The history of technological innovation has been a treasure trove for drama the likes of which movies are made. From the unique techno-culture that pervades the Silicon Valley and San Francisco area, to Hollywood movies like The Social Network about the origins of Facebook. Yes, group conflict and technological innovation go hand-in-hand. It creates new leaders and sometimes mints new billionaires along the way. Despite this storied history, there is one connection that has never been made between people and technology – until Bitcoin:
Technology exists without regard for the personal political opinions or ambitions of any one individual or group. Of course, all shades of political colors have used technology to their advantage in some respect or another; private email servers, Twitter accounts, websites, fake news, and other examples abound of political groups attempting to gain an advantage over one another. But even so, history has been wise enough to draw a clear distinction between technology and politics.
In 2013, if you were a member in good standing of Bitcointalk – one of the first messaging / conversation boards specific to Bitcoin – you probably saw something that was noteworthy: It was an attempted co-opting of a technology – blockchain technology – by anarchists. I remember reading some of their posts, which essentially demonized banks as the root cause of global turmoil, trouble, and economic downturns. They saw Bitcoin not as an innovation to serve everybody; instead they saw it as an innovation to serve only their own political agenda – the circumventing of all financial and governmental authority.
Some of them were genuine. I got the feeling as I read through posts that a few of the articles were written by sincerely idealistic young people that wanted to make a difference – perhaps a destructive one to the current financial system – but a difference nonetheless. However, as time went on, I realized that the financial interests that own Bitcoin were simply using the crypto-anarchist mindset and agenda to rally support around their financial investment in the first decentralized currency. At first I’m sure it was a convenience. If any questions arose about who owned the ‘most’ Bitcoins, those powerful financial interests could simply trot out the usual crypto-anarchists slogans and avoid the tough questions.
In this fashion, they sidestepped the flammable issue of Bitcoin ownership centralization: 1
Ripple and XRP
Ripple and XRP started out very small. The team that created XRP began as most other startups – on a limited budget and with a small team of core individuals that had invested their own resources and time to pursue an idea.
If you want to learn more about the first beginnings of Ripple and XRP, I urge you to watch one or more of the videos that Ripple recently released. I won’t highlight all seven of those fascinating highlights, but here is the first one if you’re curious:
The digital asset that Chris Larsen, David Schwartz and company created needed to be marketed to the existing crypto market at that time, and it was an almost-impossible uphill battle. Those that had invested their money in Bitcoin were not welcoming to other alternative coins, but they seemed to tolerate them if they could make money by mining those coins. If you’re new to crypto, you’ll learn that some cryptocurrencies like Bitcoin are what are known as proof-of-work, where the network security and prevention of double-spending is accomplished by many computers competing with each other to solve complex mathematical problems.
Some noted individuals in the crypto space had started to innovate, however, to the concern of the financial interests that had placed their bets already on the first decentralized currency – Bitcoin. And they did not react positively to the innovation that XRP represented.
Here was a network whose protocol provided security and transaction validation without mining: And it wasn’t as troublesome as the ‘proof of stake’ systems that had been tested to that point.
But the worst thing of all in the eyes of the anarchists pervading the online forums? Ripple indicated that they were willing to work with the existing financial infrastructure – and improve it. They were willing to work with banks. They were willing to work with governments. They were willing to work with regulators, not circumvent them.
Cue the often-vitriolic attacks on XRP for the next two years on the crypto chat forums.
Point by point though, each criticism was refuted rationally by Ripple; most of these points can be found if you just Google for the information, but one criticism pervades to this day: The criticism that the XRP Ledger is centralized.
Note that this criticism tends to be stated as a Boolean value (yes or no) by XRP critics, 6 while other cryptography experts and academics opt for measuring decentralization on a continuum (i.e. how much is it centralized or decentralized), and along multiple vectors like centralization of exchanges and ownership.7 To get at the true nature of what is real and what is hyperbole, we have to start at the beginning: Bitcoin.
What makes Bitcoin the most important computing innovation of 2008 – and probably the entire decade? It serves as a censorship-resistant, decentralized currency that exists without any central authority. It is not issued by any government, and it doesn’t recognize borders.
Because of these characteristics, it served one use case more than any other when it was first created – as a currency for underground commerce on black markets.
Since these early roots, however, the world has identified hundreds of use cases where blockchain technology serves to advance the cause of mankind – like storing land titles on a blockchain,8 or letting artists get paid for each download of their music.9 All of it is predicated on a cooperative type of decentralization. No one person or company or government gets to control whether an individual can access their unspent transaction outputs (the technical term for Bitcoins) or send them to another wallet on the blockchain.
In addition, decentralization of transactions and the history of those transactions serves other needs:
- Data redundancy
- No-counter-party, trust-less transactions
- No central authority
- Censorship resistance
It’s decentralization that provides these benefits.
And it’s decentralization that is the main criticism of XRP by the Bitcoin purists. Is there any validity to their criticism – and how concerned should you be as a potential XRP investor?
How XRP Consensus Works
To qualify as a potential replacement to the proof-of-work consensus model, any new innovation must solve the double-spend problem. The double-spend problem is how to digitally prevent one individual from sending the same payment more than once – a.k.a. prevent them from ‘double-spending’ the same amount.
Before Bitcoin, this was solved by having one central authority – a bank usually – determine if the person really had enough money left in their account. If they didn’t, then they were restricted from sending any further payment.
However, Bitcoin introduced the concept of decentralization – having a group of distributed computers collectively decide if that individual had already spent the money. It does this by agreeing on a history of all transactions to that point; from the very origin of the money to how each unit is spent throughout its history. This history is called a blockchain. The Bitcoin network agrees on each historical unit – a block – by solving complex computational problems. The computer that ends up submitting a block successfully is also rewarded with Bitcoins; i.e., the concept of ‘mining’ for Bitcoins.
But XRP is different. Instead of many computers competing with each other to solve computational problems, it puts the transaction to a vote. If enough validators agree that the transaction is valid, then it is entered into the ledger history, and the unit of history – the ledger – is closed. Some have likened the difference between the Bitcoin and XRP consensus models as competition vs cooperation, respectively.
While Bitcoin relies on raw computing power to perform validation of its network, XRP relies on agreement of validators. Once a ledger is created, it can never be undone; hence the concept of ‘final settlement’ in XRP that is missing in Bitcoin. In Bitcoin, it is still possible for a transaction to be reversed in a subsequent block. As more and more blocks occur, however, this likelihood significantly decreases to almost-zero. Hence, the necessity to wait for six blocks before a transaction is really considered final in Bitcoin. This can take up to an hour, while XRP settles in under four seconds. 10 11
Who Runs The Validators?
So then the next natural question for you should be “who are the validators?”
This is where XRP has been criticized in the past, and it’s why Ripple has declared 2018 the “year of decentralization” for XRP.
While anybody can run a validator on the XRP Ledger – it is a permissionless network – there are a group of validators that are known as trusted validators. These trusted validators form the recommended unique node list, or UNL. Presently, the servers on the recommended UNL belong to Ripple – the company.12 This doesn’t necessarily mean that the network is dependent on Ripple or its validators; each person or organization running a validator can change which other validators that it trusts by altering its own UNL.
For example, if the company ceased to operate tomorrow for some reason, these validators could easily form a new UNL of their own, forking into a new network – or carrying the XRPL forward without the company. From the XRP Ledger FAQ: 13
“The Ripple network is opt-in. Each participant directly or indirectly chooses its UNL. Should Ripple stop operating or should Ripple act maliciously, participants could change their UNLs to continue using the network.”
Despite this fact, just having a recommended UNL – with a majority of the listed servers belonging to Ripple – has invited criticism.
This aspect of using a recommended UNL that points to Ripple validators impedes the perceived benefits of full decentralization. In other words, investors – whether they be owners of XRP or banking customers – would probably prefer that most of the validators belong to XRP stakeholders that are considered as trustworthy as the company.
The Year of Decentralization
In a meetup in Seoul recently, Warren Paul Anderson, Ripple’s XRP Ledger Product Manager, talked about the XRP Ledger and the history of its creation – and the creation of cryptographic networks in general. He made the following point:14
“You can chose two of three things when you create a blockchain technology: Scalability, Security, or Decentralization.”
His point was accurate and gets at the heart of the matter; while XRP’s performance metrics are God-like, the last piece of the puzzle is to achieve a high level of decentralization of the recommended UNL. To do this, Ripple carefully charted a path that explicitly defines several important milestones.
Ripple’s Detailed Decentralization Plan
Starting in May of 2017, Ripple published their preliminary plan to pursue full decentralization of even the default UNL.15
At that time, the high-level goals and end-states were clear and divided into two components:
- Diversify validators on the XRP Ledger
- Add attested validators to the recommended Unique Node Lists (UNLs)
As the year progressed, Ripple focused on documenting tangible steps to lead to the desired outcome, and their detailed path towards full decentralization was born. In October of 2017, they published more information about the decentralization plan.
The update was dramatic.
In less than five months, the XRP Ledger went from 25 total validators – with 5 trusted validators on the recommended UNL- to over 70 total validators. However, to mitigate any security risk of changes to the recommended UNL, they made a change to host the cryptographically-signed validator list at a new external site.16
This is where we are now.
The goal of the decentralization effort is to have a high degree of diversity on the recommended UNL, and to have more than one recommended UNL. To get there, several steps must be accomplished. Here is what those steps entail:
- Update the site and the existing validators to use validator tokens instead of master validator secret keys.
- This adds an additional layer of security to the existing validators. Ripple will periodically rotate the tokens.
- Add new third-party validators. For every two third-party validators, Ripple will remove a Ripple-controlled validator from the recommended list.
- Eventually, as the size of the network grows, Ripple will encourage others to run validator list sites similar to vl.ripple.com.
NOTE about #3: Cobalt will be implemented before proceeding with this step, as well as several other updates to the consensus algorithm that are designed to enhance fork safety. Any changes resulting from implementing Cobalt will also enhance the ability to support multiple recommended UNL lists while minimizing any possibility of a fork. 17 18
The overall timeline of decentralization now looks somewhat like the following:
Ripple is making good on their published plans, and we are now approximately half-way through the process of achieving full decentralization of the XRP Ledger.
Desired End-State of XRP Decentralization
The XRP Ledger is the fastest, most scalable cryptographic network that has the necessary capabilities and features to serve global-scale commerce. The benefits of decentralization are available to organizations immediately, as well as the opportunity to participate meaningfully in transaction validation.
The careful management of these decentralization steps by Ripple addresses any customer concern, and also answers the criticism pointed at XRP by some crypto purists.
While the technical details of a multi-phased decentralization plan do not fit nicely into a witty tweet, it reflects the logical approach to problem-solving that we’ve come to expect from Ripple; and as a former consultant, I can tell you that it’s that reputation that will motivate banks and other participants to become active members of Ripple’s decentralization vision.