By Martine Paris, Reporter at The Fintech Times
Cue the Rolling Stones.
When Ripple CEO, Brad Garlinghouse, took the stage at Disrupt SF last week, he was met by TechCrunch’s Mike Butcher with an unrelenting line of questioning into the activities of the controversial fintech company. It was a masterful interview focused on clarifying whether Ripple has been manipulating the market to boost the XRP price, which is now down 90% from its 2018 high.
Ripple Labs, which offers enterprise global payments on the blockchain, is the issuer of XRP, the world’s third largest cryptocurrency by market cap. The company has been sued for securities fraud by irate investors who lost money in the recent crash and allege that Ripple created the XRP token to fund its operations and the development of the XRP ecosystem. Under the Howie Test, based on investor expectations and how it was marketed, XRP could be ruled an unregistered security in violation of SEC regulations.
Are you in fact the devil?
“I’m not the devil,” Garlinghouse replied laughing. “People who say that Ripple is somehow the devil, it’s because we’re partnering with the man. Cross border payments today are slow and expensive. Ripple invented a series of technologies built upon the XRP ledger that allows institutions, banks and even in some cases, government to dramatically accelerate the nature of transactions.”
Mike Arrington, Founder of TechCrunch and Arrington XRP Capital agreed, “XRP is a fantastic currency to use for among other things, funds. We need to move a lot of money very quickly. We make investments all over the world. Using banks to move money is a pain. Have you ever sent money in an international wire? You gotta call, did you get it? And what? No I didn’t get it. It takes a day or two to move money around the world. With XRP, our very first close was $50 million. We moved that money in like three seconds and I think it cost 20 or 30 cents.”
Arrington discussed his longtime friendship with Garlinghouse. “When TechCrunch originally sold to AOL, and eventually became part of the Verizon behemoth, Brad was at AOL. He’s the primary person that make that deal happen. He made me wealthy, not as wealthy as him, but wealthy. And it turns out now he’s the fifth richest person in California or something. When Brad first joined Ripple, I went to him for advice and he helped me raise the fund by introducing me to most of our large LPs that hold large amounts of XRP.” Arrington noted that Ripple isn’t an LP and XRP is now only a small part of their portfolio.
How much is too much?
Garlinghouse tops the Forbes list of crypto billionaires, along with Ripple founders Chris Larsen and Jed McCaleb (also the founder of Mt. Gox and Stellar).
Ripple has not only been in the news for lawsuits, it’s also been in the news for charity. Ripple investor Ashton Kutcher of Sound Ventures has been speaking on behalf of the company, announcing high profile donations by Ripple to celebrity-backed charities like Madonna’s Raising Malawi campaign and Ellen Degeneres’ Wildlife Fund. On March 26, Ripple made history with the largest single cryptocurrency donation ever, giving away a stunning $29 million in XRP to fund all 35,647 campaigns on DonorsChoose benefiting 16,500 schools and over 28,000 teachers.
Butcher questioned whether the XRP infusion was truly philanthropic or merely a desperate attempt to pump excess XRP from the pre-mine into the ecosystem to boost prices. “So, you come up with a fantastic ability to move money around the planet, but XRP prices are crashing. You’re trying to get the banks to use the actual currency. They’re using the Ripple protocol but they’re not using XRP, are they? You pre-mined all this currency and made a heck of a lot of money. You’re trying to get people to use XRP. ” Butcher said.
Garlinghouse responded, “Silicon Valley doesn’t do enough to give back. We may be accused of being the devil in terms of how we partnered with the system. I’ve never been accused of being the devil for, you know, being philanthropic and supporting causes that are actually good for the planet.”
When asked, Arrington said he was never offered free XRP to seed his fund.
Butcher then asked Garlinghouse if he paid social media influencers to hype XRP. “What’s going on with the XRP fanboys on Twitter. Are you paying them to shill? Are they just trying to boost the currency?”
Garlinghouse replied, “We don’t pay them.We have a lot of advocates.”
Arrington added, “One of the most interesting books I’ve read is Guns, Germs and Steel. We are naturally tribal and form teams. Fanboys for Bitcoin and Fanboys for XRP are saying almost the same thing, they’re actually enthusiasts who have changed their lives and the lives of their family.”
Butcher continued, “Your criticism of Ethereum is it’s got a big developer network, and you’re trying to boost the amount of developers using XRP with Xpring. You’re trying to boost the market, do you think?”
Garlinghouse replied, “The observation I’d make about the Ethereum ecosystem today is that there is a lot of experimentation. There’s not a lot of successfully deployed, solving real problems. There’s one project that I find very interesting called Augur.” Regarding Ripple, Garlinghouse said, “Ripple has very specifically decided to go very deep in a particular vertical with a clear customer, a clear value proposition in solving a clear problem.” He discussed his Peanut Butter Manifesto which he wrote at Yahoo about companies that spread themselves too thin. “I was meeting with some of the IBM team and they were talking about using a blockchain to track flower freshness. I don’t get it. More often than not a database is going to be more efficient than a blockchain. People use words like blockchain and crypto as catnip for the investors.”
Pointing at EOS, Arrington said, “I think that these projects that come out and raise a lot of money, in some cases billions of dollars, don’t need that much money, and so I always think that’s odd. If you look at the history of Silicon Valley, there are as far as I know, zero examples of companies that have raised massive amounts of funding before launching a product and being successful.”
About that air gap
Garlinghouse went on to explain why XRP could not be considered a security, “A security is something that represents ownership in a company that gives you rights to dividends, gives you rights to governance. XRP and Ripple are two separate things. We have shareholders, we have investors that include Google Ventures, we have banks that have invested their own share of Ripple the company. When you buy XRP, that doesn’t give you any rights to the profits or ownership of Ripple the company. If Ripple the company shutdown tomorrow, the XRP ledger would continue to operate.”
Responding to claims that Ripple maintains a centralized XRP ledger, he said, “People are saying the XRP ledger is centralized. It’s factually not true. The XRP ledger is fully decentralized. Ripple the company cannot control the XRP ledger apart from the fact that you control a handful of nodes. We control, I think, 7% of all of the public nodes on the XRP ledger. In contrast, you have (three) miners in China that control north of 50% of the Bitcoin blockchain. By any measure, the Bitcoin blockchain is more centralized that the XRP ledger. People say Ripple can block a transaction. Not true. Can we rollback a transaction? We actually can’t.”
And the crash…
Addressing concerns about the drop in XRP price, Garlinghouse commented, “18 months ago the entire crypto market was worth $20 billion. Today it’s worth $230 billion. In between it hit about $850 billion. If we drew a straight line from 18 months ago to today you’d say it’s been a huge bull market. There have been in the last five or six years multiple crashes that have been effectively reconsolidation. You’re going to see a separation between those that are purely speculative and those that are actually solving real utility problems in the marketplace.”
Arrington shared his thoughts on what will happen if the U.S. continues with their lack of support for the blockchain ecosystem. “I’m Libertarian. I don’t like the government in general. 80-90% of our investments are in Asia, Europe and Israel right now, because they’re actually countries where there’s enough regulatory certainty that entrepreneurs feel safe starting their blockchain companies there. Here they don’t. There’s so much regulatory uncertainty. And then add to that the tax burden and the visa burdens of coming here. And then our current federal government’s stance on immigration in general. They’re just saying f*ck it, and they’re staying in Singapore, Israel and Europe, instead of coming here and starting companies. The SEC needs to get their act together. If they had done that with the Internet in 1994, 1995, none of us would be here. We’d all be living in Shanghai or somewhere else. They’re single-handedly wrecking the stage of technology development.”
Garlinghouse added, “There are unequivocally bad actors in the ICO ecosystem. There have been frauds and massive scams. Hundreds of millions, if not billions, of dollars have been heisted and if anything, I’m surprised the SEC hasn’t been more aggressive going after some of those bad actors. I agree that there is a risk that a lot of this development ends up non-US. The impact on the United States economy for having the Internet that we think of today being very U.S. centric has been very positive for the United States.”
The Future Is Crypto
Butcher closed by asking Arrington to share his thoughts on the next 10 years in crypto and blockchain.
“I’m a little tired of the VC game,” said Arrington. “It’s all new players in crypto. It’s younger, fresher, more interesting people from all over the world. The VC game has gotten very tiring to me. Crypto moves much more quickly than the tech world, which already moves quickly. But a few months feels like a year or two in crypto. And I actually like that. I think it’s keeping me young. It’s keeping me excited. And it’s just a lot more fun.”