NFTs vs Securities vs Commodities: A Legal Guide

NFTs, Securities, Commodities: Why You Absolutely Need to Know the Difference

So, you bought a cool piece of digital art, a unique in-game item, or maybe even a piece of a tokenized song. You own an NFT. Congratulations. But what do you actually own? Is it just a collectible, like a digital baseball card? Or is it something more… something that puts you on the radar of financial regulators? This question is at the heart of one of the biggest debates in the digital asset space. The legal distinctions between NFTs, securities, and commodities aren’t just academic chatter; they have massive real-world consequences for creators, collectors, and investors. Getting it wrong could mean facing the wrath of agencies like the SEC.

It’s a messy, confusing, and rapidly changing area of law. One person’s digital art is another’s unregistered security. A project promising future value could cross a line that its founders didn’t even know existed. We’re going to untangle this knot. We’ll break down what each of these categories means, look at the tests regulators use to classify them, and figure out where NFTs might fit in this chaotic puzzle. This isn’t just theory—it’s essential knowledge for anyone operating in the Web3 world.

Key Takeaways

• What Defines Each Category: NFTs are unique digital assets, securities are investments in a common enterprise expecting profit, and commodities are basic, interchangeable goods.
• The Howey Test is King: The U.S. Supreme Court’s Howey Test is the primary tool the SEC uses to determine if an asset is a security. Its four prongs are critical to understand.
• NFTs Can Be Chameleons: An NFT is not inherently one thing. Depending on how it’s created, marketed, and sold, it could be classified as a collectible (like a commodity) or an investment contract (a security).
• Regulation is Catching Up: Regulators like the SEC and CFTC are actively pursuing enforcement actions, meaning ignorance is no longer a defense. The context of the sale matters more than the underlying technology.

First, Let’s Define Our Terms: What Are We Even Talking About?

Before we dive into the legal boxing match, let’s get our players straight. You’ve heard these terms thrown around, but the specifics are what truly matter.

NFTs (Non-Fungible Tokens)

Think of “fungible” as “interchangeable.” A dollar bill is fungible. You can trade your dollar for my dollar, and we both still have one dollar of the same value. They’re identical. Bitcoin is also fungible. One Bitcoin is the same as any other Bitcoin.

Non-fungible is the opposite. It means unique and irreplaceable. Your house is non-fungible. The Mona Lisa is non-fungible. An NFT is a digital certificate of authenticity and ownership for a unique asset, recorded on a blockchain. That asset can be almost anything digital: art, music, a video clip, a ticket to an event, or even a deed to a virtual piece of land. The token itself is just the proof of ownership. The key takeaway is uniqueness.

Securities

This is where things get complicated. A security isn’t just a stock or a bond. In the eyes of U.S. law, a security is an “investment contract.” This is a broad definition, and regulators like it that way. It gives them flexibility to go after a wide range of schemes. To determine if something is an investment contract, they use a famous (or infamous, depending on who you ask) legal standard.

Commodities

Commodities are basic, raw goods that are interchangeable with other goods of the same type. Think gold, oil, wheat, or corn. One barrel of crude oil is pretty much the same as another. In the digital world, assets like Bitcoin and Ethereum are often treated as commodities by regulators like the Commodity Futures Trading Commission (CFTC) because they are relatively decentralized and fungible. You don’t buy Bitcoin expecting profits from the efforts of a central management team; you buy it as a raw digital good.

The Howey Test: The SEC’s 75-Year-Old Weapon of Choice

To understand why an NFT might be considered a security, you have to understand the Howey Test. It comes from a 1946 Supreme Court case, SEC v. W.J. Howey Co., which involved… you guessed it, orange groves in Florida. A company sold tracts of land in its orange grove to buyers, who then leased the land back to Howey Co. to manage, harvest, and sell the oranges. The buyers were passive; they just put up the money and hoped for a check.

The court decided this was an investment contract (a security) and created a four-pronged test. For something to be a security, it must involve:

1. An investment of money
2. In a common enterprise
3. With the expectation of profit
4. To be derived from the efforts of others

If a transaction ticks all four of these boxes, the SEC says, “Congratulations, you’ve just sold a security.” And if you did that without registering with them, you’ve broken the law.

Applying Howey to an NFT Project

Let’s see how this plays out. Imagine a new NFT project called “CryptoPunks 2.0.”

• Investment of Money: You buy the NFT with ETH. That’s a clear investment of money (or a monetary equivalent). (Check!)
• In a Common Enterprise: This one is tricky. Courts often see a “common enterprise” when investors’ fortunes are tied together and linked to the success of the promoter. If the value of all CryptoPunks 2.0 NFTs depends on the project’s developers building a brand, a game, or a community, you could argue this prong is met. Everyone is in it together. (Probably a check.)
• Expectation of Profit: This is the big one. How is the project marketed? If the founders are tweeting about “hodling for 100x gains,” building a “roadmap to increase the floor price,” or promising a future token airdrop for holders, then buyers clearly have an expectation of profit. They aren’t just buying art; they’re speculating. (Huge check!)
• From the Efforts of Others: Are buyers just passively holding the NFT while the founding team works day and night to deliver on that roadmap? Are they building partnerships, developing a game, and marketing the project to pump its value? If so, the profits are coming from the managerial efforts of that central team. (Check!)

In this hypothetical scenario, the “CryptoPunks 2.0” NFT looks a lot like a security. The problem isn’t the technology of the NFT itself; it’s everything surrounding its sale and promotion.

So, When is an NFT Just a Collectible (Like a Commodity)?

Now, let’s flip the script. Imagine an independent artist creates a one-of-a-kind digital painting and sells it as an NFT on a platform like OpenSea. They make no promises about future work, a roadmap, or increasing its value. You buy it simply because you love the art and want to own it. You might hope it appreciates in value, just like you might hope a physical painting you buy does, but that’s not the primary reason for the sale. The artist isn’t promising to do anything to make it more valuable after the fact. In this case, the NFT is acting more like a collectible—a unique good. It fails the last two prongs of the Howey Test. There’s no expectation of profit derived from the efforts of others. Its future value depends on market sentiment and the artist’s reputation, not a central team managing an enterprise.

This is the crucial distinction: Is the value tied to the asset itself, or to the promise of future work from a managerial team? One points toward a commodity or collectible; the other screams security.

Projects that offer fractionalized NFTs (F-NFTs), where you buy a small piece of a very expensive NFT, often get much closer to the securities line. When you buy a fraction, you’re almost certainly doing it for financial exposure and the hope of profit, not for the utility or aesthetic enjoyment of owning the whole thing. The structure starts to look a lot like buying a share in an asset.

The Regulatory Cage Match: Legal Distinctions NFTs vs. Securities vs. Commodities

Let’s put it all side-by-side. The classification of an asset determines who regulates it and what rules apply. It’s a turf war between two major U.S. regulators: the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC).

The Players and Their Rules

Securities (The SEC’s Domain)

• Regulator: The SEC.
• Primary Concern: Investor protection. They want to ensure buyers have all the necessary information (through mandatory disclosures) and are protected from fraud.
• Key Test: The Howey Test.
• Governing Laws: The Securities Act of 1933 and the Securities Exchange Act of 1934. These are dense, complex laws with strict registration and disclosure requirements.
• Example: A token sold in an ICO that promised investors a share of future company profits. The SEC has gone after many of these.

Commodities (The CFTC’s Turf)

• Regulator: The CFTC.
• Primary Concern: Preventing fraud and manipulation in the derivatives markets (futures, swaps, etc.). Their direct authority over the ‘spot’ or cash market for commodities is more limited.
• Key Test: Less of a single test and more about the nature of the good. Is it a basic, fungible good?
• Governing Laws: The Commodity Exchange Act.
• Example: Bitcoin. The CFTC has stated multiple times that it views Bitcoin as a commodity.

NFTs (The Wild West)

• Regulator: It depends! This is the whole problem.
• Primary Concern: If it looks like a security, the SEC is interested. If it’s used in a fraudulent scheme, both the SEC and CFTC (and the Department of Justice) might get involved.
• Key Test: The Howey Test is applied on a case-by-case basis, focusing on the economics and marketing of the sale.
• Status: Legally ambiguous. An NFT is a technological standard, not a legal classification. Its legal status is determined by how it’s used.

Real-World Clashes and Future Outlook

This isn’t just a thought experiment. The SEC has already started making moves. In cases like SEC v. Ripple Labs (concerning the XRP token) and their actions against platforms like Coinbase, the regulator is aggressively expanding its interpretation of what constitutes a security in the digital asset world. While they haven’t launched a major, precedent-setting case specifically defining a whole class of NFTs as securities yet, they have included NFTs in other complaints. For example, in the Stoner Cats case, the SEC charged the creators because the NFTs were marketed with promises of future value from a TV show, fitting the Howey criteria.

What does this mean for you? Extreme caution. If you’re a creator, avoid using language that promises profit, appreciation, or future utility delivered by a centralized team. Focus on the art, the community, or the intrinsic utility of the token itself. If you’re a buyer, you need to be a critical consumer. Ask yourself: am I buying this for what it is right now, or am I buying it because of what a team of developers is promising to do tomorrow? That single question can be the difference between owning a piece of digital history and owning an unregistered security.

Conclusion

The line between a unique digital collectible and an investment contract is thin, blurry, and drawn in pencil. The technology—the NFT itself—is neutral. It’s a blank canvas. The legal character is painted by the promises, expectations, and economic realities surrounding its sale. As regulators continue to play catch-up with technology, we’re likely to see more enforcement actions and, hopefully, clearer legislative guidance. For now, the Howey Test remains the law of the land, a 75-year-old framework from the world of orange groves being used to police the metaverse. Understanding its principles isn’t just good practice; it’s the best defense you have in a legal landscape that’s still very much under construction.

FAQ

Is every NFT a security?

No, absolutely not. An NFT’s legal classification depends entirely on how it’s sold and marketed. An NFT sold as a unique piece of art with no promises of future profit from a management team is unlikely to be a security. An NFT sold as part of a collection where the promoters promise to build a game and increase the floor price is at high risk of being classified as a security.

Who decides if an NFT is a security, the SEC or the CFTC?

The SEC is the primary regulator for securities in the United States. They use the Howey Test to make their determination. If the SEC believes an NFT project constitutes an unregistered securities offering, they can bring an enforcement action. The CFTC regulates commodities and derivatives. While the two agencies sometimes have overlapping interests, the “is it a security?” question falls squarely in the SEC’s court.

What’s the biggest mistake NFT creators make that puts them at risk?

The biggest mistake is marketing the NFT like a financial investment. Using language about ‘ROI’ (return on investment), price appreciation, ‘floor sweeps’, or creating a roadmap that explicitly promises to undertake actions designed solely to increase the NFT’s secondary market value is a massive red flag for regulators. It shifts the sale from a simple transaction for a good into a capital-raising event for an enterprise, which is securities territory.