A UK government hearing was held yesterday aimed to inform regulators about the nature of blockchain and cryptocurrencies.
Four panelists sat in front of the UK treasury committee, but it was Ripple’s Director of Regulatory Relations Ryan Zagone who took the most of the spotlight – and the accompanying heat.
The committee and other panelists had a lot of questions and statements to make about Ripple as a company and the work being done with banks to create a cross-border payment solution. When asked how Ripple was making use of blockchain, Mr. Zagone stated the following:
“We focus on cross-border payments where to date privacy was a painful process. Cross-border payment would take two days, you wouldn’t be able to track the payment and you wouldn’t know the fees upfront. So, it wasn’t until two days you’d find out how much was taken out as a fee. […]
“You could literally mail a box of cash and have better tracking and certainty than you would sending it through a bank. We recognized a key pain point in cross border payments that was limiting consumer’s use if they were sending it back home and it was also becoming a key limit to economic growth.”
Zagone clarified the last statement by pointing out that smaller businesses had difficulty keeping up with the complex 4-day payment cycle, and instead of expanding internationally focused on their domestic efforts instead due to the difficulty of making cross-border payments. He describes Ripple’s first products as solutions to this problem, allowing banks to do real-time payments that take four seconds instead of four days and including real-time tracking with the fee outlined up front, seemingly a vast improvement over the current system.
The second product is described as a “bridge between existing currencies”. Zagone outlines a scenario in which someone is attempting to trade Mexican peso for Korean yen, a trade with low liquidity. The peso amount is briefly converted into XRP and then instantly transferred into Korean yen. Zagone was questioned about potential catastrophe due to volatility and replied that the conversion would only be exposed to volatility for a few seconds.
A committee member asked Zagone if Bitcoin was “more Android and what you’re doing is more Apple”, which understandably seemed to take him by surprise. He recovered and stated that XRP was an open source technology being used by Ripple, the company, which came to be after XRP was created. He stated that the Ripple company could “go away” and that XRP would continue on without them.
Asked about the use cases of blockchain in the financial services industry, Zagone had this to say:
“Our early models have found banks are saving about 60% on the cost of a payment by using our tech so it’s a material reduction that starts to open the market to new types of payments like very small payments, lower cost, more efficiency.”
He also pointed out that blockchain had a use case in areas outside of Ripple’s field of expertise, such as securities trading, trade finance, digital identity. That seemed to satisfy certain committee members, but not fellow panelist Martin Walker, the Director for Evidence-Based Management and former banking professional who stated that blockchain was a fad had “little to nothing” to offer the world of traditional finance.
Walker had a particular bone to pick with Ripple:
“Simply having a blockchain doesn’t actually get people to update the status of where a payment is.”
Mr. Walker pointed out that XRP has had price volatility of 80% in two months, citing volatility and lack of liquidity as a major issue.
“Putting cryptocurrencies into the financial sector is a huge source of risk. What happens if the liqidity dries up? We saw in the financial crisis that even dollar liquidity can dry up”.
He went on to state that Ripple was prosecuted under anti-money laundering laws in 2014, a statement corrected by Zagone who said that a subsidiary failed to comply with regulations, resulting in a $700,000 fine for Ripple. Walker acknowledged this correction and stated that Ripple was legally prohibited from selling XRP to the public – “but now there are exchanges”.
According to Walker, 60 billion of the 100 billion supply of XRP are owned by Ripple, with the founders owning the majority of the remainder, suggesting that Ripple can and do manipulate the price of XRP despite the fact that they do not officially own or control it. Zagone pointed out that Ripple is licensed in the state of New York to trade XRP to exchanges, ending what was a thorough and unflinching hearing that will be sure to affect the UK stance on cryptocurrency and blockchain regulation in the future.
Featured image from Shutterstock.