In one after on X, Justin Bons, founder and Chief Investment Officer of Cyber Capital – Europe’s oldest cryptocurrency fund – claims that the Bons also accuses the XRP Foundation of misleading investors about the decentralization of the network and exercising complete control over it.
This is why XRP is centralized
“Ripple is centralized and permissioned, contrary to executives’ claims. XRP deceives investors by lying about its decentralization. The foundation has full control over the network! Attracting private buyers with such false claims is outright fraud!” Bons explains.
Central to Bons’ argument is the claim that the consensus mechanism relies on Unique Node Lists (UNLs), which are centralized lists of trusted nodes issued by separate entities, including the XRP Foundation. He explained that this setup is more in line with a Proof of Authority (PoA) system than with decentralized consensus mechanisms such as Proof of Stake (PoS) or Proof of Work (PoW). “XRPs consensus is based on UNLs (…) XRP is not based on PoS or PoW, but PoA (Proof of Authority). Yet they claim to be more decentralized than BTC and ETH,” he notes.
Bons emphasizes that while users can change their own UNLs and choose who to trust, this does not amount to a trustworthy system – a fundamental feature of truly decentralized cryptocurrencies. “The nuance in the language used here is subtle but extremely important. Truly decentralized cryptocurrencies are ‘trustless’, in the sense that ZERO ‘trust’ is required. Choosing who to trust is not the same as trustlessness!” he argues.
He further points out that if there is insufficient overlap between a user’s UNL and the rest of the network – a 90% overlap is required to prevent forking – the user risks being disconnected. “If there is insufficient overlap between your UNL & the rest of the network; you will be thrown out! According to their own documents; an overlap of 90% is required to prevent forking; resistance is futile!” Bons states.
Bons states that in practice, direct permission from the XRP Foundation is necessary to participate in consensus. “This means that in practice; Direct permission from the XRP Foundation is required to participate in consensus. That’s about as centralized as it gets when it comes to blockchain design,” he adds.
Digging deeper, Bons noticed that for a long time there was only one UNL: the standard UNL (dUNL) – which is hosted by the foundation and hardcoded by default. “We have determined that UNLs are trusted third parties ultimately chosen by the XRP foundation. This is reinforced the deeper we look at these UNLs: for a long time there was only one UNL; the dUNL, which is hosted by the foundation, is the dUNL standard hardcoded,” he explains.
He criticizes the dynamic nature of these validator lists, which are based on a web address hosted by the XRP Foundation. “This means they can change the validator list immediately and without notice in a completely centralized way! Kick out anyone who goes against the authority,” Bons claims.
Bons emphasized that two more “official” UNL lists have been added over time, although one, Coil, has since been added discontinued activities– leaving the dUNL and the XRPLF lists, both directly funded by the XRP Foundation. “This adds an extra layer of actual control over the network,” he says.
He argues that the lack of incentives such as block rewards in PoW or PoS systems means that disparate parties cannot coordinate effectively without trust. “Blockchains make it possible for diverse parties that do not trust each other to coordinate. All thanks to the underlying incentive mechanism (PoS or PoW), but XRP has no block reward and no incentives; it is purely based on trust,” he explains.
Bons claimed that new UNLs cannot coordinate with each other due to the lack of these incentive mechanisms, giving the foundation de facto complete control. “Because if new UNLs can’t coordinate, it means the foundation has de facto complete control. Control over validators equals control over the network! Giving permission to universities and companies to run nodes is exactly what a permissioned blockchain federation looks like!” he declares.
He further reveals that all UNLs are actually identical and contain the same validator sets. “On closer inspection, all UNLs are actually identical to each other! With the same validator sets! Proof that the foundation in practice has complete control over the network!” Bons states.
“This proves that new UNLs cannot coordinate with each other! This forces the foundation’s list to become the actual list. Because all UNLs must comply or risk being split off!” he added.
Bons is concerned that this level of control allows the foundation to use censorship if forced to do so. “This also allows the foundation to exercise censorship if it is forced to do so. Because they have such a high degree of control! This is very different from how cryptocurrencies are supposed to work! This explains why it only takes 20% of validators to shut down the network.” he warns.
He also points out that there are no rewards for running a trusted validator, unlike PoW or PoS models where validators are incentivized. “There are also no rewards for running a trusted validator. Unlike PoW or PoS where the cost of attack mirrors blocks the reward for miners/strikers. This is why the degree of decentralization is strongly related to this reward. Above XRP, this measure of decentralization is zero!” he claims.
Looking back on its history, Bons said: “I have been researching XRP since its inception. I clearly remember the trade-off in decentralization being recognised. This has gradually changed as the community and leadership became more extreme in their claims. I don’t say this to belittle investors, but to empower them!”
He highlights the initial distribution of the coin, noting that it was a “shocking event.” for-my of 99.8%,” which he described as “one of the most unfair distributions of all time.” Bons emphasized that since no new coins are created, all new circulating XRP is purchased from the founders. “This makes it one of the most unfair distributions of all time. Since no new XRP is created, all new XRP in circulation is purchased from the founders!” he says.
Bons suggested that the solution lies in adding a Proof of Stake mechanism to replace the UNL system, transforming XRP into a more conventional decentralized blockchain. “Pretending that XRP doesn’t have permission is not the right answer. The real solution lies in adding PoS to replace the UNL list! Transforming XRP into a more conventional decentralized blockchain,” he proposes.
He concluded his thread with a call to action for the community: “If you really care about XRP, take this very seriously. Within this criticism lie solutions that can help XRP succeed; Either through fair centralization or through decentralization. While the truth sets us free; leaving or pressuring for change; since nothing is beyond redemption.”
The response from the community was swift and full of outrage. Panos Mekras, co-founder of Anodos Finance, responded via X: “You’re just publicly embarrassing yourself. Ripple is a private company, XRP exists before Ripple, the These are the facts. You either accept it or you’re a delusional hater. Don’t be a flat earth.”
Another community member known as Krippenreiter (@krippenreiter) commented: “Ripple is a company, my best friend. Please try again.” Ripple Labs or its founders have not yet commented.
At the time of writing, XRP was trading at $2.55.
Featured image created with DALL.E, chart from TradingView.com