US SEC: Crypto proof-of-work is not considered a violation of security law

The US Securities and Exchange Commission (SEC) issued a clarification, stating that proof-of-work is not considered a form of issuing unregistered securities. The clarification is part of the SEC’s more lenient approach to crypto. 

Proof-of-work mining, which creates coins as a reward, is not breaking securities law. The US Securities and Exchange Commission (SEC) issued a new clarification, as the regulator takes a more lenient approach to crypto. 

Proof-of-work mining issues the tokens as a reward for real computation activity, and the SEC does not consider those assets an unregistered security. Previously, the SEC has not set up any lawsuits or limitations against Bitcoin (BTC) or other mined coins, but the position has not been stated explicitly. 

“The “work” in PoW is the computational resources that miners contribute to validate transactions and add new blocks to the network. Miners do not have to own the network’s Covered Crypto Asset to validate transactions,” explained the SEC in a clarification statement.

At one point, even Ethereum had to battle the SEC to establish its status as a utility token and not an unregistered security. Even after transforming the network into proof-of-stake, ETH was still exempt from further scrutiny.

Miners do not need to acquire assets or have a reasonable expectation of returns, stated the SEC. Since mining is more akin to a lottery and miners use their own resources, the SEC does not consider mined coins to pass the Howey test for securities. Mined coins do not resemble stocks, notes, or bonds, in that they are not rewarded against an investment with a predetermined rate. The SEC also explained using pools or shared mining is also not considered an investment. As long as solo miners or pool-affiliated miners provided hardware and electricity expenses with no guarantee of returns, their activity was not generating security.

Even though proof-of-stake tokens have been taken to task, the SEC has also dropped most of its lawsuits, and no longer uses the Howey test against crypto projects. Previously, the SEC has launched lawsuits against mining packages, which were pronounced a version of unregistered securities. 

The case in question affected only one project, Green United. The startup SOLd mining devices known as ‘Green Boxes’, which promised to issue a token called GREEN. However, the structure of the investment meant the SEC was successful in its argument that Green United was in fact not mining, but selling unregistered securities. 

Bitcoin mining keeps pace despite distressing conditions

Bitcoin mining is one of the indicators of long-term confidence in the network. For the past few weeks, miners have retained a near-peak level of operation, despite less than favorable conditions. BTC miners are operating under the conditions of a ‘hash ribbon’, which indicates a mix of high difficulty and relatively low market prices. 

Despite this, the network’s hashrate is near its all-time high, at over 809 EH/s. Miners increased their reserve, holding between 1.8M and 2M coins, depending on reporting. 

BTC still traded in a range, clearing the $86,000 level, but returning to $84,000 within hours. Miners are facing the need to hold BTC mined at a loss, in hopes of selling after the bull market is renewed.

The recent decision by the SEC is offering unprecedented clarity to US-based miners, which now make up more than 40% of the hashrate. Mining has previously been attacked for its environmental impact, not for promising security-like returns. Despite this, the crypto community considered the clarification a win for miners. 

Even with a lenient regulation, miners will not have to register additionally or be tracked by the SEC for their activities. 

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