In July, a judge in the United States made a ruling stating that Ripple Labs’ XRP token was not a security when sold on secondary markets. While the Securities and Exchange Commission will challenge this decision, the broader cryptocurrency community has welcomed it. This is because labeling crypto trades on exchanges as securities transactions could be avoided.
Despite this ruling, the crypto market still faces uncertainty. Ripple has been deeply involved in this battle, but this legal victory could be a step towards freedom, allowing the company to reignite its former success. This case presents an opportunity for Ripple to change its course and begin a new era.
Ripple was created to replace the traditional SWIFT system for cross-border payments. There were valid reasons for this change, as anyone who has experienced the frustration of paying high fees and enduring long delays for international wire transfers can attest. Ripple aimed to offer a faster process, free from weekend and holiday delays, and with lower fees compared to SWIFT transfers. The goal was to build a crypto product that closely resembles the traditional financial ecosystem, making it suitable for everyday transactions.
However, achieving this goal proved to be a monumental task. Apart from the technological challenges, there were various processes and unexpected hurdles, especially when operating in different jurisdictions. Ripple likely underestimated the difficulties involved, leading to adjustments and sacrifices along the way.
One of the compromises Ripple made was to adopt a more centralized structure, which set it apart from other crypto projects. This decision had both positive and negative consequences. While it initially facilitated fast and cost-effective transactions, it also deterred participation from the broader Web3 developer community. This strategic choice limited individual engagement and created an environment that was less welcoming.
The centralized structure also resulted in a closed system, preventing Ripple from building an essential application-layer foundation. While a closed solution allows Ripple to capture all the value it generates, an open platform creates a system where the economic value of all users exceeds the value of the company itself, as Bill Gates famously stated.
Creating an ecosystem, which is the preferred alternative that leads to layer-1 blockchain networks, allows a community to thrive with individuals and entities deeply invested in the success of the protocol. Community members and followers act as a beacon, attracting more participants and ultimately fulfilling the protocol’s mission and growth. While Ripple may now share the value it generates with its community, it stands to gain even greater economic value by obtaining a portion of a much larger pie.
It is uncertain whether such a community would significantly impact Ripple’s legal battle. However, it is clear that there are distinct advantages in terms of business and product development when operating a layer-1 blockchain, as demonstrated by numerous successful projects.
It is not too late for Ripple to change its course. Many projects within the Web3 domain started with greater centralization and gradually evolved into decentralized autonomous organizations that relinquished control to their communities. Notably, Cosmos pioneered an innovative framework that provides developers with the foundation for an interconnected blockchain network. Ethereum also thrives with a growing layer-2 ecosystem, facilitating fast fund transfers, experimentation, app development, and testing.
When startups seek alignment with conventional or conservative institutions, regulatory ambiguity can be a deterrent. Currently, Ripple enjoys a degree of certainty, which is advantageous when forming partnerships with traditional entities.
With some luck, Ripple’s flame will burn bright once again as it was one of the first to tackle real-world financial problems. Furthermore, the movement towards decentralization has been widespread across the entire crypto ecosystem. In any case, the outcome for Ripple will depend on its technology and the ecosystem it now has greater control over.