Recently, the price of XRP (cryptocurrency sold by Ripple) has dropped dramatically. The cause of this drop in the fourth biggest market cap in cryptocurrency is the lawsuit filed by the SEC (U.S. Securities and Exchange Commission). The SEC alleged that Ripple’s executives Christian Larson and Brad Garlinghouse had been illegally selling unregistered securities for company purposes. However, Ripple claims that XRP is not a security, but a currency; it does not have to be registered. Whether cryptocurrency is or is not a security has always been controversial as shown by this case, and the result of the lawsuit will affect the overall cryptocurrency market, especially for altcoins (cryptocurrencies other than Bitcoin).

Security is defined as a fungible and negotiable financial asset that represents monetary value. Since security offers the possibility of profit in exchange for the risk of loss, they are regulated by the SEC to protect investors. To classify between securities and non-securities, and aid in establishing whether a transaction qualified as an investment contract, the Howey Test was created by the Supreme Court. The Howey Test states that security includes investment contracts, which is the investment of money in a common enterprise with an expectation of profit based on other’s work. However, it is hard to classify cryptocurrency, as some of them are considered as a common enterprise, while others are not. For example, Bitcoin, the largest cryptocurrency, is not considered as a security, as they validated their platform by an incentive for mining users, without any investment contracts. On the other hand, Ripple has pre-sold XRP before its function, which leaves a possibility of it being considered as a common enterprise.
         
As shown, an immense ocean of views on cryptocurrency exists. Some people claim that it is security, while others disagree. Some people also say that cryptocurrency should be classified into its own class. In the current stage, some do pass the Howey Test, but the fundamental goal of cryptocurrency is to evade the regulatory nature of security and become decentralized. Ambiguity still exists in the technology, and what the regulators decide will provide the future direction of the digital asset. The impact of future decisions in either way will be huge, as cryptocurrency is settling down as one big part of our economy.

서영탁 강남포스트 학생기자  webmaster@ignnews.kr

<저작권자 © 강남포스트, 무단 전재 및 재배포 금지>