Is Ripple in trouble?

No, Ripple is in big trouble. US Securities and Exchange Commission (SEC) filed a lawsuit against Ripple and its executives last December for selling Ripple’s cryptocurrency XRP. This is a $1.3 billion illegal security offering.

What a shame. Everything seemed so good since Ripple’s launch in 2012.

Ripple is a peer-to-peer, centralized, privately owned cryptocurrency platform focusing primarily on international money transfers. The name of the cryptocurrency in circulation is XRP. XRP transfers are based on a so-called ‘distributed consensus’ ledger.

To transfer money, for instance, from the United States to Japan, a customer must first buy XRPs from Ripple for his or her US dollars (USD) and then the resulting amount in XRPs will be converted by Ripple into Japanese yens (JPY). Several hundreds financial institutions around the globe have been using Ripple’s ecosystem for money transfers. Transaction speed is up to 4 seconds. Ripple declares very low fee 0.00001 XRP per transaction. Good? Probably but there are some strings attached.

Actually, there is no need in a medium currency like Ripple’s XRP in this scenario. Currency market never sleeps. Every single second there is a market exchange rate for USD/JPY currency pair. Just take an amount in USD and directly convert it to JPYs. Why not? Unnecessary currency conversion is an excellent opportunity to hide additional fees.

Also, what is the reason for using a distributed ledger if the platform itself is centralized? Theoretically it improves reliability of the system as a whole but seems a poor excuse.

What is the nature of XPR? This is definitely not money or currency like traditional fiat currencies including euro, dollars, etc. because XRP’s acceptance is limited by the boundaries of the Ripple’s ecosystem. When a customer buys XPR’s from Ripple for a fiat currency he actually gets a Ripple’s obligation to deliver some fiat currency in exchange to this obligation in the future. This means that XRP is a security and SEC is dead right suing Ripple for illegal security offering. There is no doubt about this.

I think that the XRP, distributed ledger, consensus-based algorithm by Ripple are just technological gimmicks introduced to exploit Bitcoin’s hype and attract attention of financial institutions.

Some critics of Ripple say that the only purpose of XRP invention and distribution is to enrich the issuing company. I totally agree with that.

But the main lesson that should be learned from the Ripple’s story is not related to technological or legal issues. Banks and customers are eager for new technologies that improve old-school money transfers.

Ripple’s successors, good luck! Go for it but watch out for big brother.

#Ripple #SEC #XRP #illegal security offering