22/08/19 05:24 UTC-4

$11 billion at stake: what the Ripple litigation will bring

$11 billion threatened
$11 billion threatened

Ripple is the third largest cryptocurrency, with a market capitalization of $11 billion. The project constantly delights investors with news of cooperation with another financial or technical giant. All could have been fine, but one lawsuit questions the whole project.


Ripple: What is it?

The Ripple cryptocurrency platform is one of the oldest and most popular projects in the crypto industry. It appeared in 2012 and has since grown into a giant. The market capitalization of XRP (Ripple’s coin) reached $11.8 billion, which is the third largest indicator in the world. Only Bitcoin and Ethereum are bigger.

Ripple is developing fast and cheap payment solutions that can compete not only with other cryptocurrencies, but also with traditional giants, such as Visa and MasterCard. For example, cryptocurrency blockchain is capable of processing up to 1,500 transactions per second. In Bitcoin, this figure is about 7-10 transactions.

Thanks to high speed and low commissions, Ripple has been recognized beyond the crypto industry. The project reports weekly on a new partnership with the flagships of the traditional economy. For example, back in January 2018, MoneyGram payment system stated that it was testing XRP for use in its service.

In June 2019, the Wall Street Journal reported that Ripple had purchased a $50 million stake of MoneyGram. In return, MoneyGram would start using XRP in its daily operations.

However, there is a fly in the ointment. Investors are suing Ripple in the US. They claim that XRP is a security. Therefore, it must comply with all US laws in this area.

If plaintiffs win, Ripple’s future will be quite uncertain. The court could force the project to pay millions of dollars in compensation to investors, not to mention penalties for failing to comply with the law and criminal prosecution by North American authorities.

This kind of news has worried experts who do not understand why XRP should be a security.

"In general, Ripple is a regular utility token, and it is the closest to this kind. XRP does not have the properties of a security. Ripple is used within its blockchain system for transactions," says Alexei Pospekhov, MISSION’s GR&PR Director.

According to the expert, Ripple has problems due to the popularity of the coin.

"And they are trying to call Ripple a security because this utility token can be bought on many exchanges. Ripple does not promise to pay dividends to owners. In general, it does not have any properties of the security. It is just widespread. We could just as well recognize Yandex.Money as securities, because it can be bought a lot," states Alexei Pospekhov.

However, the American courts may have their own opinion on this. Moreover, the plaintiffs have already engaged the Securities and Exchange Commission (SEC) in the dispute.


Ripple: cryptocurrency or security?

Legal battles began in May 2018. Back then, Ryan Coffey, one of Ripple's investors, sued the project. He confronted Ripple Labs, XRP 2, Ripple’s CEO Brad Garlinghouse, and other individuals.

According to Coffey, the XRP cryptocurrency has all the hallmarks of securities. However, the project did not comply with the laws governing the issue and circulation of bonds.

Other investors have also started suing Ripple based on similar charges. In November 2018, their lawsuits were consolidated.

On August 5, plaintiffs revealed other amendments to their claims. They can be crucial in a dispute.

The plaintiffs, among other proofs of their correctness, cited the instruction of the Securities and Exchange Commission. The regulator published it in April of this year to help crypto startups to determine if their tokens possess the concept of a "security."

The instruction itself is optional. According to the SEC, the main purpose of the rules is to let companies know if they are breaking the law. However, the court may make it the main "proof," since there are no other explanations from the regulator.

Drawing on the regulator's guidance, plaintiffs have described why they think XRP is a security. The following proofs were cited as reasons: "investors had a reasonable expectation of profit" from investing in cryptocurrency; "by buying XRP they were investing" in Ripple; and the management is responsible for the success of the project.

In addition, the lawsuit states that the plaintiffs were expecting an increase in the value of their assets in XRP through management actions.

As further proof, the accusing party presented numerous posts on Twitter about the project, as well as interviews with the CEO.

There are other accusations. For example, plaintiffs allege that Ripple violated California's advertising and competition laws. The company allegedly "published fraudulent statements about the origin, proposals, and implementation of XRP."

Bradley Sostak, the leading plaintiff, claims to have lost $118,000 from these actions. Of course, he now wants to get his money back. This amount is not final, and plaintiffs promise to calculate the full amount.

Furthermore, the plaintiffs require the court to recognize XRP as a security. If this happens, other cryptocurrency owners will also be able to go to court to claim compensation.

Ripple has not yet responded to the new allegations, either legally or publicly. According to the law, the project is required to submit its arguments in court within 45 days. The countdown began on August 5, when plaintiffs filed an amendment to the lawsuit.


What will happen to Ripple?

It is difficult to say clearly, with whom the court will be in this battle. Moreover, there have been no such cases before. Experts believe in the best outcome. They believe that the court’s decision will not affect Ripple and the entire crypto market.

"I am sure that this decision will not affect the industry in any way, because Ripple will not be recognized as a security," said Alexei Pospekhov.

Yes, but there are other problems with Ripple. In particular, cryptocurrency is often accused of centralization. Moreover, some do not even recognize it as a cryptocurrency.

"Yes, it is. All issue in one hand. Overall, XRP is a rather controversial cryptocurrency in terms of decentralization. Yes, it shows that it works and what the solution may be. But it is of no interest in terms of the global development of decentralized systems," explains Alexei Pospekhov.

Moreover, the world lacks centralized systems.

"We already have SWIFT. And the fact that Ripple is trying to become something like that doesn't make the project more decentralized and independent," says Alexei Pospekhov.

Centralization exhibits many threats. These include the risk of token price manipulation. Crypto enthusiasts have been blaming Ripple for that for a long time.

Trader Peter Brandt is one of the latest examples. On August 14, he accused the project’s management of manipulating the price of the XRP token. Brandt cited the fact that coin sales are breaking all records this year as evidence of his claims. Allegedly, this keeps the price consistent. 

So, regardless of the court’s decision, Ripple already has many problems. The recent lawsuit only added fuel to the flaming fire.

Editor: Godfrid Brower

#Ripple #XRP #SEC #Regulation #Cryptocurrency #Securities



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