Recently, the Securities and Exchange Commission (SEC) initiated a lawsuit against Ripple, one of the major cryptocurrency companies. Why? Apparently for the crime of raising money without registering with the government. The suit doesn’t even allege that Ripple committed any kind of fraud or misled its clients in any way. It seems that the SEC is mad that Ripple (and other crypto currency companies) are using the blockchain system to handle transfer of money and goods outside of the normal system. Why would that make them mad? Because they don’t get to control it, and if they can’t control it, they can’t get any money from it.
It could be argued that in suing Ripple, the SEC is betraying a lack of understanding of what blockchain really is. After all, in a system in which people all around the world are part of the network that maintains the blockchain system, how can you hope to change that system by suing just one company? Blockchain and various crypto currencies will continue to exist without Ripple. Or any other single company.
However, an alternative reading is that the SEC does understand blockchain and is threatened by it. If so, they are making an example of Ripple, sending a message that they are determined to get control over digital currency one way or another. That begs the question – why would they find it threatening?
Unfortunately, that is all too easy to understand. The very nature of the blockchain system makes it unfriendly to the legacy banking and government bureaucracies. How so? There are three main pillars of the blockchain system that make it the threat that it is. Let’s take a look at them.
Pillar 1: Decentralization – One of the main features of blockchain is the fact that it is decentralized. What does that mean? It means that all of the information stored in the system, whether it’s currency, transaction records or shared information, it isn’t just on a bunch of guarded servers in a single location, as with a bank. Instead, every node in the chain has a complete record of the system within it. A transaction occurs and within seconds, a record of that transaction is stored on nodes around the world. This means that people don’t need to rely on those legacy institutions whenever they make a transaction. The decentralization grants freedom.
Pillar 2: Transparency – Now, someone might well be thinking this doesn’t make any sense. Isn’t a major feature of blockchain that it is anonymous? How can it possibly be anonymous if it’s transparent? Yes, this seems a little contradictory. However, the transparency comes from the fact that the information is in all of those different nodes. Since so many have access to the information, it is very transparent. Which has the added bonus of making it virtually impossible to commit any fraud. You can’t really cook the books behind closed doors when anyone can come in at any time and check the books. The anonymity comes from the fact that your identity itself is encoded and anonymous. Can the system still be hacked? Yes. However, it’s much harder to do and thus much less frequent than it is when it comes to legacy systems.
Pillar 3: Immutability – This one also relies on the nature of the blockchain. The records of your transactions within the system are always there, in many nodes around the world. That means if someone tries to hack a node or two to engage in some blackhat activity it will be detected and flagged by the other nodes that will see the disparity between their records and that of the hacked nodes. In short, the records can’t be fraudulently changed.
All of this makes the blockchain system of Ripple and other crypto companies more secure and freer than that of our legacy systems. No wonder they find it a threat and want to find a way to control it.
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It seems that the SEC is mad that Ripple (and other crypto currency companies) are using the blockchain system to handle transfer of money and goods outside of the normal system. Why would that make them mad? Because they don’t get to control it, and if they can’t control it, they can’t get any money from it.
Announcer (00:07):
Welcome to Tartlecast, with your hosts, Alexander McCaig and Jason Rigby, where humanity steps into the future and source data defines the path, the path, the path.
Alexander McCaig (00:32):
Hey-
Jason Rigby (00:32):
Nakamoto. Nakamoto.
Alexander McCaig (00:32):
Satoshi Nakamoto. What happens when you throw a stone in the water?
Jason Rigby (00:35):
Ripple.
Alexander McCaig (00:35):
It creates a ripple. And that ripple effect is... it can become decentralized. It hits other... it bounces off a wall and then those waves are going over... everything's interconnected. And there's good power, there's resonance in that ripple. Stored energy. It's a great name for our currency. Not a really good name right now when you're getting served by the SEC.
Jason Rigby (00:59):
Okay. Share more about this.
Alexander McCaig (01:01):
Yeah. So-
Jason Rigby (01:01):
I want our listeners to know.
Alexander McCaig (01:04):
This is developing recently, but the SEC came down on Ripple, the people... It's the company who actually wrote the code for XRP, which is an altcoin, a digital currency. It's got a market cap of about 23 billion. And they served them up saying that there was a securities fraud issuance. So, actually, the issuance of that currency itself, whatever they did, they broke some sort of rule that goes against what the SEC says for something being considered an asset. Obviously, the guys are like, "That's flat out not true."
Jason Rigby (01:43):
Are they from the United States?
Alexander McCaig (01:44):
The founders of Ripple. I believe they are.
Jason Rigby (01:46):
And they did everything here?
Alexander McCaig (01:48):
Yeah. And so, what we find interesting about this is that when you look at what a blockchain technology is, it's like, who is the SEC suing? Are they suing the globe and all the servers that support the node system that is XRP, Ripple? Or are you just targeting these two guys for creating something that has expanded into a $23 billion market cap?
Alexander McCaig (02:17):
When people look at blockchain or Bitcoin, any sort of digital currency, all it is... This is the whole thing. We're going to just keep this super, super simple. It's like a piece of paper saying "I paid Jason this." And then we're going to encrypt. I'm going to shift the letters around and scramble it. And I have the key to unscramble it. That's all it is.
Jason Rigby (02:48):
And so does the million other servers.
Alexander McCaig (02:50):
And there's other people that verified that you and I did that, that that piece of paper happened.
Jason Rigby (02:54):
I mean, not to complicate it, but if you want to sell me another thing, then it goes on that same piece of paper.
Alexander McCaig (02:59):
And then it just adds it. It adds it right underneath the piece of paper.
Jason Rigby (03:01):
And then it remembers the first one-
Alexander McCaig (03:01):
Blockchain.
Jason Rigby (03:04):
... and then it sends it. It's simple.
Alexander McCaig (03:05):
Chain. It's a chain of events.
Jason Rigby (03:08):
Yes. It's a chain, yeah.
Alexander McCaig (03:09):
And the only thing that the SEC is suing, or people coming down on this, these currencies is, it's encryption technology. Someone just put a dollar value on encryption. That's all it is. We do everything on a ledger all day long. We're always trying to keep tabs on our stuff.
Jason Rigby (03:28):
Excel, Google Sheets, yeah.
Alexander McCaig (03:28):
All they did is like, "Why don't we just create something where the world keeps tabs on the ledger, and it's encrypted?" It's just a secure piece of paper.
Jason Rigby (03:40):
Yes. That's all it is.
Alexander McCaig (03:40):
... saying "This happened here. And this happened here."
Jason Rigby (03:43):
Yeah. We had an article that we saw on thesllstore.com and it said this, "In the most basic sense, a blockchain is a publicly-managed and verified record of transactional data." Period.
Alexander McCaig (03:53):
That's all it is. If I went into the bank and I said, "Give me all your transaction records. I'm giving them to the public," that's all it is.
Alexander McCaig (04:01):
And how are you going to verify it? Well, we have tons of computers all over the globe that support this system. The bank that you... I'm going to take all the weight off your shoulders, Mr. Bank. I'm going to pass it off to all the people across the globe.
Alexander McCaig (04:14):
And the bank's going to wonder. Well, it's like, "Well, why would anyone want to support that?" Well, for supporting it, I get compensated. Every time I do computational work to prove a block, I get paid. The computer gets paid for doing it. So, now, it fixes that incentive approach. So, what it is, is this management of this piece of paper across the globe is supported by people trying to make a couple of shekels from just saying that, "Yes, this is encrypted. Yes, this transaction did happen between Alex and Jason." That's all blockchain is.
Alexander McCaig (04:45):
And so, what I find funny about the SEC is that you are coming in targeting two individuals who created a currency, but they don't own the currency. The currency is supported by people all over the globe. What are you going to do, sue the globe?
Jason Rigby (05:01):
Yeah. You can't... and I think-
Alexander McCaig (05:02):
You going to shut the internet off?
Jason Rigby (05:03):
And that's why they're mistaken because the privacy part of it or the secure aspect of it is that it's a consensus.
Alexander McCaig (05:14):
It is a consensus.
Jason Rigby (05:15):
And it has to have a consensus. That's the problem. That's why you can't... it's very tough to break into blockchain.
Alexander McCaig (05:20):
And it's like how do you say that one person specifically owns it when it's a decentralized asset? All of these computers that support that ledger own a piece of it.
Alexander McCaig (05:31):
The interesting thing about this currency that the old guard cannot wrap their head around: it's not owned by one person. I don't have a stack of gold buried in my yard. Everybody says that I own just this intangible thing.
Jason Rigby (05:46):
Yeah. And when you look at an actual chain and you put a link and you put a link and you put a link, and that link stays permanent, you never can remove that link, that's the part that scares everybody because that... you can't remove. So, if you put a link and it's verified, then that link is forever.
Alexander McCaig (06:01):
It's right there.
Jason Rigby (06:02):
And when you want to do something else, you just add another link to it.
Alexander McCaig (06:05):
That's correct. The whole point of these currencies was to continue democratizing finance. And when the SEC comes in and tries to sue somebody, it's like you fundamentally do not understand what this thing is. It's a currency owned by people, not by banks.
Jason Rigby (06:25):
And it's verified. And that's the part... because I remember... What do they have when you walk in the door of a bank? And they had these old plaques, and then you know your money's safe because-
Alexander McCaig (06:34):
Yeah. It's FDIC-insured up to $250,000. "Sir, I have 500,000 in the bank." "Well, it's a loss." "Oh, good. Thanks. Thanks [crosstalk 00:06:42]."
Jason Rigby (06:42):
That happened in the 1930s. People don't realize that the banks were shut down, and people were trying to get their money out of the banks.
Alexander McCaig (06:48):
They were running on banks. And the banks don't have enough cash because we set up this stupid fractional reserve system. So, a bank only has to have like 10% of the actual stuff on hand, as opposed to the actual asset base that is there.
Jason Rigby (07:01):
Yeah. And I kind of want to get into, for the rest of our time, if you don't mind, Alex, there's three things on blockchain that... he says there's three pillars. And we've talked about them, but I kind of want to go over each one. Number one is the decentralization.
Alexander McCaig (07:12):
Yeah. So, the first part about the blockchain is that it's supported by computers all over the globe. So, that means it's not just one central federal bank that is saying, "This is the value. We're the ones that are keeping it safe. We're the only person responsible for it."
Jason Rigby (07:27):
"We own the Excel file."
Alexander McCaig (07:29):
Yeah. "We- "
Jason Rigby (07:30):
"And we can go in and... And we have certified people that can go in and make changes to the ledger."
Alexander McCaig (07:32):
"And we can print as much money as we want." No, no, no. That's not what's going to happen. It's decentralized so that the ownership and responsibility is passed off to everybody that supports that system, that sees value in it.
Jason Rigby (07:43):
And then number two. Blockchain pillar number two because this is important, is transparency.
Alexander McCaig (07:48):
Yeah. Transparency. The blockchain is public. You can go back and look at the entire record of transactions. It's not a black box thing, where some banks are going to be like, "Well, what happened here? Who's translated this? What foreign offshore account? BBVI? What's going on here?" No. It's all completely public for everybody to review.
Jason Rigby (08:07):
Yeah. And I like this. And this is bitcoin.org. It says, "Since users usually have to rebuild their identity in order to receive services or goods, Bitcoin addresses can not remain fully anonymous. The blockchain is permanent. It's important to note that something not traceable currently may become trivial to trace in the future. For these reasons, Bitcoin addresses should only be used once. And users must be very careful not to disclose their addresses."
Alexander McCaig (08:30):
Yeah. Because if you have your OG address, it's like saying you don't want to tell people where you live.
Jason Rigby (08:36):
Yeah. It's the same thing, yeah.
Alexander McCaig (08:37):
It's the same freaking concept. Yeah. And what's the third pillar?
Jason Rigby (08:41):
Number three is immutability.
Alexander McCaig (08:43):
Yeah. It doesn't change. After it's been processed and verified across the network, the node network, that's it.
Jason Rigby (08:50):
No alterations. Cannot be changed, and cannot be tampered with.
Alexander McCaig (08:53):
You don't go back to it. Nothing. And that's what holds the integrity of that system. That piece of paper: you can't cut it. You can't fold it. You can't use a different type of ink. That is what it is.
Jason Rigby (09:04):
Right. You can't cook the books.
Alexander McCaig (09:05):
No, you cannot cook the blockchain books.
Jason Rigby (09:08):
And how long have we been cooking books?
Alexander McCaig (09:11):
We've been cooking books for a long time. Not us, but I'm just saying, as an example, people have been cooking books for a while.
Jason Rigby (09:18):
There's a big street in New York called...
Alexander McCaig (09:19):
It's called Wall Street. [Crosstalk 00:09:23].
Jason Rigby (09:22):
To have these three immutable pillars put to Wall Street. Could you imagine that?
Alexander McCaig (09:27):
They're like-
Jason Rigby (09:27):
"We want transparency. We want immutability. And we want decentralization."
Alexander McCaig (09:31):
This is why they bashed it. This is why they bashed it at first. Warren Buffet's like, "There's no value in this." And all the hedge fund managers, "There's no value. It's junk." And then they're like, "We got to buy as much as possible." And then they're like, "To the moon."
Jason Rigby (09:38):
It's 22,000.
Alexander McCaig (09:39):
HODL, right? HODL to the moon. And they're like, "Oh wow. It's at 20 grand now."
Jason Rigby (09:45):
Yeah, yeah. I think it's a 22-something.
Alexander McCaig (09:47):
Well, joke's on you guys. Thanks, blockchain.
Jason Rigby (09:49):
Perfect [inaudible 00:09:54].
Alexander McCaig (09:49):
[inaudible 00:09:55].
Jason Rigby (09:49):
That was a good one, yeah.
Announcer (09:58):
Thank you for listening to Tartlecast, with your hosts, Alexander McCaig and Jason Rigby, where humanity steps into the future and the source data defines the path. What's your data worth?
Alexander McCaig (10:15):
[inaudible 00:10:18].
Jason Rigby (10:15):
You got to see how he...
