Over the past few months, debates have raged over whether Ripple can freeze funds. Roger Ver, Bitcoin Cash’s evangelist, exacerbated the issue last week during an interview in which he asked the audience to imagine a scenario in which,
“Ripple winds up getting the mainstream adoption that everybody ends up using…it’s not that much better because they can still freeze your account just like they can now.”
Ripple CTO David Schwartz then began an explanation of Ripple’s capacities for asset freezing, which culminated in this claim: “Ripple cannot freeze anyone’s funds. All the pressure in the world won’t change that.”
Roger Ver retracted his statement after Schwartz corrected him on Twitter:
I’m sorry to say that I was fooled by the #FakeNews about XRP addresses being freezable. https://t.co/7DSMjfR4og
Thank you @JoelKatz for setting the record straight, and for being one of the most interesting people in crypto.
Go Ripple! pic.twitter.com/wzr8Nt0ttN
— Roger Ver (@rogerkver) July 31, 2018
As it turns out, the truth is complicated. There are two separate issues that have led to widespread confusion: the capacity for Ripple gateways to be frozen, and a recent exchange freeze that incidentally involved XRP tokens.
Recently, Ripple ordered Bitstamp to freeze the funds and reverse the transactions of Jed McCaleb, Ripple’s co-founder, after he tried to trade a large volume of XRP. That amount was larger than was allowed by a contract that McCaleb had signed with Ripple. Bitstamp, the exchange mediating the transaction, froze McCaleb’s funds, at the request of Ripple Labs.
But Ripple did not freeze any funds themselves: Bitstamp did that, just as exchanges often do, and can do with any cryptocurrency they hold. So far, it holds that XRP itself cannot be frozen…or can it?
Ripple does have a freezing feature built into its gateways. Gateways are a type of Ripple node that are used to convert XRP between currencies (both fiat and crypto). Gateways do not hold their user’s assets in the way that centralized crypto exchanges do. Gateways do hold and can freeze non-XRP assets, but in the event that this happens, users are free to move their XRP through other gateways. David Schwartz explained on Twitter that:
“Most of the nodes are not controlled by Ripple and it’s trivial for other nodes to join — just download the software and fire it up. Transactions cannot be frozen — there is no mechanism to do so.”
Although Ripple is technically decentralized, it has in general been received with skepticism due to the fact that it is actively seeking partnerships with banks and other centralized financial institutions. And Ripple’s gateway freezing feature is explicitly meant to carry out investigations and comply with regulations.
These sentiments have led advocates of traditional cryptocurrency to be instinctively in conflict with Ripple. Although this isn’t the first time that David Schwartz has tried to “set the record straight,” the discussion between Schwartz and Ver—two prominent crypto figures—hopefully has reached a wide audience.