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Ripple's relationship with the XRP cryptocurrency has always been a little controversial.
That discussion could be about to spill into the federal court.
Ripple is beating a controversial and high profile case about his relationship with XRP, but what exactly are the charges?
In this article, we will unravel the Ripple cause, examine the reasons behind the legal action and discuss what it means for the future.
Ripple and XRP: clarify terms
Before delving into this topic, you need to know that Ripple and XRP are two separate things. Terms are often used interchangeably to refer to cryptocurrency, but it is not accurate.
Ripple – is a company that aims to accelerate international money transfers with blockchain technology.
XRP – is the cryptocurrency created by the same people behind Ripple.
The distinction is important for understanding the underlying cause behind the scenes.
Ripple Lawsuits: the short version
In the simplest terms possible, XRP owners sued Ripple because they lost money when the price fell.
They believe that Ripple has led them to believe that the price would have gone up. Otherwise, they turned to the legal action.
A plaintiff is Ryan Coffey, who bought 650 XRP on 6 January 2018 for $ 2.60. He sold two weeks later at $ 1.70.
But if it were that simple, there would have been no cause for all cryptovers since January 2018 after prices have fallen by 80% across the board?
What's so different about Ripple that it attracts legal actions?
Ripple is accused of creating and controlling XRP
The reason for this legal action is the alleged control and control of Ripple on XRP. The accusers say that XRP is more like a company (a security) than a traditional cryptocurrency.
As we all know, cryptocurrencies like bitcoin and ethereum are extracted slowly by its users.
XRP is completely different. All 100 billion XRP tokens were created simultaneously by the same organization that founded Ripple.
Ripple now holds more than half of all XRP tokens (stored in the effort and released slowly to the company month by month).
As such, the plaintiffs claim, XRP acts as the company's shares. They claim that Ripple created XRP and used the money generated to finance its operations.
The XRP should, according to them, be classified as a security.
The formulation of the cause
To better explain, let's take a look at the exact sentence presented by those who attack Ripple.
In a lawsuit filed in July, we read:
"The XRP offered and sold by the defendants had all the traditional traits of a stock, but the defendants did not register them as such … XRP buyers reasonably expected to derive profits from their XRP ownership, and [Ripple] they themselves have often emphasized this profit motive ".
In other words, they say that Ripple created XRP, sold tokens to raise money, and then causes buyers to believe the price would increase.
Is XRP a security?
This is the crucial point of the cause.
Security is an investment vehicle, like stocks or bonds, and they are subject to much stricter regulation.
But what does it matter if XRP is a security?
If XRP is considered a title issued by Ripple, it means that keeping XRP would denote ownership of the Ripple company.
If this happened, Ripple could, in theory, be held responsible for falling prices.
Ripple could also be in trouble for not registering XRP as security in the first place.
Ripple's CEO, Brad Garlinghouse, has repeatedly explained that XRP it is not a security.
In June, he said: "I think it's very clear that XRP is not a security, it exists independently of Ripple the company.If Ripple, the company will close tomorrow, XRP will continue to exist."
Doubling in September, he said: "When you purchase XRP, this does not give you any right to the company's profits or ownership of Ripple."
Ripple and XRP do not seem to satisfy the "Howey Test", the most used criterion to classify a security. However, a court could see it differently.
Ripple in court: a brief history
A number of individual lawsuits were filed against Ripple in 2018, but have since been transformed into one big collective action.
In response, Ripple is now trying to move the case from state courts to federal courts. It's a high-profile move, but a lawyer who knows the situation calls it "tactical brilliance".
Ripple's legal team shows a tactical brilliance here.
It's hard to explain the procedural maneuver in a tweet and I'm not going to do it, but suffice it to say it's a * smart * smart attempt to go federal. It may not work, but slick https: //t.co/DuR5kWNJwy
– Jake Chervinsky (@jchervinsky) November 9, 2018
The reason is that a collective lawsuit is better suited to larger courts with plaintiffs coming from different places. However, there is also a suggestion that federal courts will more closely look at corporate judgments. In other words, it offers Ripple a better chance of winning.
Conclusion
The debate on XRP and Ripple has been raging for years, but it could now spill over into the country's biggest courts. While the court can finally provide some guidance on XRP as security, the final decision lies with the Securities and Exchange Commission (SEC). And the SEC remains quiet.
Block Explorer will provide you with additional information as the case unfolds.
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