What is the Howey Test? 

The Securities and Exchange Commission (SEC), the US regulator tasked with regulating securities in the US, uses the Howey Test to determine whether an asset, along with any other scheme, contract or transaction, qualifies as a security.  

The definitive factor, according to the Howey Test, is if there’s a reasonable expectation of profits to be made from the efforts of others. Assets that pass the Howey Test and qualify as securities, need to be registered with the SEC and are subject to security regulations like books, or bonds.

Initial coin offerings (ICOs) and the majority of smart contract protocols are considered securities for this reason. Bitcoin and Ethereum, considered fully decentralised without a central authority steering the ship, are not considered securities. 

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