SEC Chair Gensler Discusses How Securities Laws Apply to Crypto Tokens — Won’t Say if Ethereum Is a Security

The chairman of the U.S. Securities and Exchange Commission (SEC), Gary Gensler, has explained how securities laws apply to cryptocurrency tokens as he outlined the commission’s priorities in regulating the crypto space. “Our role at the SEC is to ensure that the public still gets basic protection,” he stressed. SEC Chair Gary Gensler on Cryptocurrency […]
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Ripple Achieves ‘Strongest Year Ever’ Despite SEC Lawsuit Over XRP, Says CEO

Ripple Achieves 'Strongest Year Ever' Despite SEC Lawsuit Over XRP, Says CEORipple has achieved the “strongest year ever” despite the lawsuit over XRP by the U.S. Securities and Exchange Commission (SEC), according to CEO Brad Garlinghouse. “Calling crypto the ‘Wild West’ is a farce,” he said, emphasizing that “most are complying with financial regulators globally.” Ripple Has Best Year Despite SEC’s Lawsuit Over XRP Ripple CEO […]
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Ripple Expects SEC Lawsuit Over XRP to Conclude Next Year, CEO Says ‘We’re Seeing Pretty Good Progress’

Ripple Expects SEC Lawsuit Over XRP to Conclude Next Year, CEO Says 'We're Seeing Pretty Good Progress'Ripple CEO Brad Garlinghouse says that he expects the lawsuit over XRP by the U.S. Securities and Exchange Commission (SEC) to come to a conclusion next year. The executive explained: “We’re seeing pretty good progress despite a slow-moving judicial process.” Ripple’s CEO Is Hopeful the SEC’s Lawsuit Over XRP Will Conclude Next Year Ripple CEO […]
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‘Overtime, we will see the NFT market broaden,’ says Ripple’s CTO David Schwartz

Ripple may be a bit late to the NFT party, but the XRP Ledger will attempt to become an industry game changer and challenge Ethereum’s hegemony.

Nonfungible tokens, or NFTs, have been dominating the crypto market this year. With sales topping over $2.5 billion during the first half of 2021, it shouldn’t come as a surprise that both the crypto community and mainstream creators are launching NFTs in hopes of driving revenue and engagement. The rise of the Metaverse has also pushed the adoption of NFTs, demonstrating the value of nonfungibles for major brands and social media platforms alike. 

While NFT sales soar, the Ethereum blockchain continues to rule the space. For instance, a recent report from Cointelegraph Research found that Ethereum represented at least 97% of every NFT market sector, which includes games, collectibles and marketplaces. It’s also interesting to point out that blockchain analytics firm Moonstream found that around 17% of addresses control more than 80% of all NFTs on Ethereum, demonstrating the vast inequality that still exists in the NFT market.

Although this is the case, it’s important to note that nonfungible tokens are still a very new and early concept. Even though Ethereum is currently dominating the market, there are significant competitors.

For example, blockchain payments firm Ripple recently announced an investment in the NFT marketplace Mintable, which would allow the platform to integrate with the XRP Ledger (XRPL) to enable creators to securely and efficiently sell their NFTs. In addition, in September this year, Ripple launched a $250 million creators fund to foster innovation in tokenization, specifically focused on nonfungible tokens.

Given Ripple’s recent involvement in the NFT space, Cointelegraph spoke to David Schwartz, Ripple’s chief technology officer, during NFT NYC to learn more about the company’s growing interest in nonfungible tokens. Schwarz also discussed other topics including the rise of central bank digital currencies, or CBDCs, the goals behind a Wrapped XRP (wXRP) token and Ripple’s upcoming roadmap.

Cointelegraph: Thanks for joining me, David. First off, what did you discuss during your talk at NFT NYC?

David Schwartz: My talk at NFT NYC was mostly about carbon-neutral NFTs and solving the energy consumption problem. Obviously, we aren’t going to solve climate change in the blockchain space, but the least we can do is not make it a lot worse. It’s not a technical problem — we know how to not consume that much energy, it’s just a matter of convincing people to adopt the technologies that are more climate-friendly. 

Cointelegraph: Ripple is now letting people create NFTs on the XRP Ledger. Can you discuss this in detail?

DS: We were a little late to the party, but not too late. If NFTs are successful, then we are all still early. We initially started to look at how people wanted to use NFTs and realized that a lot of the challenges people were facing were due to the technology being very primitive. 

“Every company wanting to get into the space needed a tremendous amount of specific expertise, which isn’t a good way to grow. So, building that tooling is what we’ve been focused on. Also, sometimes money is the obstacle.”

When someone has a good idea with the right tooling and the right team, sometimes they just need more money to scale. We can help them overcome this to prove the technology will work the way they want it to.

Cointelegraph: You also mentioned that the XRP Ledger is energy efficient. Could you explain why this is the case?

DS: Yes, the reason why proof-of-work, or PoW, systems like Bitcoin (BTC) and Ethereum (ETH) consume energy is that they are specifically designed to create artificial scarcity. You’d want artificial scarcity if you are trying to profit from something that has to be scarce. You also need artificial scarcity for something to be valuable, and you need to convince customers that the scarcity is not artificial.

So, PoW creates artificial scarcity by using something scarce, which is energy. When energy is purely used to create artificial scarcity though, it drives up cost. The only reason you’d want to do this is if you are getting a cut of the money. Only the people getting those fees are promoting that technology.

In the XRP Ledger, no one gets transaction fees, so no one wants high fees. The fee literally covers the cost of processing the transaction. The fact is that the XRP Ledger works just as well without artificial scarcity.

Cointelegraph: Are there any other benefits of using the XRP Ledger for NFTs versus Ethereum?

DS: Yes, one of them is the scalability, or the number of transactions per second. There are things you can do on Ethereum though that you can’t do on the XRP Ledger. That’s why a lot of decentralized finance (DeFi) work today is happening on Ethereum. You can do almost anything you can envision, like things with loans, or TradeFi, or mortgages and staking. We don’t have those capabilities on the XRP Ledger today, but you can mint NFTs.

We don’t have those capabilities on the XRP Ledger today, but you can mint NFTs. We also have a decentralized exchange (DEX), and you can issue new tokens. Payments are cheap and fast, so to some extent, it’s a fundamental engineering tradeoff.

“If you want to do everything, then you can’t be very good at anything. The XRP Ledger has a list of things it does really well. If one of those are the things you need, that’s great. But, if one isn’t what you need, then you need to move to something more general.”

Part of Ethereum’s low transaction speed and cost is due to the fact that you can build more flexible technologies on the blockchain. Most people who build on the XRP Ledger are doing complex things, but for technical reasons, they don’t need these to be right on the ledger.

Cointelegraph: What are the best use cases for someone wanting to mint an NFT on the XRP Ledger?

DS: Today, the use cases are mainly collectibles. On the XRP Ledger, the cost is a lot lower, so if you are building an NFT on Ethereum it would have to be worth at least $500, and even then the fees would be close to $100. The fees are much less on the XRP Ledger and that allows for a broader range of use cases.

I think most of the use cases today are collectibles broadly speaking, like works of art, things that connect to digital art, things that connect to musicians. But I think over time, we will see the NFT market broaden.

Cointelegraph: I also wanted to discuss Wrapped XRP. Could you go into detail about that?

DS: Wrapped XRP is an asset that is designed to track the price of XRP. For every Wrapped XRP, there is an XRP somewhere tied into an ecosystem that keeps that XRP locked until the Wrapped XRP is free. The idea here is they should track close in price. Wrapped XRP will behave similarly to XRP. For instance, if all you are using XRP for is moving value, and you have something whose value is the same, then these should serve as substitutes in the market.

“The disadvantage of Wrapped XRP is that you can’t move it cheaply and quickly on the XRP Ledger like XRP. But, the advantage is that you can use it in DEX on Ethereum.”

For instance, if you have 500 XRP to use in a DEX and you just can’t do it today at any price, then Wrapped XRP would allow you to get the tokenomics of XRP and the semantics of Ethereum. That will help keep XRP from getting locked out of features. We can expect to see the Wrapped XRP launch in December.

Cointelegraph: What’s next for Ripple?

DS: We’ve been pushing hard for CBDCs. What’s exciting is that there are a lot of people in the space who don’t really know what CBDCs are capable of. Our vision is to imagine that every financial institution in the world is able to settle every fiat currency with every other financial institution in seconds. That’s huge, but it takes interoperability and security.

“If you are going to build a payment system that big, then you need a security model that isn’t what swift uses, and blockchains pretty much don’t have security problems.”

Another feature is interoperability. For instance, the United States couldn’t build such a system because Saudi Arabia wouldn’t use it. But, if Saudi Arabia built a system, and the U.S. built a system, then there has to be a standard for interoperability. Otherwise, banks in the U.S. wouldn’t be able to settle euros with banks in Europe.

Another thing we are working on is federated side chains that allow assets to move freely between blockchains. Wrapped XRP is an example of this since it allows XRP to move between the XRP Ledger and Etherem, but these are point solutions to specific problems. The advantage of solutions to a specific problem is that it allows a type of innovation that is currently not possible.

Related: Beyond the NFT hype: Creating lasting business models for artists

Today, if you want Ethereum smart contracts, you have to build on a blockchain with Ethereum smart contracts. You also have to follow rules like how big a smart contact can be. Therefore, you can’t innovate at the level of changing those rules. What federated sidechains do is it allows you to innovate at the lowest level, so users can build a blockchain with whatever fees they want and whatever assets they want. It can be public or private, and it can be live in a short period of time with real money.

This is great for developers who need to solve specific problems, or who want to make changes to other blockchains and need to convince people that those changes work and are safe. Federated sidechains provide a recipe today to build live blockchains that allow users to innovate in the blockchain itself.

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SEC accuses XRP Army of issuing ‘false statements’ against its leadership on social media

The commission argued that Ripple’s motion, if granted, would open the floodgates for the company to request testimony from high-ranking government officials.

The ongoing lawsuit between Ripple Labs and the U.S. Securities and Exchange Commission, or SEC, continues with the regulatory body claiming that XRP token holders are targeting its members on social media platforms with allegedly false statements.

In a Thursday motion addressed to Judge Sarah Netburn in the Southern District of New York, the SEC has requested a conference to discuss quashing the motion from Ripple to subpoena the former director of the regulatory body’s division of corporation finance, William Hinman. The SEC argued that Ripple’s motion, if granted, would set a precedent for the company to be allowed “a parade of requests for the testimony of high-ranking government officials,” and interfere with U.S. government operations.

“Allowing Defendants [Ripple] to depose Director Hinman would likely result in Director Hinman being served with multiple deposition subpoenas by the many other persons alleged to have violated the registration provisions of the securities laws during his tenure at the SEC,” said the motion. “Such a result would not only create significant burdens for Director Hinman, but would make other qualified individuals reluctant to serve in high-ranking roles at the SEC for fear of being embroiled in litigation for years following their terms of service.”

However, one of the SEC’s arguments in the motion against letting Ripple depose Hinman is XRP token proponents — also known as the XRP Army — allegedly using social media “to disseminate negative and false statements about members of SEC leadership,” including the former director. The commission claimed that the deposition coupled with the social media attention could deter individuals from seeking positions in public service.

The SEC filed a lawsuit against Ripple in December, alleging the firm, CEO Brad Garlinghouse and co-founder Chris Larsen had been conducting an “unregistered, ongoing digital asset securities offering” with their XRP token sales. In the aftermath of the commission’s announcement, several crypto exchanges have suspended the trading of XRP or delisted the token entirely. Garlinghouse also said in March that Ripple had agreed to “wind down” its partnership with global money transfer service MoneyGram.

Related: US isn’t prepared to regulate new industries like crypto, says Ripple CTO

In response to the SEC lawsuit, Ripple has claimed that XRP is more like Bitcoin (BTC) or Ether (ETH), both of which the regulatory body has classified as commodities rather than securities. Members of the XRP Army have also seemingly focused much of their online activity around the SEC case with Ripple, specifically mentioning Hinman.

Some of the ideas on social media pushed by XRP token holders about the SEC leadership include that members of the commission are working to make China’s economy greater than that of the United States, requests that former chairperson Jay Clayton and Hinman be investigated, and the occasional comparison of one or more members to lizard people:

XRP Army members have also started an online campaign to get exchanges to relist the token amid the SEC lawsuit. In April, the price of XRP reached a yearly high of $1.78 and stayed above the $1.00 level for a month. At the time of publication, XRP is $0.63, having fallen more than 35% in the last 30 days.

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