Overview
On March 20, 2025, the Securities and Exchange Commission’s (“SEC” or the “Commission”) Division of Corporation Finance (the “Division”) released a staff statement (the “Statement”) expressing the view of SEC staff that certain proof-of-work mining activities do not involve the offer or sale of securities.[1] As a result, entities engaged in these activities need not register them with the Commission under the Securities Act of 1933 (the “33 Act”) or rely on one of the Act’s exemptions from registration.[2]
The Statement specifically applies to the mining of crypto assets that are “intrinsically linked to the programmatic functioning of a public, permissionless network, and are used to participate in and/or earned for participating in such network’s consensus mechanism or otherwise used to maintain and/or earned for maintaining the technological operation and security” of the network (“Covered Crypto Assets”).[3]
Proof-of-Work Definition: In the Statement, the staff analyzes solo mining and mining pools using the SEC v. W.J. Howey Co. framework.[4] Proof-of-work is described as a “consensus mechanism that incentivizes network transaction validation by rewarding network participants . . . ‘miners,’ who operate nodes … [And one that] involves validating transactions on a network and adding them in blocks to the distributed ledger.”[5] In exchange for “providing validation services, miners earn ‘Rewards’ in the form of newly ‘minted’ or created Covered Crypto Assets….”[6] A miner that provides validation services receives the Reward only after other nodes verify that its work is valid. After verification, all miners add the new block to the network. Proof-of-work is a mechanism “designed to secure the network by requiring miners to spend considerable time and computational resources to authenticate transactions.”[7]
The Division defines “Mining Activities” as the process of mining Covered Crypto Assets on a proof-of-work network, which includes the roles of mining pools and pool operators involved in this process. Miners may work individually, known as “Self Mining” or “Solo Mining,” or they may combine computational resources with others in a “Mining Pool” to increase their chances of successfully validating transactions on the network.
Division’s View on Protocol Mining Activities: In the Division’s view, Mining Activities do not involve the offer and sale of securities under Section 2(a)(1) of the 33 Act and Section 3(a)(10) of the Securities Exchange Act of 1934. Therefore, participants in Mining Activities do not need to register transactions with the SEC or qualify for an exemption from registration.[8]
The Division concludes that computational resources “spent” or “invested” by miners are a contribution of their own computational resources and an “administrative or ministerial” service provided to the network.[9] Rewards earned by solving mathematical equations leading to the addition of a new block to the blockchain are payments in exchange for those services.[10] Most importantly, a miner’s “expectation to receive Rewards is not derived from any third party’s managerial or entrepreneurial efforts upon which the network’s success depends.”[11]
Similarly, when a miner contributes computational resources to a mining pool, the miner is still engaging in mining activity. The distinction between “whether a miner self (or solo) mines or mines as a member of a mining pool does not alter the nature of Protocol Mining for purposes of the Howey analysis.”[12] Any activities carried out by a pool operator in operating a mining pool are insufficient to satisfy the “efforts of others” prong of Howey.[13]
The Statement’s scope is limited to Covered Crypto Assets that lack “intrinsic economic properties or rights, such as generating a passive yield or conveying rights to future income, profits, or assets of a business enterprise.”[14]
Key Takeaways: The Bitcoin blockchain is the most popular proof-of-work blockchain, and this decision is particularly relevant to entities involved in Bitcoin mining activities. It will be of significant relief to any entity involved in supporting Bitcoin or any other proof-of-work mining activities.
The Statement only addresses proof-of-work activities and is silent on mechanisms based on proof-of-stake. However, it bears noting that in late February, Consensys announced that the SEC had, in principle, agreed to drop its claims against the company. The SEC sued Consensys in 2024, arguing in part that Consensys had engaged in unregistered offers and sales of securities through its MetaMask Staking program, where it acted as an intermediary connecting customers with ETH staking pools.[15]
The Division continues to further clarify its views on the appropriate application of the Howey test to crypto. Expect to see additional clarifying statements and updates in future posts.
[1] U.S. Securities and Exchange Commission, Division of Corporation Finance, Statement on Certain Proof-of-Work Mining Activities (Mar. 20, 2025) https://www.sec.gov/newsroom/speeches-statements/statement-certain-proof-work-mining-activities-032025?utm_medium=email&utm_source=govdelivery.
[2] Id.
[3] Id.
[4] 328 U.S. 293 (1946).
[5] Statement, supra n. 1.
[6] Id.
[7] Id.
[8] Id.
[9] Id.
[10] Id.
[11] Id.
[12] Id.
[13] Id.
[14] Id. at n.3.
[15] Complaint at 4, 45 Securities and Exchange Commission v. Consensys Software, No. 1:24-cv-04578 (E.D.N.Y. Jun. 28, 2024).
