What is a “cryptocurrency?”
Try as Webster dictionary may, a formal definition remains hard to pin down. While it’s unclear exactly when the word itself was coined, bitcoin, the world’s very first such cryptographically-backed asset, is probably the answer that most often springs to mind.
Still, a vast array of very different technologies now carry and use the moniker, and companies, opportunists and investors all seem to have their own version of the word and its meaning.
Naturally, some crypto assets have also run afoul of this ever-changing status quo.
Perhaps the largest yet to draw this complaint is XRP, the third-largest cryptocurrency by value and the technology that powers just one of several enterprise banking products offered by San Francisco startup Ripple.
Earlier this year, XRP broke out of its sideways trading, moving from around $0.30 to nearly $4. While the price soon after receded, interest in Ripple is larger than ever, with a whole new captured audience cheering on its announcements and partnerships.
But as many others are keen to point out, bitcoin and XRP aren’t exactly the same. In fact, calling both “cryptocurrencies,” to some, would be like calling fruits vegetables.
“Just a friendly reminder. Ripple is not a cryptocurrency,” BitcoinTalk user “leopard2” wrote recently.
It’s a statement echoed by many others throughout the industry.
“I don’t call this cryptocurrency. It’s not currency,” Ripple CEO Brad Garlinghouse said at a Yahoo Finance conference in February.
Instead, the company seems to prefer the term “digital asset.” And that isn’t necessarily just smoke and mirrors. Indeed, terms such as token, asset, unit and currency are used indiscriminately throughout the industry.
So, while XRP may not fit the definition of cryptocurrency, examining the technology from the lens of this nomenclature and its debates can be helpful in understanding its key features.
XRP is centralized
One of the main criticisms of XRP is that it’s not truly “decentralized.”
If you’re new to the space, that might not mean much. But, decentralization is a big deal to crypto enthusiasts. In many ways, it’s an attribute that separates cryptocurrencies from older online money systems, where a central authority could block or have control over transactions.
Supporters of “decentralized cryptocurrencies” tout the internet as an example of a decentralized system, in that information moves freely and openly (with some restrictions) and without any central party in the middle operating it.
Still, others see centralization as a tradeoff, arguing it’s oftentimes too inefficient. Ripple developers readily admit that XRP does things differently and isn’t as decentralized as they would like it to be.
The debate, then, is not over how centralized Ripple is, but whether it produces a better online money without the same, full decentralization of bitcoin.
The argument against XRP: Some argue that XRP doesn’t add anything new in the way of innovations in crypto-economics, another buzzword in the nascent field.
One often touted sticking point is that Ripple the company selects which nodes validate transactions, compiling what’s known as the Unique Node List (UNL). In bitcoin, ethereum and other cryptocurrencies, anyone running the software can perform this action.
Indeed, a major cryptocurrency exchange went so far as to call out this point in a research report on Ripple released last month, which argues XRP “does not serve a clear purpose.”
Although Ripple has brought on a range of entities to validate transactions on the network, including the likes of Microsoft and MIT who are now running XRP nodes, critics argue that the way the algorithm is set up, other nodes veer toward trusting Ripple’s node, and therefore, the company itself.
The argument for Ripple: Ripple developers argue the opposite, that XRP is better than more traditional cryptocurrencies for several reasons: It’s faster and more scalable. Plus, it’s less expensive to secure than bitcoin’s energy-hungry proof-of-work.
Ripple chief market executive Cory Johnson went as far as to argue XRP “demonstrates an intrinsic value” that stands out among “sillier” coins and assets.
Not to mention, time and time again, Ripple developers have argued that they plan to decentralize XRP over time, a goal they’ve chronicled in their company blog. And there’s merit to suggest it is. Already, startups are looking to do things with XRP, like launch ICOs, that the company doesn’t quite condone.
In an earlier interview with CoinDesk, Ripple CTO Stefan Thomas went as far as to contend XRP will be “more decentralized” than bitcoin in the future as they add more validators and flesh out the technology. He and other Ripple developers further argue they’ve delivered on their past promises.
Back when XRP wasn’t open source, critics argued it would never be. But Ripple open sourced the code for its XRP “full node,” meaning it could get more scrutiny from outside developers and users could for the first time use to operate to join the network in 2013, seen as at the time as a step away from sole control of the online token from Ripple the company.
Because of its track record of delivering on its goal of decentralizing XRP, including adding 55 more validators to the network last year, Ripple developers believe there’s at least some reason to believe it will fulfill its vision, however ambitious.
Ripple and XRP’s relationship is problematicly vague
Nomenclature aside, there’s still Ripple’s relationship to the XRP Ledger to parse.
Indeed, a recent Bloomberg report noted that because XRP isn’t clearly defined, it could end up being considered a security by the SEC. The assertion seems to stem from attempts by Ripple to have XRP listed on major exchanges, attempts the news source alleges may have failed over this concern.
“While the coin doesn’t represent an ownership stake in Ripple, the concern is the close relationship might still lead regulators to deem XRP a security,” the report reads.
In response, the issue has seen no shortage of airtime on social media.
The argument against Ripple: Critics here argue that there’s a case that XRP could be considered a security because of the way that it was released in many ways a variation on the initial coin offering (ICO) model.
Indeed, after XRP Ledger (then called the Ripple Consensus Ledger) was created, XRP tokens were distributed to users of popular bitcoin forums in what isn’t all that different from what’s today called an “airdrop.”
But while speculative, the comments hint at another issue, the seeming preference among Ripple executives for talking up XRP when the price is going up.
Critics argue that when the token sees boosted attention, like over the last several months, Ripple’s leaders parade it around. In a recent Fox News interview, for example, CEO Brad Garlinghouse trumpeted XRP specifically as the beginning of a “new asset class” solving a “global payments problem.”
Meanwhile, when it’s trading sideways, the public-facing company doesn’t pay it much attention, critics argue, adding that if Ripple really believes XRP is a crucial piece of its product, the startup should herald it consistently (and within the boundaries of securities laws).
The argument for Ripple: Still, others see the security question as moot.
For one, Ripple’s business doesn’t directly influence the value of its cryptocurrency, though it would doubtless benefit from the kind of demand generated by large banking institutions using it to move transactions.
In this way, supporters argue there’s always been a clear purpose for XRP: it makes any financial products built on the platform even faster and cheaper.
Plus, it’s not exactly fair to say that the entire company has flip-flopped on their view of XRP.
Many of Ripple’s chief developers and researchers have held on strong to the idea of XRP as a token, even if the public-facing company appears less steadfast.
Banks don’t have a reason to use XRP
Ripple has always touted itself as a partner for banks and other large financial services providers, but many critics think the company doesn’t give those providers any real compelling reason to use XRP.
That said, a spate of companies have begun using all three of Ripple’s products – xCurrent, xRapid and xVia – this year. Even a number of financial institutions and payments providers have started piloting the use of xRapid, Ripple’s only product that hinges on XRP use.
The argument against Ripple: Critics argue that XRP will never get much adoption from big entities. (Even some Ripple clients have said they think XRP is too volatile and risky a currency to adopt right now.)