Skepticism dominated a Tuesday hearing on cryptocurrencies and blockchain at the U.K. parliament, but it was not the members of parliament (MPs) who set the negative tone.
Rather, it was interbank payments startup Ripple's XRP cryptocurrency and blockchain platforms that came under fire as Martin Walker, director of the non-profit Centre for Evidence Based Management and a former product developer at blockchain consortium R3, claimed that the technologies are unlikely to solve inefficiencies in the financial sector, specifically criticizing Ripple's current products.
Defending Ripple's record was director of regulatory relations Ryan Zagone. Dr. Grammateia Kotsialou, a postdoctoral researcher at King's College London and Chris Taylor, chief operating officer at asset tracking blockchain startup Everledger, filled out the panel, which answered questions from the British Parliament's Treasury Select Committee.
During his testimony, Zagone cited the ability to track money transfers as a core benefit of the company's technology. However, Walker argued that the company's model offers little more than the existing SWIFT messaging system, saying "the hard thing about tracking payments is actually getting the people involved in the payments to actually upload the status."
"So simply having a blockchain doesn't actually get people to update the status of where the payment is," he continued.
Likewise, he criticized Ripple pilot projects that propose to use XRP as a means of bridging two currencies in an international transaction - a role that the U.S. dollar commonly occupies.
"You have the concept of a crossing currency to deal with that scenario where there's a lack of liquidity," Walker explained, remarking further:
"You need someone to provide the liquidity to be able to change into and out of Ripple. And holding Ripple, a currency which has seen its price drop 80 percent and then back up 100 percent in the course of the last two months is just not credible. So, putting cryptocurrencies into the financial sector is a huge source of risk."
The ministers at the hearing also turned their attention to Ripple, specifically expressing confusion regarding XRP's relationship to Ripple Labs.
MP Stewart Hosie commented that "if people buy XRP, a financial asset from Ripple Laboratories, it doesn't entitle them to an ownership stake, there's no right to be converted back into conventional currencies, and it doesn't pay any return. It also seemingly has no purpose."
However, Zagone pushed back against this statement, saying "that's a common misperception."
He told the panel:
"XRP is open source and it was not created by our company, so that existed as an open source technology. We created a company that was interested in modernizing payments and then began using that open-source tech to do so ... We didn't create XRP ... What we do have is we do own a significant amount of XRP, it was gifted to us by some of the open-source developers that created it. But there's not a direct connection between Ripple the company and XRP."
Asked whether XRP was designed to avoid regulations, Zagone reiterated his statements from earlier in the hearing that Ripple only sells XRP to institutional investors and not retail consumers, and likewise that the company merely makes use of XRP, but is not directly connected to it.
With the conclusion of the hearing, Walker advised the Committee to think critically about blockchain technology and cryptocurrencies, concluding
"I would just urge the committee that we do not repeat the mistakes that have been made over and again of getting blinded by the word innovation, particularly relating to financial products."