Ripple CTO: We believe XRP is not a security

Its a question that gets the dander up of every loyal foot soldier in the XRP Army: What is the real story  behind the origin of XRP and Ripple, and what does that have to do with whether XRP should be regulated as a security?

Ripple CTO David Schwartz wouldnt make it out of Austin, Texas, without fielding this one at least once.

During ThursdaysBlockchain Beyond the Hype: The Ripple Effectsession at SXSW, Schwartz once again retold the creation myth surrounding the birth of XRP and Ripple:

The Ripple Effect

XRP originated when Arthur Britto, myself, Jed McCaleb, and Chris Larsen built the XRP ledger back in 2011, 2012. The original founders who built that system gifted a bunch of XRP to Ripple to have the company work and build an ecosystem around it.

That all checks out. But heres the part Schwartz omitted, which is central to the story: Ripplethe traditional companywith stockholders, headquarters in San Francisco, and employees”—was also founded by McCaleb and Larsen. In other words, the creators of XRP giftedthemselves the token and then sold it to fund their enterprise, which sounds exactly like what we later came know as an ICO.

Within the last year, the SEC has taken the position that virtually every ICO ever conducted was some form of an unregistered securitiesoffering and therefore illegaland the regulator has come down hard on a handful of ICO-funded crypto startups already.

But the SEC has left some wiggle room. Last June, SEC Director William Hinman publicly explained why he believes bitcoin and ether, for example, are likely not securities. And earlier this week, Chairman Jay Clayton told Coin Center he supported Hinmans analysis of digital assets (while sidestepping the question of ether and bitcoin, specifically).

Security blanket

Schwartz insists its all this uncertainty that gives rise to questions about XRPs legal status. Securities law has not changed with respect to blockchain technology in a long time,he told the crowd at the Hilton.

Weve gotten writings from some organizationsthe SEC recently has talked about how theyre going to think about deciding how these tokens meet securities laws. But they have not given a black and white test.

Schwartz said the Howey Test may not be up to snuff for deciding the status of crypto assets. Its just really hard to figure out how [the Howey Test] appliesto crypto, he said.

Were pretty comfortable that XRP is not a security, but ultimately its going to be the SEC, and perhaps the courts, that make that decision.

The courts may indeed soon have their say. While the SEC has refused to comment on XRP specifically, Ripple faces multiple class-action lawsuits from investors in California who are claiming damages over the companys alleged failure to register XRP as a security with the SEC and provide the public with the appropriate company documents and disclosures.

But Schwartz puts the blame squarely on the shoulders of the regulators who have failed to advance the ball forward. Its very hard to decide how the laws are applied. And thats why I think youll see many organizationsRipple and many otherslobbying regulators. Not so much to change the law, but to clarify it.

What you dont want, said Schwartz, is a regulator showing up several years after a crypto project has been in business, completely in the open and completely transparently,and being blindsided by unclear laws.

We meet with you, like, every week about what were doing. And now youre telling us we should have realized four years ago that it was fundamentally and completely illegal? That doesnt make any sense.

For Schwartz, a decision from the SEC, the courts, or the U.S. Congress couldnt come fast enough: We need to get rid of that uncertainty. I’d rather have a bad law than one where I cant tell whether Im breaking it or not.

Crypto Destroyer

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