I am interested to understand this term in general way as well as in the context of latest development in the crypto community with SEC starting a lawsuit against Binance saying its platforms traded 10 tokens that are securities.
What are securities in general and how is that applied to crypto currencies?
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The legal test for whether something is a security is whether there is:
1. **the investment of money** – for crypto, this is is pretty obvious, because people have to pay money for their crypto.
2. **in a common enterprise** – this is slightly tougher, but I think there’s a good case that unlike commodities like gold or oil there’s a common enterprise involved in setting the terms for the coins — how many there are, how they’re exchanged, etc.
3. **with a reasonable expectation of profits to be derived from the efforts of others –** this is the hardest part of the test for the SEC; does the value of crypto go up purely based on supply and demand (like gold or oil), or does it go up based significantly on whether people in an office building somewhere are doing a good job or a bad job (like a traditional company you would buy shares in on the stock market); this will likely vary significantly from one coin to another based on how much ongoing involvement the developers have. Because the terms of bitcoin where set at the beginning, I think there’s a good argument that it does not meet this. However, I think there are other coins that would.
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