With the debate of whether the US Securities and Exchange Commission should term cryptocurrencies as securities or not playing in the background, experts have come up and said that Ripple Labs’ XRP is a security, not a cryptocurrency.
The decision the Securities and Exchange Commission makes will determine how different tokens will be subjected to different laws.
The SEC currently feels that categorizing cryptocurrencies as securities will not be technically correct. Jay Clayton, the SEC Chairman noted that cryptocurrencies are replacements for sovereign currencies that are meant to replace the Dollar and the Euro and the Yen and other fiat currencies with Bitcoin or any other virtual currency. Hence, it is a currency and not a security.
Speaking of Ripple’s XRP, the big names of the crypto world like Autonomous Partners and Elpis Investment made statements where they questioned the status of the token as a cryptocurrency. The claim is backed by the centralized nature of XRP tokens, which are, in the majority, owned by Ripple Labs.
Founder of Autonomous Partners, Arianna Simpson stated that she has a lot of concerns about the level of centralisation at Ripple Labs, and she has regulatory concerns if what they have issued is a security.
The CEO of Elpis Investment, Anatoly Castella believes XRP just does not fit the ‘purest interpretation’ of the word, Cryptocurrency.
Castella added that Ripple actually resembles a FinTech platform that combines the better parts of both regular fiat money and blockchain based cryptocurrency. Based on this interpretation, Ripple’s XRP should be considered a ‘Digital Fiat’ and not a cryptocurrency.
Castella justified his statement by further pointing out the fundamental difference in the creation of Ripple’s token and the other major crypto coins. He spoke of the time when Bitcoin was created and how it facilitated a store of value. With every transaction processed, a store of value was transferred to another user or account, in consequence of payment for goods or services.
Nodes were created on the network by the miners and were indemnified by the said cryptocurrency or some sort of mining fee.
However, this is not how Ripple works, according to Castella.
Castella was quoted as saying, “Ripple has no mining or miners whatsoever. Instead, transactions are powered through a ‘centralised’ blockchain to make it more reliable and fast. XRP was mined all at once by the parent company – Ripple Labs Inc – with a majority of the cryptocurrency held by them.”
In conclusion, if Ripple does manage to get the status of a security, the short term implications are not good for its market value. It will result in a significant decline in the trading volume.