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The US Securities and Exchange Commission (SEC) just made another major decision regarding the crypto industry when it decided that cryptocurrency mining does not constitute a securities offering.
The regulator released its statement yesterday, March 20, bringing yet another layer of clarity to the digital asset industry, and effectively giving a green light for institutional investors to massively join the mining process, should they desire to do so.
Crypto mining has been a practice in Proof-of-Work (PoW) networks like Bitcoin since the crypto industry was founded. As such, it requires participants — miners — to provide the computational power, which is then used by the algorithm to validate transactions and secure the blockchain.
In return, miners receive a portion of newly minted coins which are then entering the circulation for the first time. The process has been crucial for the launch of Bitcoin, and it is being used on its network to this day.
Mining Is Officially Considered Not A Security Offering
While the SEC confirmed that Bitcoin is not a security a long time ago, the lack of clarity surrounding the mining process still hurts those who mine BTC, or other cryptos that depend on the PoW consensus mechanism. But, now that the regulator has confirmed that mining in itself does not meet the criteria of an investment contract under the Howey Test, any doubts regarding how the mining process could be interpreted by the law will be erased.
The SEC concluded that PoW mining does not involve the expectation of profits derived from the managerial or entrepreneurial efforts of others, which is a key factor in defining securities. Instead, it revolves around individual effort and computational work, rather than being an investment in a common enterprise dependent on third-party managerial efforts.
The SEC also touched upon mining pools, where individual miners contribute computing power collectively to increase the chance of validating new blocks. It concluded that this also does not equate to a securities transaction, even if pooled mining allows participants to share rewards, since each miner’s compensation is proportional to their own direct contribution to the pool.
