> Here you go: "A security is a fungible, negotiable financial instrument that represents some type of financial value"

Is that your own definition? Luckily, the SEC is constrained by laws passed by Congress and by Supreme Court precedent—both of which run counter to your definition—and doesn't have the same flexibility that ordinary citizens do when articulating policy.

OK:

(1) The term “security” means any note, stock, treasury stock, security future, security-based swap, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a “security”, or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing.

OK, so how, under this definition, does Ethereum qualify as a security? XRP?

Based on the definition of an investment contract by the Howey test in cases of secondary sale?

By answering in the form of a question you seem to be implying that the answer is obvious.

But the judge in the SEC v. Ripple case found that exchange-traded XRP tokens are not securities; even if you think she is wrong, the fact that she disagrees with the SEC (and with you) is evidence that the answer is in fact not obvious.

With regards to whether Ethereum is a security, even the SEC is unsure. When asked under oath before Congress, the SEC Chair has repeatedly refused to give a direct answer. The commission has also avoided naming Ethereum as a security in any of its crypto exchange lawsuits, while it does name direct Ethereum competitors. If it were obviously a security, why would they name other tokens but not Ethereum?

And what about Bitcoin? The SEC has said unequivocally that it is not a security, but they refuse to say what specifically distinguishes Bitcoin from other tokens. Bitcoin cannot be one-of-a-kind in this regard—what would it take for another token to fall in the same category as Bitcoin?

Clearly, some tokens are not securities! If you cannot specify clear criteria to distinguish between security tokens and non-security tokens, you don't have a valid definition.

That’s actually not exactly what the decision in the Ripple case says: it says that certain types of transactions are not securities transactions, but some are. On the balance, the decision is probably reasonably regarded as a loss for the SEC I agree.

The uncertainty about how legislation should be interpreted in the case of novel facts is a fundamental aspect of the business of law and the courts and is not special to cryptocurrency; nor does it indicate special victimization of cryptocurrency practitioners.

When do facts stop being novel? There are hundreds of millions of crypto users worldwide, and more than a trillion dollars in value at stake. Cryptocurrencies have been around for more than a decade, and only in the past few years has the SEC begun to assert broad authority across the whole category.

Whether or not the crypto industry is victimized or not has nothing to do with my point, which is simply that the SEC has avoided clarifying the difference between security tokens and non-security tokens, while at the same time undertaking aggressive enforcement actions that depend entirely on where that line is drawn. I imagine that you and I agree on this?

> That’s actually not exactly what the decision in the Ripple case says: it says that certain types of transactions are not securities transactions, but some are.

Thank you for pointing that out. I added the qualifier exchange traded when referring to XRP in an attempt to highlight that distinction, but my terminology was imprecise.

As you note, the court identified the transaction as the proper level of analysis, and found that whether or not participants entered into an investment contract depended on the nature of the transaction, not the token.

Implicit in this mode of analysis is that the XRP token is never itself a security; rather, securities laws are implicated when the XRP token is part of an investment contract, where the investment contract is itself a security, but the underlying asset is not.

A court has already ruled that XRP does not pass the howey test. If it is an investment contract, who are the parties to the contract?

Way, way too broad. Even arcade machine coins or gambling chips fall under that definition. Do you expect everyone who operates an arcade or casino to seek SEC approval?

Where did you get that definition? It seems to be trivially false because it includes all sorts of classic non-security commodity contracts like corn, oil, etc. And stocks are not negotiable yet they are securities, so the definition seems to fail on that front too.