More on Ripple

hi everyone this is charles hoskinson broadcasting live from warm sunny colorado sitting in the office it's december 22nd 2020 and as i promised yesterday as i learned a little bit more about what's going on with ripple i'd go ahead and keep you guys in the loop so there's indeed a wells notice it looks like was sent to ripple which is why they replied and they did a very unorthodox thing where they actually released a summary of their well submission which is the rebuttal so generally what happens is if the sec is going to go after you they do something they they send you a letter or a communication called a wells notice and then you reply to it and then they make a decision whether to file a lawsuit or not generally speaking if it gets to the wells notice stage about four or out of five times they pursue an enforcement action about 20 of the time they drop it give or take so anyway in the show notes i've included a summary of ripples well submission response it's about six pages long and they provide kind of a factual background an introduction they go ahead and provide a little bit of an analysis with the howie test and then they kind of ended on some policy reasons why it would be problematic if howie was applied so there's a lot of stuff here it's pretty meaty document and it's a very compelling response so based upon the response that they have it's obviously dependent on facts and circumstances it doesn't really look the sec has a very strong case the other thing that's incredibly puzzling is the chairman of the sec is going to be leaving here towards the end of the year and so basically this colossal very high profile securities case would then be handed to an interim chairman starting next year in a completely new political administration so it's very very strange very unorthodox never really seen something like this before and it's typically not done they mentioned on-demand liquidity products they they mentioned statements from the doj and fincen back in 2015. they mentioned the unique node list the validators where the super majority is not in the hands of the ripple company and it definitely is going to have an impact on the space as a whole if this is it continues its way through so most likely outcome is that nothing is going to happen in the next few weeks and if there is going to be a filing in court that's probably going to occur january february time horizon and then this would be a litigation that would take potentially quite some time it could be greater than a year to two years of effort and it would definitely create regulatory clarity on what is a security and what is not a security but according to things that the sec has already said and done and their statements they've made on bitcoin and ethereum and the facts and circumstances of the xrp case i don't believe that xrp is the security under the those standards and statements and it'd be quite problematic for the sec to capture this under their definition because it would inadvertently capture most of the cryptocurrency space if desired there's really no way to satisfy it and it's not clear how would you even operate a system for example if somebody was responsible for reporting if the reporting entity goes out of business the protocol and currency are still there so then who reports for it if ripple was to be a security then every u.s holder of xrp would be holding securities and actually in violation of securities laws themselves and they would lose all liquidity in the united states but then enjoy because they've already been approved as a currency or another instrument abroad different forms of liquidity abroad so it's incredibly puzzling case it's quite bizarre and just unbelievable to me that it would be issued right before christmas just a few days before the end of the year and when there's a transfer of power from one administration to another one group to another group and it looks it looks a bad decision all things considered so you guys should read the wealth submission the counter argument the summary that xrp put out and if there is a lawsuit we'll all be able to read that together but nothing's going to happen in the next few weeks it's going to take a little while and this is kind of the final threshold before they file as i mentioned four out of five times when it gets to this point they do twenty percent of the time they don't given the unorthodox reality of things they probably they probably will take this one a little bit more seriously and obviously ripple's gonna activate their billion dollar war chest to turn on their pr and media machine for us as an industry this is really an existential moment for the us government to really get serious about whether they want to be a major player in the cryptocurrency space or not the probably the most poignant thing in this entire document is right on page six in section four c where it says no foreign regulator has determined that xrp is a security in fact the opposite is true the united states would be an unfortunate outlier the u.s likes to believe it controls the whole world and it runs every regulatory agency but the reality is it doesn't and that's becoming very clear as we go into the 21st century and this is kind of a bellwether test on whether it makes sense as a cryptocurrency infrastructure company to base your infrastructure company in the united states and do business in the u.s market or whether that market is closed off or not so as an industry it's in everyone's best interest whether they be ethereum or cardano or a polka dot for this to to be won by ripple frankly there's no upside and giving such broad powers to a regulatory body where that regulatory body has no checks and balances or oversight and can basically arbitrarily at any point just decide oh well we're going to ruin your entire ecosystem there's eight years of history here for better for worse there's a lot of things that have happened a lot of steps have been taken and it's a very different ecosystem that it was in 2012 and that's true for most cryptocurrencies bitcoin included at a particular period of time all the things that were true about ripple were also true about bitcoin there was only one operator and one distributor so it would have been almost certainly a security under the this this draconian definition of things and how does that benefit the industry it really doesn't so it doesn't help to call xrp as coin as some prominent people in the cryptocurrency space did in the response to this event it's not a funny event it's an existential event for the industry as a whole the good news is i think that ripple will prevail and i think that xrp is going to win and i think that it was very stupid for the regulator to approach this case as they have done unless certain facts and circumstances materialize in the next 60 days to 90 days then indicate that there's something more than what is publicly known but on the surface with what we know what was said in the wells submission it just seems a boneheaded thing similar to the fincen recent decision which was also pretty boneheaded and quite damaging to the industry as a whole but we in the cryptocurrency space we all knew this we knew that there was an uphill battle when dealing with financial regulation and there's a great degree of nepotism and corruption and and just counterproductive decisions that are made i will remind everybody that ripple made a decision to reward ben losky a man who caused profound damage and harm to the cryptocurrency industry in new york with a board seat and bringing him in so as long as a culture exists where those who do harm to our industry and to entrepreneurs trying to innovate and revolutionize that mentality is going to continue so not only do we need to win some short-term battles we definitely need to look at the policies as a whole and how this country handles financial regulation as a whole everything from investor definitions things the howie test which really make no sense in the context of the 21st century we're no longer dealing with the 1940s i think we can do a little bit better and also the relationship of different actors in the ecosystem for example when you hold a cryptocurrency especially proof of stake cryptocurrencies this does give you certain rights these are distinctly different than the rights that you gain when you hold bitcoin or a security or a commodity or another asset we should live in a culture where we proactively try to align those with the best interest of the growth and stability and sustainability of the ecosystem as opposed to trying to to cut them up like some sort of bed of crusties to fit some arcane regulation or definition that's 70 years old or 80 years old or to avoid being in that particular box that's 70 years old or 80 years old and lawsuits like this and events like this they just at times show how short-sighted certain people can be or how certain people work for a small group of people to protect protect corporate interests as opposed to actually benefit consumers a lot of agency failures and regulatory failures in our industry there are a lot of problems in our industry and in many ways we're reliving the baronial age of the 19th century with the birth of wall street in the the wild west that it was and we're kind of doing that much faster than they did and we're seeing the similar types of behavior and collapses and so forth but the difference is that to regulate this industry you don't need to redo the regulation of the 1930s and 1940s you can regulate it in different ways and you can have different kinds of relationships with people so i think in many ways 2021 is going to be one of the most significant years in the history of our industry for cryptocurrency regulation in the united states and it's going to be the deciding year of whether the united states is a friendly jurisdiction the cryptocurrencies or hostile jurisdiction the cryptocurrencies and should the united states make the wrong decision i think cryptocurrencies are still here to stay i just think the united states will lose its edge and our fintech industry will collapse causing profound economic harm to the united states and we'll seed all of that abroad from our part we work mostly abroad we write software at home we do science at home but we don't pursue regulated activities at home and we do a lot of fintech innovation with governments in the developing world so we actually work directly with them and we talk about what do they want kyc and aml look like what do they want identity to look and so forth it's very satisfying because you don't have an adversarial relationship with the regulator and you're also trying to improve things as opposed to comply with things but it's also frustrating because these systems in many cases are not batteries included they require a lot of hard work and that was the point of cardano to build a system that could accommodate all kinds of different regulatory models and all kinds of different use cases and as a financial operating system with that kind of utility is my belief that as we build up the system eventually entire economies can be run with this as the bedrock doing everything from property registration to peer-to-peer lending to insurance but also enforcement of regulatory regimes so making sure the right people get the right information making sure consumer protections are put in and making sure that there's rule of law within that economy especially in places where it's historically been absent this is a multi-year multi-decade endeavor they're going to be setbacks and it's not an easy endeavor and it's at times very frustrating but as i mentioned it's also at times very rewarding because when you do make progress you change people's lives i admire that ripple at least on its surface with its mission has been trying to innovate things like swift and interbank settlement and innovate the way that value moves around the world the reality is it shouldn't take five days to do a wire transfer and it shouldn't take enormous fees to be able to move large sums of money and with the systems that they've constructed there certainly is some innovation there and they always tried to take a hybrid approach where you have maximal decentralization and no centralized control with a cryptocurrency versus a central bank network where you have permission only and massive centralized control they were always trying to find that middle ground as an entity and they have done some great innovation like interledger and other things within that domain and it's quite unfortunate that this event has happened and before everybody says coin and print money out of thin air and these things the u.

s government printed six trillion dollars out of thin air and continues to print trillions of dollars out of thin air so i don't for a moment want people to go and pick on a private company that creates creative ways to finance innovation this has nothing to do with some guy just making himself five bucks and walking off into the sunset if somebody wants to go and change something that's global scale they need capital in the hundreds of millions to billions of dollars and if i'm being told the u.