt a global consensus protocol is the right approach and could even scale to that level. But also, banks currently control Swift. How likely is it they would relinquish control to a small startup and allow themselves to become beholden to its private currency, that they have no need for? I just don't see that happening."
It's not XRP ledger that will replace Swift. It's ILP which is not a global consensus protocol. Swift is testing Hyperledger Fabric which will allow Swift to have real-time settlement ability, just like ILP. However, Ripple's solution will still have advantage over Swift's Hyperledger Fabric solution. See The empire will be defeated. And the lethal weapon will just be XRP.


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