XRP: Neither a security nor centralized? A magnification in the enigma


Opinion: In recent reports, XRP, a cryptocurrency that is often launched under the safety assessment or not, has seen a wide range of opinions on the investigation. While some believe that money is a currency, others have argued that XRP is also a security, so its parent company must comply with the corresponding regulations.

In the last week of October, one of these opinions was presented by Nicholas Weaver, a researcher at Computer Science at UC Berkeley. In one of his tweets, the academician clearly demonstrated his views on XRP, declaring the token as a security through Howey's test. He reached out to accuse Ripple of committing fraud on the headlines. He wrote:

"We go through the" Howey Test "with XRP (" Ripple "). This is why @SEC_Enforcement has to come down as a ton of bricks on those behind the Ripple company … XRP is a security, and as such Ripple Inc is committing fraud with guarantee claims not following the rules ".

The Howey test came into effect after the US court established in 1946, after a case between the Securities and Exchange Commission [SEC] and W.J. Howey. According to the test, a resource should meet four criteria to be considered security, which are:

  • The investment of money
  • A joint venture
  • An expectation of profits
  • The efforts of a third party or promoter who push this profit

Here, it may be noted that although the cryptocurrency has a joint venture – XRP II LLC, it will continue to circulate and thrive as an alternative currency to overcome its roots, namely Ripple and its sister company. Therefore, the second point of Howey's test is invalidated by XRP, and from that moment defeats his security status.

In fact, in May 2015, Ripple passed under the radar of The Financial Crimes Enforcement Network [FinCEN], in which the authority penalized the blockchain company for a fine of $ 700,000 for violation of the Bank Secrecy Act [BSA]. The civil money penalty was assessed against Ripple because it acted as a financial services company [MSB] without registering with the treasury department. This case showed that XRP is a virtual currency, rather than a security.

Therefore, with the legal explanation of several US financial authorities, XRP has not yet been demonstrated to be a security. However, the extent of decentralization in the Led XRP register is still a controversial issue, which reiterates the fact that the ecosystem will remain unaffected in the event of a company outage.

This stems from an exhaustive argument that about 60% of the XRP is owned by Ripple and that all the outstanding XRP is pre-mined by the creator. The most popular refutal for the centralization debate is that while most of XRP is owned by its parent company, tokens are blocked via smart contracts in deposit accounts where only 1 billion XRP can be released per month.

However, the genius of blockchain Charlie Lee, who is also the creator of Bitcoin [BTC]Companion expected Litecoin [LTC] does not consider XRP as a cryptocurrency, stating that the token is largely centralized in nature. One of Lee's tweets mentioned XRP as a "semi-centralized digital resource".

In September 2016, Ripple signed an agreement with its rival, R3 Holdco LLC, which allowed the latter to purchase up to 5 billion XRPs for $ 0.0085 per unit. Reuters reported that Ripple's boss, Brad Garlinghouse, attempted to end this deal a few months before signing.

This prompted R3 to file a lawsuit against Ripple in September 2017, reserving the right to purchase XRP at the price set for the specific time period indicated in the agreement. R3 also claimed that the blockchain company did not have the rights to terminate the agreement on a unilateral basis. This was one of the main failures in the decentralization path for the XRP ecosystem.

On the other hand, the functionality that mitigates centralization in the XRP ecosystem is the list of unique or UNL nodes. UNL is a group of validators that agree, or give, "consent" to transaction sets, which pass further as the accepted ledger on the XRP network. The influx of decentralization is due to the fact that each node can choose its own UNL or adopt the one provided by Ripple.

In conclusion, the report concludes that XRP is neither a security nor completely centralized. Smart and UNL contracts have played in favor of decentralization to ensure investor interest in the XRP ecosystem. Subsequently, the digital asset is a non-law by law, which receives the greatest contribution from its nature of decentralization.

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