The U.S. Securities and Exchange Commission (SEC) under a new leadership on Thursday clarified its stance on Proof-of-Work (PoW) mining operations, saying “mining activities” as defined in its statement do not need to register with the Commission, effectively removing them from the list of activities subject to securities laws.
The Wall Street regulator went into detail on its views around cryptocurrency mining, and reiterated that PoW mining, which involves miner validation, does not fall under the registration requirements of the Securities Act.
SEC Explains Why PoW Mining Doesn’t Need Registration
In a statement Thursday, the financial regulator explained why there is no securities laws violation if crypto miners don’t register with the SEC.
“It is the Division’s view that ‘Mining Activities’ (defined in this statement) in connection with Protocol Mining, under the circumstances described in this statement, do not involve the offer and sale of securities within the meaning of Section 2(a)(1) of the Securities Act of 1993 (the ‘Securities Act’) and Section 3(a)(10) of the Securities Exchange Act of 1934 (the ‘Exchange Act’). [9] Accordingly, it is the Division’s view that participants in Mining Activities do not need to register transactions with the Commission under the Securities Act or fall within one of the Securities Act’s exemptions from registration in connection with these Mining Activities,” it said.
SEC staff pointed out how PoW, a consensus mechanism that involves rewarding miners who validate transactions on a blockchain network. Bitcoin is the perfect example of the PoW mechanism in crypto mining.
They further reiterated that its views on the segment pertain to self or solo mining, and mining pools.
According to the statement, the SEC staff came up with its conclusion by using the Howey Test, which relies on four questions to determine if an asset is a security or not.
Specifically, the test determines if the asset is an investment, if it is within a common enterprise, if the investor is expecting profits, and if it is derived from the efforts of other people.
“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,” the SEC said.
“Likewise, when a miner combines its computational resources with other miners to increase their chances of successfully mining new blocks on the network, the miner has no expectation of profit derived from the entrepreneurial or managerial efforts of others,” it added.
Crypto Leaders Hail SEC’s Move
For some crypto leaders, the SEC’s clarification is a blessing.
The Digital Chamber President Cody Carbone said the clarification “gives much-needed legal certainty and clears the path for the mining industry to grow in the U.S.”
Other crypto executives and prominent figures in the Bitcoin community have since thanked the SEC, specifically Commissioner Hester Peirce, for the work accomplished in providing clarity for Bitcoin miners. Pierre Rochard, the VP of Research at leading BTC miner Riot Platforms, is one among them.
Peirce is dubbed as “Crypto Mom” and she leads the regulatory agency’s task force on digital assets.
For Coinbase Chief Legal Officer Paul Grewal, the clarity provided on Thursday “is so refreshing.” He agreed with the SEC’s stance on mining pools, saying they don’t offer securities and instead only offer “administrative or ministerial” services.
Meanwhile, the SEC has yet to provide clarification on its views around Proof-of-Stake mechanisms in crypto, wherein transaction validators are chosen based on the amount of crypto they stake.
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