Charles Hoskinson, the inventor of Cardano, addresses the case of the US Securities and Exchange Commission against Ripple and the agency’s claim that XRP is an unregistered security.
In a series of AMA (Ask-Me-Any) videos, Hoskinson says that part of the problem with regulating crypto assets is that tokens are dynamic and difficult to categorize.
“The problem with cryptocurrencies is that they do everything and nothing. And some days they look like securities, some days like raw materials, some days like currencies, and some days like something completely different. Cryptocurrencies are the stem cells of finance in many ways. A stem cell is like a super cell and can basically become a heart cell or a brain cell or so on. And regulation is a little tricky because regulators often like buckets. So you don’t see stem cells, you see the heart cells and the brain cells and then there are regulators that are connected to that system. ”
At this point in XRP’s eight year history, Hoskinson doesn’t believe it is a security, although its status may have been different in the early days.
“In my previous statements, I have said that I do not consider XRP a security and I think that in its current form, use, and degree of ecosystem decentralization is certainly true.” Was Ripple a security at some point in his life? I am sure a fair argument could be made. “
Hoskinson wonders if the way the digital asset was distributed is an issue.
“I believe that XRP is not a safety, at least in the general sense, and I go back to that stem cell argument. There is certainly a security-like behavior and it is deeply confusing for me, for example in the age of smart contracts, why an actual company is responsible for the distribution of a token. That makes no sense. You don’t need to do this if you already have a working network in place. That alone is problematic, especially if the custodian has some discretion to spend it. ”
According to Hoskinson, this case is fundamentally different from the actions taken by the SEC against Block.one, the creator of the cryptocurrency EOS.
“With EOS, the SEC had an escape valve in which they said, ‘We’re going to focus on the ERC20 token that Dan has [Larimer] and company sold, and we will take the position that it was certainly a security. “Then punish her for it. What they didn’t do, however, is link this ERC20 token to EOS in sales today. So they said, “Maybe this is a security, maybe it’s not a security, we’re not going to talk about it.” We won’t even think about it. “It basically gave both sides an opportunity to save face. The SEC received good enforcement action. They could be fined $ 24 million. Block.one was happy to pay for this and let these sleeping dogs lie, and then they could get on with their lives and run their network.
The problem with this enforcement measure is that there is no exhaust valve. The SEC’s position is that XRP was a security in 2012 and remains a security today, eight years later. What does that mean in the end? This means that all of this behavior is subject to securities laws and disclosure, insider trading regulations, and all of those things. And they will connect these dots accordingly. “
Regardless of the outcome, Hoskinson doesn’t believe there will be a knock-on effect on the crypto industry as a whole if XRP is ultimately declared a security.
“For a moment, I don’t think that if, for example, Ripple goes down and XRP burns down in the fire, the entire industry will somehow fall apart and everything will be a security, Ethereum and on.” It just won’t happen. I don’t think so at all.
I honestly think the big fight that will take place in 2021 will be the proof-of-stake fight. Does a proof-of-stake make a cryptocurrency a security or not? I think the answer is no. However, this was never tried in court. Similar to a combustion detection, a distribution mechanism was never contested. This is one of those open questions in the cryptocurrency space. Ethereum will also force this conversation, similar to the way Libra forced the stablecoin conversation and brought it to the fore. So what is going to happen to XRP is if they win, the Ripple people win, it would probably make it a lot harder to broadly label a cryptocurrency as security. “
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Selected image: Shutterstock / Kunstofen