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Securities and Exchange Commission Chairman Gary Gensler has an important opportunity to undo actions taken in the waning hours of the Trump administration that threaten cryptocurrency innovation.

Back in December, outgoing SEC Chair Jay Clayton brought an unprecedented enforcement action against the enterprise software company Ripple, creator of the digital currency XRPwhich was the worlds third most popular cryptocurrency, but not anymore.

The SECs lawsuit seeks billions in penalties from Ripple Labs Inc. and its executives. But the agency does not allege that any of its investors were defrauded.

Instead, the agency complains about Ripples alleged failure to register XRP as a security, characterizing its sales of the cryptocurrency as investment contracts covered by federal securities laws. The unprecedented move stretches the SECs reach too far and seriously threatens the developing cryptocurrency ecosystemand Americas vital leadership place within it.

Cryptocurrencies represent a dramatic leap forward in financial technology, because they solve the biggest challenge of electronic monetary transfers: When no physical transfer of paper money takes place, you need some way of recording transactions so that people cannot simply make transactions up, and create cash for themselves.

Normally, that central place is the Federal Reserve Bankwhich records and processes every credit card transaction. Cryptocurrencies eliminate that regulatory intermediary by providing a decentralized, computerized ledger, allowing for direct transfers between buyers and sellers with no regulatory intermediaries.

Cryptocurrencies like XRP are not securities. A security is a share of ownership in a companygiving the shareholder a stake in the business and an interest in its profits. But those who acquire or hold XRP are not granted any financial stake in Ripple.

The value of XRP is entirely independent from the value of Ripple, and Ripple possesses no unique proprietary information about XRP that it could use to harm potential holders of the cryptocurrency. Accordingly, it makes no sense to regulate cryptocurrencies like XRP as securities, as the SEC itself has recognized for XRPs leading competitors Bitcoin (BTC) and Ethereum (ETH).

Yet the SEC claims otherwise for XRP, because of the very thing that makes XRP more appealing than its higher-market cap alternatives: XRPs superior method of issuance.

Just as the Treasury Department periodically issues new dollars, cryptocurrencies issue new electronic credits. BTC and ETH are issued through a Byzantine process tied to the maintenance of their electronic ledgers: Users who validate transactions are rewarded with newly created crypto units.

This has given rise to a cottage industry of crypto miners who profit by validating BTC and ETH transactions, and that arrangement has proven an environmental disaster, because the computational power needed for mining leaves an enormous carbon footprint, generating 48.5 billion pounds of CO2 annually.

Treasury Secretary Janet Yellen recently described Bitcoin as an extremely inefficient way of conducting transactions. And the amount of energy thats consumed in processing those transactions is staggering. Ripple, by contrast, created a finite number of XRP units and sells them in batches according to a predetermined schedule.

But to a hammer, everything is a nail. And the SEC sees these batch releases as akin to issuances of securities simply because Ripple can take the money earned during each issuance to fund other aspects of its business.

All the major cryptocurrency issuers, however, benefit from issuing their cryptocurrencies, whether at the front end for Ripple, or by offsetting the verification costs essential for decentralized currencies, like BTC.

Ripples issuance of XRP therefore does not meet the legal definition of an investment contract. A holder of XRP is engaged in no more of a common enterprise with Ripple than a holder of a dollar is with the U.S. Treasury.

Fluctuation in the value of an XRP does not foster the expectation of profits solely from the efforts of the promoter Ripple, because that rise and fall is not tied to Ripple, but rather the health of the currency and the macroeconomic factors that influence it.

Requiring Ripple to register XRP as a security would impair its utility, which depends upon XRPs near instantaneous and seamless settlement of low-cost transactions. Registration would subject thousands of exchanges, market makers, and others to lengthy, complex, and costly requirements.

Therefore, XRP holders are not clamoring for SEC oversighttheyre asking for the case to be dismissed. In fact, on March 14, Rhode Island attorney John Deaton, an XRP holder, filed a motion to intervene in the SECs case against Ripple on behalf of other XRP holders whove been harmed by the SECs importune action. On March 29, the court ordered that it would consider the motion and proposed intervention, despite the SECs attempt to block it outright.

Though misguided, the SEC attack on Ripple presents a promising opportunity for the Biden administration. Under new leadership, the SEC could course-correct back to its mission to protect investors, while fostering fair and efficient markets, rather than interfering with currencies outside its jurisdiction.

Gensler has a solid understanding of blockchain technology, and he could usher in fresh start on cryptocurrency by dismissing the case against Ripple. Rather than fight the cryptocurrency industry, Gensler should collaborate with them, and work toward the shared goal to safeguard the future of crypto, and Americas place within it.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

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J. Carl Cecere is the owner of Cecere P.C., a law firm devoted to Supreme Court and Appellate practice. The author says he has no interest or stake in Ripple and doesnt own XRP.

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Cryptocurrency's Future in the U.S. Is Threatened By SEC Action Against Ripple - Bloomberg Law