A major attraction of decentralized cryptocurrencies is that they are censorship resistant. The more centralized a coin is, the easier it is to control its supply. But there is another problem with over-centralized cryptocurrencies like Ripple: you risk being classified as a security, which brings all sorts of problems with it.
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How centralized does a cryptocurrency have to be before it becomes a security?
Ripple has long been criticized for its centralization. These concerns centered around the extent to which Ripple or its affiliate exchanges – also known as Ripple Gateways – have the authority to freeze and reverse transactions. Ripple’s biggest centralization problem, however, is likely to be due less to the way its nodes work than to the amount of coins the company holds. Given that Ripple owns the majority of all XRPs, the argument goes, anyone who buys the coin is essentially buying shares in the company.
Many cryptocurrencies are the product of a public company, but these companies generally don’t hold the bulk of the supply. For months, Ripple was considered a stick-on to become the next coin listed by Coinbase. But as news.Bitcoin.com recently reported, “Ripple may not qualify because Coinbase is making it essential that” the team’s remaining ownership is a minority stake “”. This week is it popped up that Ripple tried to buy itself on Coinbase and GDAX only to have its $ 1 million sweetener rejected by US exchanges. There’s a certain irony in a centralized exchange that won’t accept a coin because it’s too centralized.
Stock exchanges don’t want stocks
Binance closed quickly on Thursday delisting after the founders of the mint were arrested and the SEC investigated a possible security fraud. Cryptocurrency exchanges don’t want security tokens: they’re a regulatory issue, and exchanges like Bittrex have already removed tokens that could qualify as securities. After the takeover by Circle, Poloniex will follow suit. If Ripple were to be classified as a security, its sale in the US would be subject to much stricter regulations, which would make it more like a stock than a cryptocurrency.
2018 has been billed as the year of the security token by some in the crypto space, but these tokens are traded on specialized exchanges that are approved for sale and to accredited investors. Cryptocurrency exchanges already have enough regulatory issues to deal with, which has to do with threatening short-term withdrawals of bank facilities without worrying about the SEC being on their backs.
Ripple has disheveled feathers
In the past few days, several commentators have voiced scathing criticism of the ripple, claiming that the cryptocurrency is floating in seas of security. “XRP is a security. Ripple Co is the issuer. Brad Garlinghouse, Chris Larsen, and other Ripple Co executives are subject to the anti-fraud laws of the SEC jurisdiction. ” meant Lawson Baker adds, “A supposedly decentralized cryptocurrency can be a security with sufficient centralization.” Baker also claims to have assessed the ripple using Coinbase’s own listing criteria and found that the likelihood of the token being classified as a security with there is a 50% probability.
Lawson Baker continues, “XRP is definitely not decentralized. Ripple Co creates the joint company. Ripple Co initially distributed all XRP for money. This is the “investment” element of Howey Test. Ripple Co and the founders control more than ~ 60% of the existing XRP. Control is generally 10% of the voting rights in traditional finance. Ripple Co even controls the inflation / dilution rate of XRP ”. He concludes: “Security analysis is a spectrum. XRP is the blinding white safety light. ‘”
Ripple critics are mounting
In an April 5 blog post, Messari founder and prominent crypto-voice joined “Twobit Idiot” and wrote, “Crypto companies tend to want things both ways. Act like a securities provider when it is wealthy or when you are paying out “start-up bonuses”. Imagine actually selling a currency or a commodity when it becomes significantly less convenient from an investor disclosure perspective. ”He then asked a series of questions such as“ Why is the company writing about XRP? Price increase as if it were a milestone? Why are they doing little to curb speculation about corporate XRP adoption? “No, why are they actively implying big news by writing things like,” XRP markets started connecting the dots again? “
XRP is by no means the only cryptocurrency that could be construed as security, but it is the most well-known and its setback by Coinbase has shed new light on Ripple’s business practices. If other crypto projects could save $ 1 million in cash and $ 100 million in tokens for a Coinbase listing, many would do the same. As it is, only a handful of players, including Ripple, are able to make such an offer with the billions of tokens at their disposal. Centralized cryptocurrencies are not cryptocurrencies, nor are they currency – they are company stocks.
Do you think Ripple is considered a security token? Let us know in the comment section below.
Images courtesy of Shutterstock and Ripple.
Tags in this story
Binance, Brad Garlinghouse, Centra, Centralization, Centralized, Coinbase, Decentralized, N-Featured, Ripple, Security, Security Token, XRP
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