Ripple May Violate Coinbase Rule


Just yesterday, we were reporting on how Ripple (XRP) was set to be added to the Coinbase Pro exchange platform.

This morning, that seems to be in jeopardy as Cointelegraph reports that Ripple seems to be in violation of a Coinbase listing rule.

The Coinbase Digital Asset Framework (DAF) identifies criteria for platform inclusion. According to Ana Alexandre’s coverage within the last day, one of the criteria is that Ripple’s “ownership stake” has to be a “minority stake.” Alexandre reports that Ripple currently holds 60% of XRP supply in escrow, although there’s a consensus that the company is trying to slowly divest.

All of this raises an interesting question over why the listing rules are there in the first place, and what kinds of concerns a majority ownership stake carries.

In the Bitcoin world, if one party had a majority ownership stake in terms of mining pools, they could launch a 51% attack, which would involve double spending and manipulating the transaction chain.

However, it’s important to point out that Ripple has a different system.

At least one analyst suggests that it’s not possible to perform a 51% attack with Ripple the way that Ripple’s ownership stake is currently set up.

“Ripple solves the double spend problem by consensus,” writes David Schwartz at StackExchange. “Everyone who wants to run a server on the Ripple network picks a set of validators and tries to reach a consensus with them on which transactions are valid.”

Schwartz explains that these validators are a different process than simply being able to use a majority ownership stake to run roughshod over the legitimate consensus process. In other words, Ripple seems to have solved the “byzantine generals problem” by creating a different consensus model.  

“The Ripple equivalent of Bitcoin’s 51% attack would be if some group obtained control over enough validators that the consensus process failed,” Schwartz writes. “Because people specifically select validators that they believe are unlikely to collude, this would be an exceptionally difficult thing to do. … If validators refuse to come to a consensus with each other, this is detectable to other validators. They then pronounce the network broken (because they don’t know which side is right). In this case, servers would declare the Ripple network unusable automatically. Until the problem was resolved, no transaction results could be relied upon.”

In looking at chart data, we can see that what Ripple gained yesterday, it gave away today as investors probably tuned into this potential problem with the Coinbase listing. Will these value changes reverse when people figure out that majority ownership stake in Ripple doesn’t necessarily constitute the same risk that it would with a different cryptocurrency?

Stay tuned.