/>iThe Securities and Exchange Commission's (SEC) Division of Corporation Finance issued a significant statement yesterday that certain proof-of-work (PoW) mining activities do not constitute securities offerings under federal securities laws. This statement arrives just one day before the SEC’s Crypto Task Force hosts its inaugural roundtable, “How We Got Here and How We Get Out – Defining Security Status,” as part of its “Spring Sprint Toward Crypto Clarity” series.
Key Points From the SEC Statement
The Division’s statement focuses on “Protocol Mining” of “Covered Crypto Assets” on PoW networks. Importantly, through its Howey test analysis, which examines whether money is invested in a common enterprise with the expectation of profits from others' efforts, the Division concludes that both self (or solo) mining and mining pool participation do not constitute securities offerings or transactions under the federal securities laws.
Central to this determination is the Division’s interpretation of the Howey test’s “efforts of others” prong. The Division reasons that mining rewards are earned through miners’ own computational contributions rather than relying on entrepreneurial efforts of third parties and characterizes mining as “an administrative or ministerial activity” that secures the network and validates transactions in exchange for programmatic rewards. Importantly, however, the analysis is deliberately limited in scope, as it applies only to crypto assets “intrinsically linked to the programmatic functioning of a public, permissionless network” that lack economic properties such as passive yields or rights to future income or profits.
Commissioner Caroline Crenshaw issued a dissenting statement criticizing the guidance, arguing that it begins with an assumption that mining does not involve an expectation of profits based on others’ efforts and then concludes accordingly. She also highlighted that despite its broad framing, the statement acknowledges that actual determinations require case-by-case analyses of specific mining arrangements and activities under the Howey test.
Implications for Bitcoin and Proof-of-Stake Networks
The Division’s statement represents another incremental step in the SEC’s efforts to provide guidance on digital asset regulation, following its recent statement disclaiming jurisdiction over memecoins. From a practical standpoint, Bitcoin, as one of two top-ten crypto assets by market cap still using PoW consensus (the other being Dogecoin), stands to be most directly affected by this guidance. The Division’s characterization of mining as “administrative or ministerial” has given Bitcoin miners a valuable analytical framework that they may consider when structuring and operating mining activities. Industry stakeholders will likely scrutinize how this reasoning applies to specific mining arrangements, such as mining pools with complex fee structures, hosted mining services, and mining-as-a-service offerings that feature revenue-sharing or profit-splitting arrangements with investors who do not directly operate equipment.
The guidance also offers potential insights for proof-of-stake (PoS) networks, where participants either “stake” or lock up their tokens to validate transactions and secure the network, either by staking tokens directly or using third-party services. While self-staking shares characteristics with solo mining — both involve individuals directly contributing their own resources (computational power in mining, token holdings in staking) to validate transactions without relying on a third party — staking services, where third parties manage validation for a fee, may face different regulatory treatment. The Division's analysis of mining pool operators suggests that the degree of operational involvement and specialized services will likely influence how staking and staking services are regulated in the future.
“A miner’s Self (or Solo) Mining is not undertaken with a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others. Rather, a miner contributes its own computational resources, which secure the network and enable the miner to earn Rewards issued by the network in accordance with its software protocol . . . the expected financial incentive from the protocol is derived from the administrative or ministerial act of Protocol Mining performed by the miner. As such, Rewards are payments to the miner in exchange for services it provides to the network rather than profits derived from the entrepreneurial or managerial efforts of others.”
