- Ripple has a native cryptocurrency token called XRP. 100 billion XRP tokens were created on the ledger in 2012 and 80 billion were gifted to Ripple.
- The U.S. Securities & Exchange Commission (SEC) is a federal government security agency which sued Ripple on the claim that XRP is not a currency but a security & subject to securities laws.
- If an asset is sold as a part of investment contract, it is a security, but as per Ripple it never sold XRP as part of any investment contract.
Ripple & XRP
Ripple is an American technology company that focuses on serving the financial industry, mainly the banking zone, by providing a more effective medium to execute cross-border payments. It does so by minimizing the time and cost of a transaction and eliminating the involvement of any third parties. XRP is the native cryptocurrency of Ripple. XRP is a digital asset that works on a payment platform called Ripple. The terms are frequently used interchangeably.
Similar to all other cryptocurrencies, XRP too functions on a ledger, spread out on several computers that are also called validator nodes. These validator nodes maintain all the past activity of XRP and verify transactions over the network. XRP uses a consensus protocol and a very few nodes to make transactions faster, unlike Bitcoin & Ethereum that work on a Proof-of-work protocol.
The Historic Events
- Three developers in 2011, namely David Schwartz, Jed McCaleb, and Arthur Britto, came up with an idea of creating a Bitcoin that will not require mining. They thought Bitcoin is great but mining is a waste.
- This group of developers developed a distributed ledger with no limitations, mainly mining, like Bitcoin and launched it in June 2012 with assets being called ripples and XRP is the currency code. 100 billion XRP tokens were created on the ledger, and thereafter no new tokens were created ever since.
- A little later, Chris Larsen joined the group and launched a company named NewCoin in September 2012, which was later renamed to OpenCoin and finally renamed Ripple Labs in 2015.
- When Ripple was founded in 2012, about 80 million XRP tokens were gifted to the company by the developers of the XRP ledger. This is the point where involvement of the SEC comes in.
What is SEC?
The SEC, also known as U.S. Securities And Exchange Commission, is an independent federal government regulatory agency, in charge of maintaining proper and fair working of the securities markets and simultaneously protecting investors from fraud and manipulative practices. The US’s corporate takeover actions are constantly monitored by the SEC and it also encourages transparency, complete public disclosure.
What Happened?
Back in December 2020, the Securities and Exchange Commission sued Ripple. Chris Larsen, the executive chairman and founder of SEC, and Brad Garlinghouse, the CEO of SEC, filed a lawsuit against Ripple, accusing the company that it raised around $1.3 billion in digital asset securities that were unregistered. The nub of the lawsuit filed is that XRP is a security and not a currency, thus, it is subject to strict laws of securities.
Even the gifting of 80 billion tokens to Ripple by the founders of the XRP ledger might be considered illegal trading. The security analysis does not involve the point of whether the asset is created or will be created, it only involves one straight point, whether the asset was sold as a part of an investment contract or not. And as per Ripple, it never sold a single XRP being a part of any investment contract to anyone.
Following the lawsuit being filed, XRP faced some tough times in the market and how much the lawsuit has progressed will all be discussed in our next episode of this series.
Source: https://www.thecoinrepublic.com/2022/10/05/what-is-ripple-xrp-and-how-is-the-sec-involved/