The SEC’s Statement Indicates That Certain Proof-of-Work Mining Does Not Involve Securities Law

U.S. SEC Clarifies Its Position on Proof of Work Cryptocurrency Mining

The U.S. Securities and Exchange Commission (SEC) has clarified its stance on proof of work (PoW) mining in the cryptocurrency space, stating that specific PoW mining activities do not involve the issuance and sale of securities, and participants in mining activities are not required to register related transactions with the SEC under securities laws. This marks one of the latest actions by the agency to adopt a more favorable attitude towards the cryptocurrency industry.

The SEC’s Division of Corporation Finance stated in a release on Thursday:

The legal basis for this statement is the Howey Test, a criterion derived from a 1946 U.S. Supreme Court case that is frequently cited by the SEC to determine whether an asset qualifies as an “investment contract” and therefore falls under the definition of a security. The SEC noted:

Regarding mining pools, the SEC explained that miners can join mining pools to consolidate processing power and share rewards. Similar to mining itself, mining pools do not involve the expectation of profits derived from the entrepreneurial or managerial efforts of others.

The Digital Chamber, an advocacy group for U.S. digital assets and blockchain innovation, represented by Cody Carbone, stated that the SEC’s announcement is significant for Bitcoin miners, as it provides much-needed legal certainty and removes barriers to the development of the U.S. mining industry.

Currently, the largest and most influential proof of work blockchain is Bitcoin, while Dogecoin, Litecoin, and Monero also utilize this consensus mechanism. Ethereum transitioned from proof of work to a proof of stake (PoS) mechanism following its Merge upgrade in September 2022.