The Division of Corporate Finance at the U.S. Securities and Exchange Commission has issued new guidance regarding Proof-of-Work mining, clarifying how federal securities laws pertain to crypto mining operations.
The announcement delineates the SEC’s position on “protocol mining” and determines that PoW mining activities do not qualify as securities transactions.
The SEC clarifies that Proof-of-Work networks function as open, permissionless systems where miners validate transactions and secure the network through computational efforts.
Additionally, it introduces the term “Covered Crypto Assets” for tokens obtained through PoW mining, while referring to the mining process itself as “Protocol Mining.”
The commission recognized that mining is essential for the network’s operation and does not rely on the managerial efforts of third parties—an important aspect in evaluating whether an asset is classified as a security under the Howey Test.
The SEC further clarified the differences among various mining practices, including self (or solo) mining, where individuals contribute computational power independently, and mining pools, where multiple miners collaborate their resources.
Mining Pools and Their Function
The SEC also addressed the function of mining pools, which combine computational resources to enhance the likelihood of receiving block rewards.
Although pool operators manage resources, uphold infrastructure, and allocate earnings, the SEC asserts that their role is administrative or ministerial instead of managerial.
Consequently, involvement in mining pools does not alter the essential characteristics of protocol mining or introduce an investment contract model.
This announcement offers crucial regulatory clarity for miners operating in the U.S. By affirming that PoW mining is not associated with securities transactions, the SEC alleviates concerns regarding the necessity for miners to register their activities or meet securities-related reporting obligations.
This ruling may instill greater confidence among mining companies, particularly in light of the ongoing regulatory scrutiny pertaining to energy use and environmental concerns.