The UK Parliament recently held a hearing on cryptocurrency and blockchain to examine whether certain tokens or companies appear to be violating UK finance law, or “raising red flags” concerning organizational structure or use of the blockchain tokens.
According to the evidence presented during the hearing, Ripple (XRP) took the brunt of the criticism for being a centralized corporation allegedly raising funds from individuals and providing XRP tokens in exchange for those funds. Excerpt from the report concerning Ripple:
Ripple Laboratories creates a great deal of publicity aimed at the general public about its 100+ customers in the banking and payments sector. As a private company, it does not have to disclose the nature of those relationships or where the company generates revenue from. XRP investors seem to think they are buying into the future of the company as much as the currency,
XRP seems to raise all four red flags.
The Monero (XMR) blockchain was also mentioned in the report, but mainly because it offers users complete and total privacy on the chain including secrecy concerning transfers and account balances. This fact raised a “red flag” over money laundering concerns.
Tezos was mentioned in the report as well, but only with regard concerning the structure used to facilitate the initial ICO fundraiser back in 2017. Here is the full excerpt from the evidence on Tezos:
Tezos was one of the early mega-ICOS in 2017 receiving over $200m in cryptocurrencies. To the uneducated observer, the “coins” issued by Tezos resembled securities issued by a conventional company. However, the Tezos “organisation” was organised in a curious manner
As if the complicated structure involving a Swiss non-profit foundation were not sufficient to raise a red flag, the coins do not give any ownership rights over any of the Tezos related organisations, there is no guarantee they could ever be used to purchase a real service and they have been described as “donations”.
Curious manner, or genius manner? That may all depend on how you look at the structure of creating a Swiss foundation which will own the source code to a decentralized blockchain network, a network which is essentially owned by no one and everyone at the same time. The report seems to let Tezos off the hook, most likely attributable to the “complicated structure” which was created to house the contribution funding and facilitate release of the network.
So far almost every news story on the hearing has focused solely on Ripple since that blockchain seems to have generated the most concern among regulators. Take this write up from Coindesk, for example:
Skepticism dominated a Tuesday hearing on cryptocurrencies and blockchain at the U.K. parliament, but it was not the members of parliament (MPs) who set the negative tone.
Rather, it was interbank payments startup Ripple and the XRP cryptocurrency that came under fire as Martin Walker, director of the non-profit Centre for Evidence Based Management and a former product developer at blockchain consortium R3, claimed that the technologies are unlikely to solve inefficiencies in the financial sector, specifically criticizing Ripple’s current products.
Defending Ripple’s record was director of regulatory relations Ryan Zagone. Dr. Grammateia Kotsialou, a postdoctoral researcher at King’s College London and Chris Taylor, chief operating officer at asset tracking blockchain startup Everledger, filled out the panel, which answered questions from the British Parliament’s Treasury Select Committee.
During his testimony, Zagone cited the ability to track money transfers as a core benefit of the company’s technology. However, Walker argued that the company’s model offers little more than the existing SWIFT messaging system, saying “the hard thing about tracking payments is actually getting the people involved in the payments to actually upload the status.”
“So simply having a blockchain doesn’t actually get people to update the status of where the payment is,” he continued.
Regulators around the world are eager to catch up with technology and it seems that governments are often about ten years behind this curve. We have seen some overreactions with bans on certain currencies or exchanges, but many governments seem to be taking a slow road given that so few people truly understand what cryptocurrency is and how it functions. Luckily, for the technology, there is a finite number of methods available to regulate a decentralized blockchain.
With launch just around the corner, it’s unlikely regulators will be doing anything to undermine the Tezos release.