What is a security?
A security in finance is any asset or financial instrument that represents some value in an industry and gives its holder some form of ownership.
For example if you invest in a stock or share of a company you own a percentage of the company, making the share a security
How can they tell which token or coin is security and which is not?
On research the best answer I got is that they consider which crypto is sufficiently decentralized and determines that it is not a security. I can only think that decentralized projects cannot give ownership cause there is no central point of control.
How will these exchanges know what they did wrong if there is nothing that proves that a particular token is security?
No clue. They declare more crypto tokens to be securities at intervals and exchanges can easily fault their regulations unknowingly. Or maybe they send a memo as at when they make it official, we can only speculate.
- Jay -