One of the biggest discussion around the web right now is whether or not Ripple (XRP) is considered to be a security. There’s a massive debate going on right now and we’re here to shed some lights on this topic.
Why does it matter?
To understand why there’s so much hype behind the debate, it’s important to understand why it is important to know if Ripple is a security or not.
Without getting too into details about regulations and the SEC’s involvement, if XRP was a security, the majority of people here wouldn’t be able to buy it.
In order to invest in startups in the US, you need to be considered “accredited”, which basically means “rich” (> $1million net worth or $200k per year income, if you’re single). There’s some recent relaxing of these rules, but it still requires that your security is brokered through a special kickstarter-like intermediary and SEC hoops you’d need to jump through, you can’t just go out and buy it.
That’s why companies like Ripple care about their classification, but the truth of the matter is that XRP’s not a security.
XRP does not grant you voting rights in Ripple, nor does Ripple pay out money to XRP holders, like some other security tokens that have ICOed.
In addition to that, capital gains tax will play a role if Ripple was a security, but we have to deal with that on xrp being considered property too. Also, exchanges would have to register with SEC.
What would make it a security?
Ok, now that we shed some light on why it’s important to know if Ripple is classified as a security or not, it’s time to understand what the SEC would consider a digital asset as a security.
Here are six factors that the SEC considers when classifying a digital asset as a security:
- Is there a person or group that has sponsored or promoted the creation and sale of the digital asset?
- Has this person or group retained a stake or other interest in the digital asset such that it would be motivated to expend efforts to cause an increase in value in the digital asset?
- Has the promoter raised an amount of funds in excess of what may be needed to establish a functional network, and, if so, has it indicated how those funds may be used to support the value of the tokens or to increase the value of the enterprise?
- Are purchasers “investing,” that is seeking a return?
- Is there a person or entity others are relying on that plays a key role in the profit-making of the enterprise such that disclosure of their activities and plans would be important to investors?
- Do persons or entities other than the promoter exercise governance rights or meaningful influence?
Of course, there’s way more to it than that and regulations can get much more complicated, but that should be a good overview of the requirements.
Ripple is not decentralized
One of the main criticisms of XRP is that it’s not truly “decentralized.”
Still, others see centralization as a tradeoff, arguing it’s oftentimes too inefficient. Ripple developers readily admit that XRP does things differently and isn’t as decentralized as they would like it to be.
The debate, then, is not over how centralized Ripple is, but whether it produces a better online money without the same, full decentralization of bitcoin.
Ripple developers have argued that they plan to decentralize XRP over time, a goal they’ve chronicled in their company blog. And there’s merit to suggest it is.
If a coin is not decentralized, it will be hard to separate it from the traditional online money. However, XRP is a digital coin. With a centralized currency, it simply means there is a governing system around it that has a say over the direction transactions take and can “fix” market prices.
A decentralized digital asset allows the market to take control of its future; there is transparency and information flow is not restricted. Involving a central entity with the operation circles of XRP is what makes it stand out.
The bigger picture
If Ripple is declared a security, there will be a celebration for others. The reason being that XRP will now be regulated by the SEC and listed on the numerous traditional trading platforms in Hong Kong, Chicago, London, Sydney, New York, and more. It will definitely boost the coin as these trading platforms never sleep. Market cap will increase and Ripple will become more regulated.
To conclude this, whether XRP is declared a security or not, nothing will be affected on the company’s vision and goals. If it is not declared a security, it could potentially get listed on Coinbase and will hit the roof.
If it is listed as a security, Wallstreet will join in the celebration on its behalf at the expense of the disgruntled XRP fans and users. Therefore, both options are a win and XRP will still dominate and win the battle.