Ripple's David Schwartz Talks 'Bottom-Up Growth' on XRP Ledger, Rebuts Critics: Q&A

Schwartz spoke to The Protocol about the aftermath of Ripple's SEC win, his method for dealing with XRP's rabid fanbase, the XRP Ledger's controversial approach to centralization, and more.

AccessTimeIconJan 24, 2024 at 5:02 p.m. UTC

Ripple Labs CTO David Schwartz is hailed as a guru in some corners of the cryptocurrency industry – especially among the XRP Army, comprised of fans of the cryptocurrency XRP.

But the XRP Ledger, the blockchain that Ripple Labs created, has had critics ranging from Bitcoin and Ethereum purists to the U.S. Securities and Exchange Commission.

When Ripple scored a win six months ago in its years-long legal battle with the SEC, the result capped off years of limbo for the blockchain tech firm. The lawsuit made it difficult for Ripple Labs to attract banks and other customers to its institution-focused RippleNet – a cross-border payments platform powered by the XRP Ledger and the XRP cryptocurrency. But it's not just Ripple Labs' legal drama that hampered adoption: Since inception, Ripple and the XRP Ledger have failed to break into the same developer zeitgeist as Bitcoin, Ethereum and other crypto mainstays. Ripple's legal victory could draw more developers into its fold.

All this and more was on the table when Schwartz sat down for an interview last week with The Protocol. Schwartz discussed the aftermath of Ripple's SEC win, his method for dealing with XRP's rabid fanbase, the XRP Ledger's approach to decentralization, and much more.

This interview has been edited for brevity and clarity.

Now that the SEC's case against Ripple Labs has been resolved, have you seen greater adoption from banks and financial institutions?

Schwartz: I think institutional adoption of blockchain technology – specifically, institutions interacting on blockchains – has been slow. I think there are a number of blockers there with things like sanctions screening and so on. But institutional adoption of technologies where the institutions aren't as tightly tied to the layer one technology is growing rapidly.

RippleNet settles with [XRP], with digital assets. And those digital assets move on the XRP Ledger. And so, in a sense, institutions are adopting the ledger, but they're sort of isolated from all of the things that make institutional adoption of these blockchain technologies more difficult.

When institutions are trying to take advantage of XRP Ledger features like the DEX (decentralized exchange), there's that blocker that regulatory compliance is very challenging for them in that environment.

Now the adoption that we are seeing on the XRP Ledger has been enormous. There are more than 1,000 projects, there are new stakeholders like the XRPL Commons, there are hackathons. But that is infrastructure for ground-up adoption – I don't think we're seeing as much top-down adoption, except of the tokens, at the institutional layer.

What impact did the SEC suit ultimately have on your ability to attract customers?

Schwartz: One effect that I think was very important, because it was very easy to see, was when the exchanges delisted XRP.

Part of the pitch about building layer 2s and sidechains was that XRP was very easy for anybody to get and hold. If you wanted your own token, you would have this big problem of how do we get it to people, and how do people sell it? Let's say you're starting a new blockchain with a new token and I'm gonna provide all kinds of infrastructure for you, and I'm gonna get paid in the new token. I can't really sell that token without sort of cutting my own throat and the project's throat. If you use XRP as your token, you don't have to worry about distribution, it's already distributed. That pitch doesn't work if people can't easily get XRP and can't hold it.

If you can't open an account at Coinbase and buy and hold XRP, which for a while you couldn't, that was a huge blocker to that strategy, and we definitely saw that having an impact.

Surprisingly, on the RippleNet side, it wasn't as much of an impact as you might think, because most of the deals that we were doing weren't in the U.S. MoneyGram was probably a notable exception, but most of the interesting volume is in the Asia Pacific area and the Middle East.

You've begun testing a new feature called 'Hooks' that would add smart contract-like functionality to the XRP Ledger. What is the roadmap on that feature, and how big of a deal is it for you all?

Schwartz: You know, we had very little to do with the team building Hooks. They met with us a couple of times, and we said, "Hey, that looks awesome."

For a while, they were thinking that it could be something that the XRP Ledger itself would adopt, and it still could be, but it's a very major change. It's very risky in two ways: One is obviously if there's something wrong with it that breaks the XRP Ledger, that would be a multibillion-dollar problem for a lot of people. So it's high risk in that way. And the other way is just that we want the XRP ledger to be great for payments, and it could make it more Ethereum-like.

They launched their own network using the XRP Ledger's technology, and they're gonna see how well that works. But if they prove that it works very well and it doesn't degrade the network for other uses, then you could see, in a year or two, a proposal to add it to the XRP Ledger mainnet.

Ripple has historically struggled with some reputational issues stemming from its link to the XRP Army, which is this sort of rabid fan base for the XRP token. Are there any challenges to having such an enthusiastic fan base? Do you struggle with the expectations that they place on you and the developers of the XRP ledger?

Schwartz: It is definitely a blessing and a curse. [Chuckles]

I think it's great to have devoted fans for a company that's not a publicly traded company. It's bizarre to have a fan base comparable to what companies like Tesla and Apple have, where there's people who follow everything the company does and follow all the inside movements of the company, but also – and you have this with Tesla and Apple too – in some cases project weird insanity on top of it.

I do think sometimes it reflects badly on the people who are trying to build and be constructive when this just goes wildly off the rails.

The problem is that if I engage with people, then people criticize me that I'm encouraging them. But if I don't engage, then people are like, "You're ignoring the problem." It's one of those "damned if you, damned if you don't," things.

And I'm going to be honest, if somebody is saying something that seems wrong to me, but I don't really know – like if someone says, "Hey, Amazon's gonna integrate support for XRP payments tomorrow," I'm pretty sure that's not true, right? But it's not out of the realm of possibility. I mean, it seems highly unlikely, but if every time someone says something like that, well, what happens the one time it is true, and then there's me saying it's not true? Someone's gonna buy or sell some digital asset on the basis of my statement. I always have to be super careful because crazy things do happen.

We hear a lot from Ethereum developers, Solana developers, Cosmos developers and so on, but it feels like Ripple, for a while at least, wasn't a part of that same sort of developer conversation. Why do you think that is?

Schwartz: You're right that in this industry, it looks like the way to get bottom-up growth is to get developers on your platform.

You know, bitcoin got a lot of developers because it was the only game in town for a long time, so if you wanted to work in the space, Bitcoin was all there was. And then with Ethereum, Vitalik [Buterin], did this roadshow and said, "Hey, you can build anything on top of this platform," and now the Ethereum Virtual Machine has become the standard.

As for the XRP Ledger – developing for it – it has a fixed function. Like, it has a DEX, but you can't build a DEX because it's already got one. And it has NFTs, but you can't build an NFT platform on it because it already has one. So it does seem to be less exciting for developers because it sort of already has the functionality that it's best for.

You would think it would be better that it's great for the things that you want people to use it for, but it actually has perversely made it harder to get developers into the ecosystem.

You've talked previously about how we're moving more towards a multi-chain crypto ecosystem, where different chains have different strengths and use cases. In terms of thinking about these different niches and specialties, is the idea with the XRP Ledger ultimately that you're the winner on payments?

Schwartz: I obviously think that the XRP Ledger should be the winner for cross-currency payments and liquidity provision because it was specifically built for that, and everything has been optimized for that particular use case. So if it fails there, if it fails for the particular use case that everyone has had in mind as it evolved, that would kind of be like Google failing at search.

But what can also happen is that an ecosystem could evolve around it with smart contract chains, and chains that are optimized for real-world asset tokenization, and carbon markets, and tokenized securities, and stablecoins, and all of these other use cases. You could imagine a case where the XRP Ledger becomes the hub for this sort of periphery around it.

I'll take succeeding at a different use case over failing any day.

You've pitched Ripple's technology as a potential platform to power government-backed CBDCs, but there's a vocal libertarian wing of the crypto world that's opposed to blockchain's being used in that way. How do you square your strategy with that element of the crypto ethos?

Schwartz: That makes a lot of sense if you live in the United States. But the thing is, if you look at what what's going on, there's people who get their accounts shut down for no reason. Like, they touch crypto and their accounts get shut down. There's no appeal. They didn't break any law.

When the government runs things, you actually have due process rights. If the government had to shut down my bank account, I would be able to challenge them in court. I would be able to demand that they present evidence, I would be able to cross-examine their witnesses. You get none of that in a privately owned system.

So the more libertarian position on this, paradoxically, is probably that the government should operate it.

How do you respond to the criticism that Ripple is more centralized than other blockchains? Over the past few years, as more chains have cropped up around Ethereum and Bitcoin that have different consensus mechanisms, do you find the world has become more hospitable to your technical approach?

Schwartz: Yes, the world is more hospitable. But I think what people have also discovered is that these technologies work fine.

Almost everything that you want to do on a blockchain, you could do with the fact that everybody knows all the transactions are public. All the state is public, and everybody knows what every transaction does. The only thing that you absolutely need some kind of consensus mechanism for is to put transactions in an agreed order. Otherwise, I could send the same unit of currency to 'Sam' and 'Brad,' right?

Let's just say, for the sake of argument, that I'll never convince you that our consensus is decentralized – you think it's completely centralized. I don't take that as true, but let's say you think so: All we let consensus do is order transactions. It doesn't do anything else. Like, it doesn't distribute rewards. And of course, consensus can't say an invalid transaction is valid, and it can't say a valid transaction is invalid, because you know. Everybody knows.

So if all we have to do is order transactions, do you really care if transaction ordering is completely centralized?

Aren't there some cases where you might want more decentralized transaction ordering? What if someone someone orders transactions so they can frontrun other traders?

Schwartz: Ethereum allows people to do that by design. If that's the concern that's left, Ethereum is the worst at it, right? On the XRP ledger, at least no single entity by design gets to do that.

How decentralized does it have to be? All you need is all the validators not under control of a common entity that wants to screw you.

It does seem, in Ripple's case, like you need to place some trust into this permissioned consortium of validators not to screw you over, then, right?

Schwartz: As soon as a validator is ordering transactions in a malicious way, the community has to decide whether they're going to stand for that or not.

It's the same thing with censorship and bitcoin. People say, "Well miners could censor." But not really. If they censored, the community could switch bitcoin to proof-of-stake. It's mutually assured destruction.

The same thing will happen on the XRP ledger: Let's say there start to be addresses on the XRP ledger that the government has said are terrorist organizations, and some validators start not allowing those transactions, and they get slower and less reliable, and it eventually gets to the point where you can't get them in. It could happen.

The same thing is gonna happen. The community is gonna say, "Are we going to pick validators from other jurisdictions?" Or are we going to say, "Oh, you know what, I'm okay with that because it makes the system more valuable." Maybe it'll fork, but the exact same things will happen.

And so to say the XRP ledger is centralized and so there are all of these concerns – well, they are exactly the same. This issue of control of the validators doesn't impact any of these issues.

I think what's happened is people who want to sell you a very, very expensive system have portrayed all of its quirks as advantages.


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