The existence of a pre-mined supply (as in the case of XRP, where 100% of the coins were created from the start and distributed by Ripple Labs) has a direct and significant impact on the decentralization of a cryptocurrency. Here’s how:

1. Initial concentration of supply

  • Problem: In pre-mined projects like XRP, one entity (in this case, Ripple Labs) initially controls the majority of the coins. Ripple currently holds around 40-50% of the total XRP supply (around 40-50 billion tokens), stored in accounts managed by the company.

  • Impact on decentralization: This centralizes economic and governance power in the hands of Ripple, as the company can influence the market by releasing tokens according to its agenda. In Bitcoin, on the other hand, coins are distributed progressively through mining, without centralized control.

2. Network control and decision making

  • XRP: The XRP consensus protocol does not use mining, but rather a system of “trusted” validators. While anyone can be a validator, Ripple recommends a list of approved validators, many of which are affiliated with the company. This concentrates the validation power.

  • Bitcoin: The network relies on thousands of independent miners and nodes distributed globally. No single entity controls the network, and decisions are made through community consensus (albeit with practical challenges).

3. Lack of incentives for distributed participation

  • Pre-mining vs. Mining: In networks like Bitcoin, miners compete for rewards, which incentivizes distributed participation by independent actors. In XRP, since there is no mining or new token issuance, this incentive mechanism does not exist. Decentralization depends solely on the initial distribution of tokens, which in XRP was highly centralized.

4. Risk of market manipulation

  • XRP Example: Ripple Labs periodically sells XRP from its reserves to fund operations and partnerships. This raises concerns about potential price manipulation or artificial inflation of the circulating supply.

  • Bitcoin: The circulating supply increases predictably (halving every 4 years) and no central actor can inject new coins into the market.

5. Governance and Updates

  • XRP: Protocol upgrades are primarily proposed and managed by Ripple Labs, reflecting centralized governance. The community has less influence compared to Bitcoin.

  • Bitcoin: Changes require majority consensus of miners, nodes, and users, making unilateral modifications difficult (example: the rejection of SegWit2x in 2017).

  • XRP case: The US SEC sued Ripple in 2020, claiming that XRP is an “unregistered security,” in part because the company controls the supply and promotes its use. This reinforces the idea of ​​centralization.

  • Bitcoin: As it has no central entity or pre-mining, it is considered a "commodity" or decentralized currency in most jurisdictions.

Conclusion: Why does pre-mining affect decentralization?

Pre-mining weakens decentralization because:

  1. It concentrates economic power in a small entity or group.

  2. Eliminates equitable distribution mechanisms (such as mining).

  3. Facilitates centralized influence on governance and the market.

XRP vs. Bitcoin:

  • XRP prioritizes efficiency and speed, sacrificing decentralization.

  • Bitcoin prioritizes censorship resistance and security, sacrificing scalability.

Both models have trade-offs, but if decentralization is a key criterion, Bitcoin (and cryptocurrencies with gradual issuance and no pre-mining) are clearly superior.

$BTC

$XRP