By Max Bibeau | USA
Cryptocurrency is a newly popularized method of transferring value. It prides itself primarily on three things: decentralization, security, and its lack of banking influence. However, while popular cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH) check all of these boxes, Ripple (XRP) finds itself surprisingly lacking. As Ripple becomes a serious contender for the top spot based on market cap, we must fully recognize the many problems that Ripple is plagued with.
First, it’s important to note that Ripple is not decentralized. In fact, it was created and is owned by a 2012 startup by the name Ripple Labs. So the first thing we will look at in this article is decentralization. Cryptocurrencies like Bitcoin utilize the blockchain to allow pretty much anybody with a computer to run their own individual “node.” A node is, to put it simply, a copy of the ledger. Who has how much of the cryptocurrency? Whenever a transaction occurs, it is recorded on each node, and the ledger updates, changing the amount of cryptocurrency with everyone involved in the transaction. The more nodes running in the world, the more decentralized the network. As of the time of this writing, Bitcoin has 11,682 individual, independent nodes, making it impossible to hack or edit. As of July 2017, Ripple has only 55 nodes. Ripple has a shockingly low amount of nodes because the company Ripple Labs maintains a list of “validated nodes,” called the UNL (Unique Node List). In order to run your own node, Ripple must confirm your node, and add you to the programmed list. This means that there are far fewer nodes in existence, therefore offering less decentralization. If 28 of the 55 centralized nodes agree to change the ledger then they have full control over the distribution of the cryptocurrency. It is far easier to get 28 of 55 node runners to agree to a change, as opposed to 5,482 independent Bitcoin node runners.
Second, the security of the cryptocurrency leaves much to be desired. Researchers at Perdue University in 2016 decided to test the security of the network – and it has a major flaw. They found that within the technology, individual “verified nodes” are actually able to hold some of the cryptocurrency themselves, acting as virtual banks. Now first, this leaves a huge potential for hacking. If an individual node acting as a bank is hacked, the hackers essentially have full reign over one of Ripple’s banks. This could cause transactions to fail, and users to lose their funds. Another, more complex example was exposed by the researchers:
When we look at a security perspective, Moreno-Sanchez and team have established that small-sized networks could be potentially vulnerable to attacks, because the Ripple network always finds an alternative way to move a transaction via it’s network, even if one of the important “gateways” nodes is removed. So can this be secure? To test the transactions via small networks, the researchers performed a simulation, where they simulated the removal of important nodes in the Ripple network, similar to what a financial event leading to those circumstances would occur. The results of the simulation was that removing those nodes would isolate the amount of Ripples stored within them, if they are already on those nodes, since they become offline, but not lost forever. According to the researchers this may result in approximately 50,000 wallets to be vulnerable to a disruption and the XRP’s in them are also at risk.
So, Ripple’s centralization leaves it open to many potential security issues as well.
Finally, many (but notably not all) cryptocurrency users share a dislike of the banking world, and it’s influence over individual finances. However, Ripple is made for the banking world. The problem that Ripple is made to solve revolves around bank transfers – so we can’t exactly hold it against them that banks have begun to use their technology. It is concerning to many, however, that banks have begun playing a major part in Ripple’s success and price jumps. If you’re looking for a cryptocurrency made for individuals, Ripple may not be for you. Ripple does solve a real-world problem – but when looking at the centralization and security concerns, paired with the fact that Ripple has no concern for anonymity, it becomes clear that Ripple is a niche technology, perfect for big banks, but less than ideal for individuals buying into the future of monetary transfers.