# What is a Security Token? and How SEC Selects Them?

By [crypto-kingpin.eth](https://paragraph.com/@crypto-kingpin-eth) · 2023-02-25

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SEC aka Securities and Exchange Commission is an agency in U.S and it’s main purpose is to prevent financial crashes like wall street crash. or more **formally** **protecting** investors and maintaining a **fair** and **efficient** market

### What is a Security?

In the context of investment finance, a security is a **tradable** financial instrument(e.g. stocks, bonds or derivatives) used to **raise** capital by the organization issuing it

anything that the **SEC** is controlling is a **security**

### Which Criteria’s Are Used to Select a Security?

1- investment of money. in other words, people are **investing** money in that asset

2- in a common enterprise. means everybody **can** buy it

3- investors have an expectation of profit

4- the profit comes from the effort of a third-party

### Is Crypto Currency a Security?

majority of crypto currencies don’t meet the 4th rule, since the profit do not always come from a third-party or company

take BTC for example, no company is leading you to expect profits from it, this means BTC is not a security.

also Cryptocurrency is minimally regulated, and applying consistent regulation by the government is difficult. For example, the decentralized nature of most crypto platforms makes it hard to define their legal jurisdiction

### Can a Crypto Currency become security?

even though we can’t classify most coins or tokens as security, there are exceptions like **Ripple** that according to SEC, Ripple is a security and must **register** with the SEC to sell it’s coins and since Ripple didn’t register, it **broke** the law and the SEC filed a massive **lawsuit** against **ripple labs**

### Should SEC be Involved in Crypto?

it is almost impossible to regulate a lot of crypto currencies due to their decentralization, but having SEC, in control of some of them is not a bad idea since it will prevent crypto crashes like FTX or LUNA. but also it will make coins centralized and less secure. so it is up to you to decide if stability worths more than decentralization. food for thought.

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*Originally published on [crypto-kingpin.eth](https://paragraph.com/@crypto-kingpin-eth/what-is-a-security-token-and-how-sec-selects-them)*