Question 1

What are the four elements of the Howey test?

Accepted Answer

The four elements of the Howey Test include checking for an investment, checking if there is a common enterprise in play, seeing if there are profit expectations involved, and are the profits, if present, are derived from the efforts of others. Only if a digital asset or an investment satisfies every aspect of the Howey Test is it considered to be a security.

Question 2

Does cryptocurrency pass the Howey test?

Accepted Answer

Firstly, crypto isn’t a security as the concept of decentralization is at odds with the common enterprise narrative. However, with new cryptos coming to market, there might be a handful that have investment contracts, profit promises, third-party exposure, and are set up as common enterprises, qualifying them as SEC-backed securities.

Question 3

Does XRP pass the Howey test?

Accepted Answer

XRP’s fate, as security or not, depends on the verdict of the SEC vs. XRP case. Right now, the SEC believes that XRP satisfies every Howey test prong, but XRP has put forth arguments to the contrary, claiming that XRP is adequately decentralized and that the cryptos price action is unrelated to the state of the Ripple Labs.

Question 4

What does it mean to fail the Howey test?

Accepted Answer

Failing the Howey Test means that a transaction isn’t deemed an investment contract and therefore is not a security. The investment or asset fails the test only if it fails to satisfy any one aspect or prong associated with the Howey Test.

Question 5

Why is bitcoin not a security?

Accepted Answer

Bitcoin lacks central authority and therefore fails to satisfy the Common Enterprise narrative. Plus, the profits generated by miners are self-derived, which dissatisfies prong four of the Howey test. And finally, BTC is not a pure investment contract; it is more of a digital currency, which also makes it fail the Howey Test.

Question 6

Does Ethereum pass the Howey test?

Accepted Answer

The newly transitioned Ethereum, or rather, the Ethereum PoS, might not be security as it has no promoter exposure and it is still adequately decentralized. Also, the profits are still self-derived as the validators eyeing rewards still need to keep the network up and validate transactions to keep the income tap running.

Artyom Gladkov

Latest articles by Artyom Gladkov

What Is the Howey Test and How Does It Impact Crypto?

Top 3 Methods for Cross-Border Money Transfer Using Crypto

Blockchain Gaming: The Keys to the Metaverse Castle

The Future of Digital Asset Management and Decentralized Gaming Economies

Everything You Need To Know About Bull Flag Patterns

What Is Zombie Inu (ZINU)? A Guide to the Web3 Ecosystem

A Token Economy for Europe: Considering the Opportunities

What Is Canto? A Guide to the DeFi-Driven Altchain