Recently, the surging XRP has made many people both love and hate it. My attitude towards it is: highs are for selling, not buying. Let's learn about this veteran token.
To understand XRP, we need to first grasp its basic information.
XRP, also known as Ripple Coin, is the native currency and token of the Ripple Network. It is built on blockchain technology and uses the distributed ledger XRP Ledger to record all transactions. The XRP Ledger is a decentralized, open-source blockchain platform that supports fast transaction confirmations, usually completed within 3 to 5 seconds.
The characteristics of XRP are
- Fast Transaction Confirmation: XRP is designed to enhance transaction speed, with transaction confirmations typically taking only a few seconds, far faster than other cryptocurrencies like Bitcoin.
- Low Transaction Costs: Compared to other cryptocurrencies, XRP has very low transaction fees, making it an ideal choice for cross-border payments. Recently, Russia has reopened cryptocurrency cross-border trading, which is a positive development for XRP.
- Multi-Currency Exchange: In addition to being used as a payment method, XRP can also be used for quick exchanges between different currencies, including fiat and cryptocurrencies.
However, XRP is often criticized for its centralization issues, as it is seen as overly centralized regarding decentralization concerns, due to the important role Ripple Labs plays in the issuance and management of XRP.
1. Validator Centralization
The consensus mechanism of the XRP Ledger (XRPL) is known as 'Proof of Authority' (PoA). In this mechanism, transaction confirmations are not carried out by widely distributed miners or stakers but by a pre-selected group of validators. These validators are responsible for maintaining the security and consistency of the network. Although anyone can run a validation node, the actual 'Unique Node List' (UNL) that affects transaction processing is recommended by Ripple Labs and its partners, meaning that critical network decision-making power is concentrated in the hands of a few entities.
2. Initial Token Distribution
The initial token distribution of XRP has also sparked controversy. Of the total supply of 100 billion XRP, a large portion (about 80%) was initially owned by Ripple Labs.
3. Dependence on Ripple Labs
Ripple Labs plays a core role in the development, maintenance, and support of the XRP Ledger. Although Ripple Labs claims its goal is to gradually reduce its control over the network, it remains a key participant in the network at present. This dependency means that the XRP Ledger is somewhat subject to Ripple Labs' decisions, in stark contrast to fully decentralized blockchains like Bitcoin and Ethereum.
4. Partnerships
Ripple Labs has established partnerships with many traditional financial institutions and central banks, which typically have centralized structures. This cooperation further reinforces the centralized image of the XRP Ledger, as its close ties to the traditional financial system are seen as deviating from the principles of decentralization.
Similarly, while XRP is centralized, many partnerships have been established with enterprises and financial institutions, including central banks. Despite most tokens being held by the project team, its trading volume and the technical prowess of its increases are undeniable. It must be said, it is a strong and powerful token.