Ripple, the payments company behind the XRP token, currently the third biggest cryptocurrency by market cap, just got hit with a harsh critique. Cryptocurrency exchange BitMex, through its research team, found its system to be centralized, and disbanded most of its value propositions.
Through a report titled “The Ripple Story,” BitMex’s researchers essentially conclude that Ripple doesn’t “appear to share any interesting characteristics with crypto tokens like Bitcoin or Ethereum, at least from a technical perspective.”
The report addresses a series of questionable practices the company resorted to when distributing its XRP reserves. Most of the tokens are held by the company, its founders, and its employees. So much so that late last year, when XRP came close to $4, Ripple’s founders and CEO were among the richest men in the world.
BitMex’s researchers also address the history of internal disputes the company endured, including Jed McCaleb’s departure from the company, that result in a legal battle that dragged in Bitstamp.
Per the report, Ripple was initially conceived to enable a peer-to-peer trust network, where individuals could lend funds to each other. BitMex’s researchers note that its network architecture will remain “unstable.” They add that the Ripple’s trust networks are “unlikely to be regarded as reliable.”
BitMex research on Ripple’s shortcomings
While working on the report, BitMex researchers conducted in-house testing with Ripple’s technology. They soon discovered that Ripple’s consensus protocol was too complex for them to understand its detailed inner workings.
After installing Rippled, the company found the company was in “complete control of moving the ledger forward, so one could say that the system is centralized.” The repot also touches its “balance freeze” feature. As the name indicates, it allows Ripple gateways to “freeze or even confiscate” XRP tokens.
The report notably concludes:
“More significant than the disputes is the fact that the Ripple system appears for all practical purposes to be centralised and is therefore perhaps devoid of any interesting technical characteristics, such as censorship resistance, which coins like Bitcoin may have — although this does not mean that Ripple or XRP is doomed to failure.”
In addition to Ripple’s shortcomings, researchers also found the company’s ledger is missing 32,570 blocks. The data isn’t obtainable through its nodes, which means auditing the company and its whole chain in the future can be impossible.
Ripple can see wider adoption
Despite its shortcomings, BitMex researchers note that Ripple can still see wider adoption. Per the report, centralized systems are “easier to construct, more cost efficient, faster, cheaper to run, and easier to integrate into other systems.”
Adding to that, Ripple’s marketing and ability to create new partnerships is effective, although some may see part of it as misleading. Given the company’s financial capital, it can bolster the XRP token’s adoption among businesses and consumers.
This, BitMex notes, makes arguments bitcoin critics raise against XRP even more pertinent. These include regulators’ ability to shut down the system, the token’s volatile price, and its case against traditional currencies like the US dollar.
Defending his work, Ripple’s chief cryptographer David Schwartz took it to Twitter to dispute some of what BitMex’s report stated.
Heck, you can argue bitcoin is totally useless because unless everyone agrees on the chain validity rules, they can't agree on the longest, valid chain. So often I see anti-Ripple arguments that nobody would accept as valid if aimed at any other system. 2/2
— David Schwartz (@JoelKatz) February 6, 2018
While Schwartz’s defense did force BitMex to agree with some of his arguments, the report’s criticism still stands:
Exactly. I agreed that a system which uses a list of hardcoded servers, like ripple, has many advantages over PoW systems like Bitcoin (e.g no double spending problem). I don't think anyone doubts that.
— BitMEX Research (@BitMEXResearch) February 6, 2018