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cmbartley

Ripple present XRP to US Congress Energy and Commerce Committee

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Ultimately I agree with their arguement that XRP should be treated as an asset and not a currency. An asset has some common utility outside of it's use as a medium of exchange. A house is an asset, a dollar bill is not an asset. Thus, Ether could be considered an asset, bitcoin should be considered a currency. Here's the part about XRP:

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The advent of Bitcoin brought attention to digital currencies as tools used directly by consumers to replace fiat (government­ issued) currency. Policy makers around the world have responded with regulations or limitations on digital currencies largely to address consumer risks that stem from this approach.

As the technology turned the corner from a direct­ to­ consumer offering to an enterprise tool, the use case of digital currencies evolved beyond only acting as a consumer ­facing tool to replace fiat currency. For instance, Ripple’s native asset, XRP, is used by financial institutions as (1) a security mechanism and (2) a liquidity tool.
 

Security Mechanism
From a security perspective, XRP acts as a “postage stamp” for payments made on Ripple. Financial institutions using Ripple hold a small reserve of XRP. With each payment made through Ripple, a portion of an XRP is destroyed. Under normal payment volume that portion destroyed is roughly one millionth of a cent. However, if a bad actor were to penetrate a bank’s defenses and attempt to overwhelm Ripple with traffic – possibly a denial of service attack – Ripple will automatically increase the XRP cost per transaction. This process will bankrupt the institution of its XRP reserve and freeze its ability to carry out an attack. This security feature protects the Ripple network from attacks and abuse thereby maximizing Ripple’s reliability and operational resiliency.

Liquidity Tool
Ripple is designed for payments utilizing fiat (government issued) currency. Due to the large number of government currencies and counterparties, quoting the conversion between every possible currency pair can be burdensome and especially difficult when dealing with rarely traded currencies. See Figure 1 below.

To make this process more efficient, financial institutions on Ripple can use XRP as a bridge, or common denominator, between fiat currencies. Used in this way, XRP maximizes currency liquidity and geographic reach of payments in an efficient way.

Importantly, use of XRP as a liquidity tool is entirely optional. Financial institutions can freely opt to quote and facilitate payments solely in fiat currencies.

XRP serves operational functions within Ripple and is not designed to be a consumer ­facing tool to replace fiat currency. For these reasons we consider XRP a digital asset rather than a currency.

Because of XRP’s unique use cases, it carries a different risk profile than a consumer tool like bitcoin or other digital currencies. Ripple urges regulators to recognize the various use cases of the technology and reflect these differences in regulation. We ask policy makers to identify the risks they seek to address and tailor regulations to the tools and use cases that create those specific risks. The regulation that exists in some states today fails to recognize the various use cases and risk profiles of the technology.

While the security mechanism and liquidity tool are alternative use cases that exist today, we firmly believe additional use cases will emerge. Regulation should consider each use case separately. Broad application of one regulatory framework will not effectively identify or mitigate risks. Such an approach will unnecessarily restrain the use of technology and would restrict what would otherwise be a positive innovation in financial services. In fact, this use case approach is how regulation is written today. Mortgages, swaps, and commodities are all financial assets, but are each regulated differently given their unique uses and risks. We urge policy makers to continue this approach to regulation.

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45 minutes ago, celticwarrior72 said:

Neither Bitcoin nor Ethereum are currencies.  They are digital assets and are taxed as such (in the USA anyway).  It's not open for debate.

FYI - cash is definitely an asset.  Look at any balance sheet.  It goes under 'current assets'.

What is it that ripple wants congress to do for XRP as a digital asset? What kind of regulatory framework or policy would they want for it? I know they mention they want to have one license for all states and then global coordination, yet that's for innovation and to stay competitive. What is it that those use-cases above (security and liquidity) need as far as regulation? Or, to allow XRP to function at it's best and be recognized as a digital asset by law? 

So then I probably speak for all digital assets, like bitcoin and ethereum, with bitcoin and all the rest being subject to property tax in the U.S. https://www.irs.gov/uac/Newsroom/IRS-Virtual-Currency-Guidance

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2 hours ago, rippleric said:

What is it that ripple wants congress to do for XRP as a digital asset? What kind of regulatory framework or policy would they want for it?

It's not so much what they want Congress to do as much as not do:

Quote

The advent of Bitcoin brought attention to digital currencies as tools used directly by consumers to replace fiat (government­issued) currency. Policy makers around the world have responded with regulations or limitations on digital currencies largely to address consumer risks that stem from this approach.

Which might be to over regulate to enhance consumer protection standards while not addressing risks which non-consumer uses might entail.

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8 hours ago, celticwarrior72 said:

Neither Bitcoin nor Ethereum are currencies.  They are digital assets and are taxed as such (in the USA anyway).  It's not open for debate.

FYI - cash is definitely an asset.  Look at any balance sheet.  It goes under 'current assets'.

True, but I'm arguing that bitcoin SHOULD be considered a currency since there is no material utility outside of it use as a medium of exchange. Although bitcoin is currently an asset, it is still up for debate:

"The Internal Revenue Service (IRS) considers bitcoin property, the Commodity Futures Trading Commission (CFTC) considers bitcoin a commodity, the Securities and Exchange Commission (SEC) and Financial Crimes Enforcement Network (FinCen) both consider the cryptocurrency to be currency or money, falling under their jurisdiction."

http://bravenewcoin.com/news/us-bankruptcy-courts-ruling-could-help-hashfast-liquidator-recover-1-3-million/

Edited by cmbartley

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For an increase in transaction volume, we shouldn't look to governments to re-tool their definition of crypto.  There needs to exist an as-yet-non-existent service that will calculate your base-realized value for each transaction, and then create a tax form for you at the end of the year for when you do your taxes.  Until that service exists, it is unrealistic to expect people to use crypto as a true medium of exchange. 

They - "the wider public outside the crypto community" - will use cryptocurrency if it's convenient or stylish.

Enter Ripple's strategy (I won't bore you with what everybody on this forum already knows about the use case(s) for XRP)

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