I want to be clear that I’m not making any recommendations about buying cryptocurrency — in fact, I’m advocating for people to contribute their time and effort before dollars.

The boils down to the difference between inherent value and value dependant on the efforts of an enterprise. For example, gold has value in and of itself due to scarcity and uncoordinated demand, while the value of a stock certificate depends on the company’s managerial efforts to maximize profit. The former is a commodity, and the latter is a security.

The problem is that a number of projects have sold their cryptocurrency to raise funds before their software is complete. Unless they went through the lengthy and expensive process of registering with securities regulators before the sale, they are exposed to the risk of being deemed a security after the fact and face potentially-bankrupting consequences.

Purchasers of projects in this tenuous position need to 1. recognize it, 2. not make the situation worse by demanding the project take action that would dig themselves deeper into trouble, and 3. improve the situation through collaboration with the projects they support (if the projects are worth supporting).

Ethereum succeeded in this respect. Even though it raised money before it had a fully-functioning blockchain, it was able to engage enough independent participants in building the network such that there was no longer a core team that the success of the project depended on.

In other words, it’s not so much a question of whether there’s an expectation of profit, but whether that profit depends on the efforts of the enterprise versus the efforts of independent participants.