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Are Bitcoin [BTC], Ethereum [ETH] & Ripple [XRP] securities?

Aman Swami

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Are Bitcoin[BTC], Ethereum[ETH] & Ripple[XRP] securities?
Source: Max Pixel

Bitcoin, Ethereum, Ripple and other cryptocurrencies considered as securities or a mode of payment has been the most heated debate in the entire crypto community and in the world as more and more regulators try to define it.

There are a few concurrent stories right now that hinge on this. The SEC has recently come forward and stated that it could, in the near future, start calling few of the cryptocurrencies as securities given their nature. This would create legal issues for companies and their founders.

Anyway, if the SEC does end up classing them as securities it could cause some extreme volatility in the crypto market, even more than usual.

For any new entity to be classified as a security it has to be subjected to the usual laws and regulations regarding traditional financial assets. Meaning, it needs to be registered with the authorities according to the laws already set in place and be taxable as such. Any individual who has gained profits in cryptocurrencies, and converted those profits into cash, could be liable to pay taxes on those profits.

Any new exchange-traded fund like the one that the Winklevoss twins have just secured a patent for will be classified a security.

Cryptocurrencies are very different than the existing securities. It is a brand new asset class and the coins themselves will likely require new sets of rules that are more versatile and designed to encompass this new technology.

We live in a world which is moderately diversified allowing the laws to be different in every country. The Regulatory body of Switzerland has actually set an excellent precedent in their ICO guidelines, which breaks down the cryptocurrency classification into three different categories:

  • Payment tokens
  • Utility tokens 
  • Asset tokens 

Bitcoin can be categorized as payment token as it is designed to be a means of payment and store of value. Classic examples of Utility Tokens are Ethereum and Ripple’s XRP. Their design enables them to interact with their respective blockchains in order to provide access/payment to an application or service within the network.

Asset Tokens which are more like Securities, give the token holder the right to partial ownership of the company or foundation. This allows it to present itself with a share of the company or voting rights in the company.

The ETH tokens on the Ethereum network enables voting, but the act of holding the token itself does not give the HODLer the right to influence the network’s actions. Ripple’s token known as XRP is under the control of a private company called Ripple Labs and XRP holders are not entitled to any piece of that company.

The SEC considered the original DAO tokens in 2016 as securities.


Bitcoin

Despite Bitcoin [BTC]’s massive crash in the 2018 bear market, crypto-verse sees massive evolution and adoption

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Despite Bitcoin [BTC]'s massive crash in the 2018 bear market, crypto-verse sees massive evolution and adoption
Source: Unsplash

Bitcoin [BTC] has weathered a total of 82% decrease in its market cap from an all-time high in December 2017, while other cryptocurrencies have undergone losses much worse than that.

Cryptocurrency market has suffered a much worse fate as the cumulative market cap has reduced from a massive ~$835 billion to a mere $100 billion.

Despite such massive drops in the current bear market the adoption of cryptocurrencies keeps on increasing steadily to new heights as per the new research conducted by the Cambridge Centre for Alternative Finance.

Source: Cambridge Centre for Alternative Finance

The total number of users/accounts as seen in the chart above has increased from 2016 to 2018 by a staggering 208%.

The research also shows the number of verified users are on the rise, the report stated:

“It also shows that KYC’ed user growth has dwarfed total user account growth, which means that new users are more likely to get immediately verified. Growth rates were at their highest in 2017, and the number of new user accounts as well as ID-verified users continued to rapidly grow in 2018 as well.”

The same research also shows that the crypto-asset industry, even though global, is mainly driven by companies based in North America, China, India, and Western Europe.

Source: Cambridge Centre for Alternative Finance

The US and China dominate the map, which is shown in the chart, with India, and Canada following these countries in their contribution to the crypto-industry through crypto-based companies.

Another research titled “The State of Bitcoin” by Delphi Digital shows a comparison between the distribution of Bitcoin.

Source: Delphi Digital

The research by Delphi Digital reveals a rather dark and disturbing side of Bitcoin as it shows that out of 22.9 million users that had Bitcoin wallets, 20.4 million users had Bitcoin between 0.01 to 0.1.

According to the research, approximately 679,347 users held 1 to 100 Bitcoins in their wallets. The research further stated:

“Taking a look at the charts on this page, we can see that close to 50% of Bitcoin addresses have less than 0.001 BTC (which is around $3.70 as of December 5th). Additionally, only ~20% of addresses store more than $100 USD at the moment. Lastly, less than 700,000 addresses own 1 BTC or more at this time.”

Although the situation for Bitcoin and other crypto-assets that most of the users observe looks grim, the underlying fundamentals for these assets are growing steadily with strong roots.

The adoption for the digital assets are increasing and institutional investors slowly but definitely getting into crypto-space. Governments and regulating bodies are trying to regulate the assets to avoid misuse and protect investors from getting scammed and all of the above-mentioned pieces of information points the finger to one thing, that these assets are here to stay.


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Ripple CTO compares Bitcoin [BTC], XRP security models; calls proof-of-work “adversarial system”

Priyamvada Singh

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Ripple CTO compares Bitcoin [BTC], XRP security models; calls proof-of-work "adversarial system"
Source: Pixabay

In a recent interview with Internet History Podcast, David Schwartz, the Chief Technology Officer of the leading blockchain firm, Ripple spoke about the mining scenario in the XRP ecosystem and compared it against that of Bitcoin [BTC]. Here, he stated that the initial idea, while developing the XRP ledger was to get rid of the proof-of-work mechanism that Bitcoin uses.

Here, the CTO backed his statement by mentioning the issues that align with the protocol. Schwartz explained that XRP is not an adversarial system like the Bitcoin ledger. Furthermore, the BTC ecosystem pits miners against each other in a competition for a fixed pool of resources. This creates adversarial interests that make the security model of Bitcoin difficult, he said. In his words:

“It’s not an adversarial system like the Bitcoin ledger is. if you’re mining and I’m mining, we’re competing for sort of a fixed pool of resources and that creates sort of adversarial interests that make the security model more difficult.”

Subsequently, the blockchain mastermind also elaborated on the nature of the XRP ledger, addressing it as cooperative. He stated that all the members of the ecosystem are working together on advancement. He added:

“[…] which means that if you’re going to improve the stability of the network, I want you to participate.  Because you’re not taking anything away from me and I think that can make a more secure model but it does mean that the system can’t sort of give out the digital asset.”

He further stated that all the XRP that will ever exist was created in the genesis ledger in June 2012, when the system was built. Regarding proof-of-work, he said that the mechanism has distributed the asset broadly but miners have high expenses wherein the costs of ASIC and power have to be taken into consideration. In his opinion, the money is sucked out of the ecosystem as the miners start selling due to high costs of mining.

Lastly, the Ripple official mentioned that the XRP ledger leaves out one inherent feature of predictable market supply, which is fulfilled via Ripple-created escrow accounts.


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