Ripple (XRP) lawsuit: the end is in sight! =

Ripple (XRP) has been embroiled in the infamous lawsuit with the US Securities and Exchange Commission (SEC) for over a year now. The lawsuit has been delayed a lot in the past year, but now the end seems finally in sight!

The SEC accuses Ripple of selling unregistered securities. Ripple, on the other hand, argues that the XRP tokens should not be qualified as securities, but as a currency, just like Bitcoin (BTC) and Ethereum (ETH).

Do you want to know exactly how this works and what the expectations are of the lawsuit? Then read on quickly. In this blog, the most important points are explained about Ripple and the lawsuit with the SEC.

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  • View quickly
  • What is Ripple (XRP)?
    • How does Ripple (XRP) work?
    • What are the advantages of Ripple (XRP)?
  • Lawsuit Ripple (XRP) vs. SEC
    • What is a security?
    • SEC position
    • Ripple point of view
  • Expectations
    • To the moon?
  • Conclusion

The video below provides a summary of what Ripple is all about and the reason for the lawsuit with the SEC, using illustrations:

 

What is Ripple (XRP)?

Ripple is a company founded in 2012 by Ripple Labs Inc., a US-based technology company. Ripple’s goal is to revolutionize the financial world.

In short, Ripple has designed a digital payment protocol that regulates the payment traffic between financial institutions, such as banks. The digital currency associated with this is the Ripple coin. This is referred to as XRP.

How does Ripple (XRP) work?

At the moment, the international financial system is not working optimally. Payments to other countries often take a long time, sometimes up to a week, and involve high costs. This has everything to do with the fragmentation of the global payment system, which means that international transactions entail bank charges and costs to convert currencies. The laws and regulations of the individual countries also play an important role in this. These barriers create frustrations for users. Ripple is changing this.

The Ripple network offers a solution to these problems by operating as a universal currency converter, allowing global currencies to be traded worldwide without intermediaries. The processing of this takes place automatically by the Ripple network, which consists of three platforms, xCurrent, xVia and xRapid, to which banks and other financial institutions can join. The XRP token regulates the value transfer via the Ripple network and acts as an intermediary.

 

Transactions submitted through the Ripple network must be verified and processed by the nodes in the network. Unlike other crypto, no coins are mined; there is no Proof of Work or Proof of Stake protocol. Ripple has developed its own system for this: the Ripple Protocol Consensus Algorithm (RPCA). All nodes must collectively agree to validate a transaction, otherwise it will be rejected. All XRP tokens are pre-mined, so the Ripple network does not rely on mining to validate transactions. This method means that transactions are cheaper than, for example, with Bitcoin and use less power. Particular attention is also paid to the prevention of money laundering and fraud.

This process proceeds in the following steps:

  1. Suppose you send € 100 via your bank to a friend who lives in the US, and your bank uses the Ripple network.
  2. Your euros are converted into XRP via a ‘gateway’.
  3. The Ripple network then provides the cheapest and fastest gateway in the US, and converts your XRP into dollars.
  4. The dollars are finally deposited into your friend’s bank account.

This entire process only takes about 4 seconds, which is a huge improvement over the current payment system. According to Ripple, this way secure, near-instantaneous and very cheap global financial transactions are made possible. Ripple currently has several partnerships with major companies and banks to simplify international money transfers, such as Bank of America, American Express, Santander, and NIUM.

Ripple pursues a different goal than, for example, Bitcoin, bypassing banks and financial institutions. Ripple, on the other hand, is designed to work together with these institutions and improve the payment traffic between them.

Ripple therefore brings several advantages, which will be discussed below.

XRP Metrics

What are the advantages of Ripple (XRP)?

As it became clear above, transactions via Ripple are faster and cheaper than the current international payment system and also other crypto.

  • Fast: Payments that go through the Ripple network are processed within 4 seconds.
  • Low Fees: The transaction fee is currently $0.0010165 (01/25/2022).

In addition, Ripple offers a number of other benefits:

  • Scalable: XRP processes about 1500 transactions per second , 24×7, and can scale to handle the same throughput as Visa, according to Ripple.
  • Distributed: Ripple is run by a decentralized network of over 150 validators worldwide . As a result, Ripple receives a lot of support from large companies and banks.
  • Stable: Ripple’s longstanding track record in technology and governance makes it ready for institutional and business use. Ripple therefore offers security and stability.
  • Environmentally friendly: The Ripple network settles XRP transactions instantly without the energy costs associated with proof of work.

Do you want to know more about Ripple? Then read this blog.

Lawsuit Ripple (XRP) vs. SEC

In December 2020, Ripple Labs CEO Brad Garlinghouse and co-founder Chris Larsen were sued by the US Securities and Exchange Commission (SEC) because the SEC classified the sale of XRP tokens as unregistered securities, so-called securities.

The SEC is the US regulator of the various stock exchanges and ensures that US securities laws are followed to ensure fair and efficient markets. The chairman has been Gary Gensler since April 2021, succeeding his predecessor Jay Clayton, who started the lawsuit against Ripple. The SEC can be compared to the Dutch Authority for the Financial Markets (AFM) and the Belgian Authority for Financial Services and Markets (FSMA).

What is a security?

A security, also known as a security, is the collective name for tradable rights and/or obligations that represent a financial value, such as shares, bonds and options. Important features of this are that securities can be traded on the stock exchange and that the price is determined on the basis of supply and demand. An effect also represents a certain relationship ; for example, if you own shares, you become part owner of a company and with a bond you lend money to a company or the government, creating a creditor relationship. Finally, securities are backed by the assets or assets of the underlying company.

In addition to securities, cryptocurrencies can also be classified as commodities under US law.

A commodity, also known as a commodity, is goods and raw materials that can be traded. Examples include gold, oil, grain and cryptocurrencies such as Bitcoin. The characteristics of a commodity are that they can be traded on the stock exchange, just like securities, with the price being determined on the basis of supply and demand. An important difference, however, is that a commodity does not represent a relationship and is not backed by the assets or possessions of a company. For example, if you own Bitcoin, you do not become a co-owner of the Bitcoin network and Bitcoin has no direct underlying asset.

SEC position

The SEC takes the view that the XRP tokens should be viewed as a security rather than a commodity. Permission from the SEC is required to offer securities, which Ripple did not request.

The problem is that Ripple, as just briefly explained, works differently than other crypto, such as Bitcoin and Ethereum. Unlike other blockchain protocols, Ripple does not use a proof-of-work algorithm or a proof-of-stake algorithm to validate transactions. Instead, Ripple has developed its own system: the Ripple Protocol Consensus Algorithm (RPCA). For a transaction to be successful, there must be consensus between independent validators. This protocol allows transactions to be validated in just 3-5 seconds.

The downside, however, is that Ripple creates a unique node list consisting of parties trusted by Ripple that validate the transactions. While this system allows Ripple to achieve high scalability, it also allows for a more centralized network than other crypto.

While regulators are still figuring out how to classify cryptocurrencies, the SEC views Ripple differently than other cryptos. According to the SEC, Ripple is developing and distributing XRP in a centralized manner, requiring the tokens to be classified as securities.

Securities must comply with securities laws and regulations, which require, among other things, registration of offering. This registration requirement is intended to ensure that potential investors, especially private investors, receive important information about the business activities and financial condition of an issuer. Ripple has failed to comply and has therefore failed to protect investors, the SEC said.

I think we should stand up for the entire crypto market – not let the SEC bully the entire industry.

Ripple point of view

Ripple counters this by stating that XRP is not a security, but a currency just like Bitcoin and Ethereum, which means it would not fall under the SEC’s regulatory oversight. The SEC has previously said that neither Bitcoin nor Ethereum are securities.

According to Ripple, XRP holders have no relationship with Ripple’s company, as is the case with securities. Ripple notes that it has become increasingly decentralized as banks and other financial institutions use XRP as a bridge currency for cross-border transactions. It is also important that the regulators in other countries, such as Singapore, Japan, Switzerland and the UK, are of the opinion that XRP is not a security. Only the SEC has that position. Partly because of this, it would be confusing if supervisors from different countries were not on the same page.

Ripple has therefore indicated that it looks forward to the lawsuit with confidence and will prepare well for the procedure against the SEC. Ripple also points out that this lawsuit will also affect other cryptocurrencies, which may be classified as securities in the future. “I think we need to stand up for the entire crypto market — not let the SEC bully the entire industry,” CEO Garlinghouse said. “We will be on the right side of history.”

 

Visual Generation/Shutterstock

Expectations

Ripple has been embroiled in a lawsuit with the SEC for more than a year now. Over the past year, the lawsuit has been delayed a lot, including due to corona, and both Ripple and the SEC have put forward various arguments to defend their positions.

Ripple has already won several important victories in the lawsuit. It is important that the SEC is the one who has to prove that the XRP tokens qualify as a security and not as a currency. The burden of proof for this is high and so far the SEC does not seem to have enough evidence. In addition, the judge has pointed out that if the XRP tokens were classified as securities, the SEC has not intervened in these alleged illegal sales in all these years. So the SEC has been very negligent in this area.

The judge also recently ruled that Ripple should be given access to emails from a former SEC member who argued that Ethereum is not a security. The SEC claims that Ripple knew that XRP was a security and not a currency, while the SEC has previously stated that cryptocurrencies such as Bitcoin and Ethereum cannot be regarded as securities, which would allow Ripple to assume that this applies to all cryptocurrencies. The SEC would not share these emails and invoked its “privilege,” meaning that these documents do not need to be shared with the other party to a lawsuit. The judge rejected that appeal.

In the video below, attorney Jeremy Hogan discusses when the trial will end, how it will end, and why it will end. Hogan is popular on YouTube and Twitter for his videos, in which he discusses a variety of crypto legal issues from his expertise as an attorney.

 

The video from Hogan expresses frustrations with the pace at which the trial is currently progressing, especially as the judge approved a motion to postpone the so-called expert discovery deadline in the case from January 19 to February 28, 2022. This deadline is now ahead of the postponed four times. He does point out, however, that it is better to handle the case properly than to rush it.

At the end of 2021, CEO Garlinghouse already indicated in an interview with CNBC that the end of the lawsuit was in sight and that he expects a victory for Ripple. Whether that is the case, we will therefore have to wait and see.

IMG

To the moon?

The ruling in the lawsuit between Ripple and the SEC will undoubtedly have a major impact on the entire crypto world. The ruling will provide direction for any similar litigation and legal issues and the scope of the SEC’s regulatory oversight.

What will this mean for Ripple in particular? Despite this lawsuit, 2021 was Ripple’s best year ever , according to CEO Brad Garlinghouse. Ripple has therefore nevertheless fulfilled its obligations and expectations. In addition, customer interest has remained high since the lawsuit. Today, Ripple’s network is available in more than 20 markets, compared to just three in 2020. Significant partnerships include Japan and the Middle East. Ripple has thus achieved many successes in 2021 and experienced tremendous growth.

The question is therefore what the influence of the ruling will be on Ripple. Specifically, a win for Ripple will cause US crypto exchanges, such as Coinbase and Kraken, to relist XRP again. They had stopped trading in XRP because of the ongoing lawsuit. The expectation is that this could lead to an explosive increase in XRP, because XRP will then be freely available everywhere. This will also lead to even more trust in Ripple among the public. However, whether XRP will rise sharply in the event of a victory remains to be seen. After all, the market is never 100% predictable.

If Ripple loses the lawsuit, it will initially mainly affect the US market. As mentioned earlier, authorities in other countries are not aligned with the SEC and are not designating Ripple as a security. However, it is difficult to predict what the exact influence of a negative result in the lawsuit will be on Ripple. Ripple seems to focus mainly on growing and scaling its products and coming up with new services to work towards a crypto-native future. So Ripple has only just started and has a lot of potential, and does not necessarily need the US market to realize these plans, now that it is active worldwide . Ripple has also previously indicated that America is not a cryptocurrency-friendly country, and is therefore considering moving its headquarters to another jurisdiction, such as Europe or Asia.

Conclusion

Ripple’s network is designed to enable financial institutions such as banks to process international payments faster and cheaper. This is a huge improvement over the current global payment system, where transferring money can sometimes take days and involves high costs. This is very frustrating for users.

Ripple offers a solution to this by operating as a universal money converter, allowing global currencies to be traded worldwide without intermediaries. The major advantages of this are the very faster processing time (within 4 seconds), the low costs (less than one eurocent), the scalability (about 1500 transactions per second) and the cooperation with financial institutions. Ripple is also very environmentally friendly , because no tokens are mined. Ripple, unlike other crypto such as Bitcoin and Ethereum, uses its own designed system to validate transactions.

According to the SEC, this leads Ripple to operate in a centralized manner , requiring the XRP tokens to qualify as securities.

Although Ripple works in a different way than other cryptos, it would be very remarkable to consider XRP tokens as securities, while that is not the case for Bitcoin and Ethereum, for example. Although transactions are validated differently, in my opinion XRP generally bears much more similarity to other crypto than it does to securities. The public will probably never have considered XRP as an asset either, especially since Ripple is in the top 10 crypto when looking at market capitalization, for example.

We are therefore very curious about the ruling in the lawsuit and the consequences for XRP. So keep a close eye on the coming months if you are integrated in Ripple!

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