Is Ripple 'the devil'? CEO defends its legality as the company grows

Ripple's role in streamlining international transactions and the popularity of its XRP tokens has boosted the company's value, but has also drawn critics who claim Ripple is illegally gaming the market.

Ripple CEO Brad Garlinghouse on Wednesday tried to create distance between Ripple and its XRP tokens, as well as explain the company's collaboration with banks, another issue that has drawn the ire of the cryptocurrency community, some of whom have referred to Garlinghouse and Ripple as "the devil."

Ripple is facing a class action that contends its is creating crypto coins "out of thin air" and then selling them to the public in violation of California and U.S. laws against selling unregistered securities to retail investors.

"XRP and Ripple are different. Buying XRP doesn't give you rights to Ripple the company," said Garlinghouse during TechCrunch's Disrupt San Francisco.

David Paul Morris/Bloomberg

The SEC has said companies that raise money by selling digital assets must adhere to securities laws. But the SEC has not made a definitive call in the case of Ripple and XRP.

XRP is not a security since there are multiple "air gaps" between XRP and Ripple that separate the two entities' finances, Garlinghouse said.

"If Ripple shut down tomorrow, XRP would continue to develop. So if XRP is a security, then what is it a security of? XRP is not a security. As time goes by, that will become clear. The facts are on our side," Garlinghouse said.

Michael Arrington, a partner at XRP Capital, whose portfolio includes Ripple and other blockchain companies, angrily and at times profanely claimed the SEC's focus is part of a general misappropriation of regulation, which — along with Trump's immigration policies — would leave Silicon Valley and the rest of the U.S. technology development at a disadvantage.

"[Most blockchain] investments are in Europe and Asia, where there's enough regulatory certainty for companies to feel safe starting blockchain companies," Arrington said. "In the U.S. there's so much uncertainty. The SEC needs to get its act together."

Jina Choi, the director of the SEC's San Francisco regional office, spoke at the TechCrunch event about a half hour after Arrington and Garlinghouse. Choi did not address any specific case, though she said the SEC has stepped up its scrutiny of ICOs.

"I'm hesitant to say there's a standard, but it gets back to what an investment contract is and what a security is," Choi said.

Garlinghouse also addressed Ripple's success in powering cross-border transactions. Trading partners don't use cryptocurrency, but instead use Ripple's rails to remove correspondent banks and other third parties to take time and fees out of international payments.

The process has been a boon for online marketplaces that sell goods across borders, since the blockchain takes friction out of currency conversion.

Ripple was initially considered a rival to traditional banks, but has since partnered with banks globally. Ripple has also started to process international payrolls between the UAE and Singapore. Critics contend this is counter to the blockchain philosophy of being a decentralized alternative to centrally-powered financial institutions such as banks.

"There are people who say Ripple is the devil, because we are partnering with the 'man,'" said Garlinghouse. "Ripple is contrarian. If you want to revolutionize payments and transactions it won't happen by having everyone giving up the infrastructure and switching to something new."