SEC Targets: Nakamoto Coefficients (Patreon)

The Nakamoto coefficient is a measure of decentralization in a blockchain network. It is calculated by dividing the number of nodes required to control 51% of the network's power by the total number of nodes in the network. 

A high Nakamoto coefficient indicates that the network is decentralized, as it would be difficult for any single entity to control a majority of the network's hash power. This makes it more difficult for a single entity to manipulate the network or censor transactions. 

A low Nakamoto coefficient indicates that the network is centralized, as it would be easier for a single entity to control a majority of the network's power. This makes it more likely that a single entity could manipulate the network or censor transactions. 

The Nakamoto coefficient is important when determining whether or not a token is a security. The Howey Test, which is used by the SEC to determine whether or not an investment is a security, includes the following factor: Whether the investment is offered and sold as part of a common enterprise.  If a token is part of a decentralized network with a high Nakamoto coefficient, it is less likely to be considered an investment contract under the Howey Test. This is because it would be difficult for a single entity to control the network and manipulate the price of the token.

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