“The Best Incentive is No Incentive,” Ex Ripple CTO Explains Why

Former Ripple CTO David Schwartz claims blockchain systems may work better without incentives, arguing against reward-based models.

Schwartz believes incentives like mining and staking introduce unnecessary costs and misaligned interests. According to him, users already have a natural motivation to keep systems working, and removing artificial rewards can lead to cheaper and fairer blockchain networks.

Key Points

David Schwartz recently revisited a March 2020 talk based on ideas he first developed in 2012.

He said blockchains need agreement on transaction order, not costly incentives, to solve the double-spend problem.

According to him, mining and staking make participants seek higher rewards when users want lower fees.

Incentive systems drive centralization, as participants with lower costs or higher capital gain dominance.

The $XRP Ledger removes incentives, relying on simple rules and user interest to maintain fairness and low costs.

Solving the Double-Spend Problem

Notably, Schwartz discussed these ideas during a March 2020 presentation, which he recently revisited, imploring the crypto community to watch. In that talk, he explained that blockchain systems may work better when they remove artificial incentives entirely.

If I had one wish, it would be that everyone in crypto would watch this video I made six years ago.https://t.co/7DXpGaddN5

— David 'JoelKatz' Schwartz (@JoelKatz) May 12, 2026

His argument centered around the need to solve the double-spend problem. Notably, for any network like Bitcoin to function, users must reach a point where everyone agrees that a transaction has happened. Without this shared agreement, people cannot safely exchange goods or services for digital assets.

Schwartz pointed out that blockchains already have three important features: a public record of all data, clear rules for what makes a transaction valid, and a shared understanding of what each transaction does.

However, he said these are not enough on their own, especially when there are multiple valid ways to move forward, such as sending the same asset to different people.

Natural and Artificial Stakeholders

Speaking further, the former Ripple CTO suggested that blockchain ecosystems have two types of stakeholders: the natural and forced ones.

According to him, natural stakeholders are users who depend on the system for real needs, such as making payments or storing value. Forced stakeholders, like miners, exist only because the system design requires them.

He argued that forced stakeholders take value from natural users, creating extra cost in the system. For example, Bitcoin miners earn rewards and fees, but the money comes from users who want their transactions processed. This creates a conflict: users want low fees, while miners benefit from higher ones.

He compared this to platforms like eBay, where the company charges fees to buyers and sellers. To him, blockchain systems were meant to reduce this kind of friction, not repeat it in a different form.

The Cost of Proof of Work

Building on this premise, Schwartz raised concerns about proof-of-work systems, especially their high cost. He explained that Bitcoin needs to generate millions of dollars every day just to keep mining running, which ties the network’s security to its market value.

According to him, honest participants must spend more to protect the system than attackers might need to break it. He sees this as a weakness. Schwartz also noted that much of this money leaves the ecosystem and goes to electricity providers and hardware makers.

He added that mining creates a “race to the bottom,” where miners must cut costs to survive. This pushes them to focus on short-term profit instead of improving the network. Over time, mining also becomes concentrated in areas with cheap power, which weakens decentralization.

Staking and Similar Incentive Models

Schwartz also questioned staking and slashing systems, which networks like Ethereum have explored. He said locking up a volatile asset comes with risk, so participants expect high rewards in return. This limits how much cheaper these systems can be compared to proof of work.

He pointed out that staking depends on native tokens, and this creates challenges for networks that handle large amounts of other assets, such as ERC20 tokens. Just like mining, staking can lead to competition that pushes the system toward centralization.

He also mentioned tax issues, since some countries treat staking rewards as income. Notably, this adds another cost for users and supports his view that incentive-based systems place extra burdens on participants.

The $XRP Ledger Approach

Pointing out the decisions made in 2012, Schwartz explained how the $XRP Ledger takes a different path. Specifically, it reduces the power of any single participant and removes features like transaction reordering that could be abused.

Instead, the system uses rules to decide which transactions to include and focuses on simply agreeing on their order. Schwartz said this process does not need expensive incentives because users already want the system to work properly.

He also explained that the $XRP network limits the influence of bad actors and allows users to ignore them without losing anything. Since no one can profit from controlling the system, there is less reason to try to attack it.

Why “No Incentive” May Work Better

Schwartz concluded that artificial incentives bring more problems than benefits. Specifically, they can lead to centralization, create conflicts of interest, and increase costs for users.

On the other hand, systems based on natural incentives rely on users who already want the network to succeed. He called attention to Bitcoin full nodes as an example, where people support the network without direct payment.

He believes networks can offer lower fees, faster transactions, and better fairness by just removing incentives. In the end, he argued that users want systems that are reliable and affordable, not ones plagued by competition for rewards.