The Staff Statement provides clarity that Proof-of-Work crypto mining does not involve securities, reducing regulatory uncertainty and enforcement risks for miners.
By Jenny Cieplak, Zachary Fallon, Stephen P. Wink, Connor Jobes, and Deric Behar
On March 20, 2025, the Securities and Exchange Commission’s (SEC’s) Division of Corporation Finance (the Staff) published a Statement on Certain Proof-of-Work Mining Activities (the Statement). The Statement is the Staff’s second non-binding clarification on how it views the federal securities laws applying to a specific aspect of the digital asset economy since President Trump issued an executive order on digital assets (for more information, see this Latham blog post) and the SEC established a Crypto Task Force (for more information, see this Latham blog post).
Like the previous Staff Statement on Meme Coins (for more information, see this Latham blog post), the Statement is responsive to the Crypto Task Force’s top priority highlighted by SEC Commissioner Hester Peirce, who leads the task force: determining the status of digital assets under the securities laws.
What Is Proof-of-Work Mining?
Proof-of-work (PoW) mining (or “protocol mining”) is a consensus mechanism used by certain blockchain networks.1 The mechanism is a method of deciding who in the distributed network is allowed to publish the next block to a blockchain by requiring a considerable amount of time and computational resources to be expended.2 To use Bitcoin as an example, certain network participants (known as miners) compete using specialized software to guess the answer to a cryptographic puzzle, which requires significant amounts of computing power because there are so many possible guesses. After solving the puzzle, the successful miner is permitted to announce the next block of transactions to the network, which can be independently verified by all the other miners. The block is then added to the blockchain. The successful miner is in turn rewarded with newly created bitcoins (i.e., a block reward).
The system allows the network participants to agree on the state of a blockchain ledger without the involvement of a centralized regulating entity, since a malicious attacker would have to control a majority of computing power on the network and expend a large amount of resources in order to manipulate the blockchain.
Miners can act independently, or in mining pools, whereby resources are pooled to increase the odds of successfully guessing the answer to the cryptographic puzzle and earning the block reward. In a mining pool, when a reward is earned it is typically split among all the pool participants, based on the computing power provided by each participant.
Proof-of-Work Mining (Generally) Does Not Involve Securities
The Staff clarified that the activities covered in the Statement refer to the mining (solo or pooled) of “Covered Crypto Assets” on a PoW network; and the functions of mining pools and pool operators3 involved in PoW mining, including their roles in connection with the earning and distribution of block rewards (collectively, “PoW Mining Activity”). The Staff defined Covered Crypto Assets to be crypto assets that are:
- intrinsically linked to the programmatic functioning of a public, permissionless network; and
- any one or more of the following:
- Used to participate in such network’s consensus mechanism
- Earned for participating in such network’s consensus mechanism
- Used to maintain the technological operation and security of such network
- Earned for maintaining the technological operation and security of such network
In a footnote, the Staff points out that “[t]his statement addresses PoW generally rather than all of PoW’s variations or any specific PoW protocol.”
According to the Staff, Covered Crypto Assets mined in PoW Mining Activity do not constitute any of the specifically enumerated financial instruments listed as securities in Section 2(a)(1) of the Securities Act of 1933 (the Securities Act), and PoW Mining Activity does not constitute an investment contract under the Howey test.4 Under Howey, arrangements or instruments not otherwise listed as securities in Section 2(a)(1) are analyzed based on their “economic realities.” This analysis involves assessing whether there is an investment of money in an enterprise premised on a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others.5 The Staff noted that, as it relates to the “efforts of others,” federal courts view this aspect of the analysis to be satisfied when they are the “undeniably significant ones, [the] essential managerial efforts which affect the failure or success of the enterprise.”6
According to the Statement, solo mining activity, including spending resources to secure the blockchain network and obtain block rewards, does not rely on or involve the entrepreneurial or managerial efforts of others. Nor are expectations of Covered Crypto Asset rewards based on any third party’s managerial efforts upon which the network’s success depends.
The Statement notes that pooled mining activity is no different: “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.” Both solo and pooled PoW Mining Activity is merely “an administrative or ministerial activity.” Even if pooled mining has some level of reliance on a pool operator to distribute block rewards, miners expect to earn profits by actively providing computational resources (in conjunction with other members to the mining pool), rather than by passively relying on a pool operator or any other third party.
Because PoW Mining Activities “do not involve the offer and sale of securities within the meaning of Section 2(a)(1) of the Securities Act and Section 3(a)(10) of the Securities Exchange Act of 1934,” miners and pool operators engaging in such PoW Mining Activities are not required to register with the SEC (or otherwise fall within one of the Securities Act’s exemptions from registration).
Observations
In framing the Howey analysis in this manner, the Staff appears to:
- emphasize the magnitude of third-party efforts that would be required to result in a finding that an investment contract was involved (i.e., the “undeniably significant ones” or those that would involve “essential managerial efforts which affect the failure or success of the enterprise”); and
- suggest that it views a “common enterprise,” in the context of Covered Crypto Assets, to be the network itself.
While subtle, both of these points send a further potentially meaningful signal to digital asset market participants that otherwise have struggled to understand the extent to which efforts of others in relation to an undefined enterprise apply in the context of digital assets and digital asset networks.
Commissioner Crenshaw Sharply Disagrees
Commissioner Caroline Crenshaw criticized the Staff Statement (as she did the recent Staff Statement on Meme Coins). She argued that the Staff is making a flawed assumption that PoW miners only choose to mine to receive block rewards, rather than to profit from the managerial efforts of others. She does not, however, make any attempt to refute the reasonableness of this generalized assumption or suggest whose efforts are at issue in a PoW blockchain.
She also criticized the fact that, like the Staff Statement on Meme Coins, the Statement is of general applicability (i.e., that a facts-and-circumstances analysis under Howey would be required in any particular instance to determine investment contract status).
As the Statement itself notes, “[w]here facts vary from those presented in [the Statement] – such as the way in which pool members may be compensated, how miners or other persons may participate in mining pools, or the activities conducted by pool operators – the [Staff’s] view as to whether the specific Mining Activity involves the offer and sale of a security may be different.” Nonetheless, there should now be significantly reduced enforcement risk around the activities generally described in the Statement.
The Spring Sprint Toward Crypto Clarity
On March 21, 2025, the SEC’s Crypto Task Force held the first of five roundtables in its “Spring Sprint Toward Crypto Clarity” series, bringing together legal and policy experts in the crypto industry. According to remarks by Acting SEC Chairman Mark Uyeda, the roundtable series was established to “explore the complex legal issues involved in classifying crypto assets under the federal securities laws.” The panelists debated the applicability of Howey to digital assets, balancing consumer protection and industry growth, and the need for clearer regulation and legislation to govern the crypto development in the US.
The SEC’s public engagement on the security status of digital assets is correlated with its revamped approach to providing the market with more clarity and stepping back from the previous administration’s much-criticized “regulation by enforcement” approach. Former SEC Chairman Gary Gensler applied a broad interpretation of Howey to maintain that most cryptoassets were investment contracts and therefore securities within the SEC’s jurisdiction. Under Acting Chairman Uyeda, the SEC has withdrawn many of the crypto-related enforcement actions and open investigations from the past administration as it reconsiders its approach to crypto regulation, enforcement, and engagement with market participants.
According to Acting Chairman Uyeda, the roundtable (and related Statements on Meme Coins and PoW Mining) are “important first steps…of using notice-and-comment rulemaking or explaining the [SEC]’s thought process through releases – rather than through enforcement actions – . . . for classifying crypto assets under the federal securities laws.” As Commissioner Peirce succinctly put it, it represents “a restart of the [SEC]’s approach to crypto regulation.”
- E.g., Bitcoin, Dogecoin, and Litecoin. ↩︎
- An alternative to the PoW Consensus model is Proof of Stake (PoS), which attributes mining power to the proportion of coins held by a miner such that the more coins owned by a miner, the more mining power they have. A miner in a system using the PoS consensus model is limited to mining a percentage of transactions that is reflective of the miner’s ownership stake. ↩︎
- According to the statement “[a] pool operator typically is responsible for coordinating the miners’ computational resources, maintaining the pool’s mining hardware and software, overseeing the pool’s security measures to protect against theft and cyberattacks, and ensuring that the miners are paid their Rewards. In return, the pool operator charges a fee that is deducted from the miners’ share of the Rewards earned by the mining pool.” ↩︎
- SEC v. W.J. Howey Co, 328 U.S. 293 (1946). ↩︎
- See United Housing Found., Inc. v. Forman, 421 U.S. 837, 852 (1975). ↩︎
- Citing, e.g., SEC v. Glenn W. Turner Enterprises, Inc., 474 F.2d 476, 482 (9th Cir. 1973). ↩︎