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SEC Issues Conflicting Statements about Proof-of-Work Crypto Mining Activities
The SEC’s Division of Corporation Finance issued an opinion dated 20 March 2025 that certain crypto-mining activities on proof-of-work networks should not require SEC registration “Statement on Certain Proof-of-Work Mining Activities”[1] (the “Opinion”).
Later the same day, Commissioner Caroline A. Crenshaw also published a Statement highlighting the Opinion’s weaknesses “Crypto Mining Statement: The Flame in Plato’s Cave [2]“ (the “Rebuttal”).
The Opinion covers the mining of crypto assets that are intrinsically linked to the programmatic functioning of a public, permissionless network, and participate in the network’s consensus mechanism or maintain its technological operation and security. It also refers to both self (or solo) mining or self-mining and mining-pools (together “Relevant Mining Activities”). Self (or solo) mining is described as involving a miner or group of miners working together using their own computational resources to form a node. The Opinion describes mining pools as a group combining their computational resources, where rewards might accrue to the mining-pool operator, or directly to the miner.
The Opinion notes that the Relevant Mining Activities do not fall within the definition of a security[3], and analyses them against Howey’s[4] “reasonable efforts of others test”. This test is satisfied when an investment in an enterprise is made with the expectation of receiving profits resulting from the managerial or entrepreneurial efforts of others within the enterprise.
It is the Division’s view that the Relevant Mining Activities are not undertaken with an expectation of benefitting from the managerial efforts of others. Instead, the miners contribute their computational resources, validate transactions, add blocks and improve security with the intention of receiving rewards in the form of crypto assets. The Division considers these actions to be the provision of administrative activities, and any rewards earned are payment for services provided to the network rather than profits derived from the managerial efforts of others.
Commissioner Crenshaw’s Rebuttal points out that the Opinion suffers from some weaknesses. First, as it’s a non-binding interpretation it fails to provide the clarity and certainty it had aimed for. Secondly, it assumes that the miners in the scenarios outlined do not intend to benefit from the managerial efforts of the others on the network. The Rebuttal points out that examining intention and circumstances brings us back to where we currently are: requiring every network and transaction to be examined on its own merits to determine whether it satisfies the Howey Test.
Other statements issued recently from the offices within the SEC[5] mention staking, which involves another form of consensus algorithm underpinning blockchain networks.
We are reminded of the most common forms of consensus algorithms, including:
- Proof-of-work (PoW)
- Proof-of-stake (PoS)
- Delegated Proof of Stake (DPoS)
- Proof of Authority (PoA)
- Proof of Space and Time (PoST)
- Proof of Burn (PoB)
- Byzantine Fault Tolerance (BFT) and Practical Byzantine Fault Tolerance (PBFT)
- Hybrid Consensus Mechanisms and some
- Niche Consensus Mechanisms.
Please see the following article prepared by our Andre Yeghiazarian and Ash Costello for further details here.
How we can help – ‘prevention and cure’
Our team advises clients on successfully launching and running their protocols and operations, – ‘preventing any legal issues’, and with ‘curing’ and resolving issues which arise.
| Prevention | Cure |
| We have advised crypto-miners, DAOs, supply-chains, blockchain protocols and distributed ledgers, crypto funds and users of blockchain technology of all sizes, from start-up to top tier DAO/coin, including: | We have successfully acted in matters involving: |
| – Acting as in-house Counsel for a crypto start-up, through IP protection, entity structuring and launch, international regulatory approval; – Advising an agricultural supply chain on successful international launch; – Assisting in the launch of the first privacy-law-compliant US supply chain leveraging Zero Knowledge Proofs (ZKPs) and digital identities. – Performing a full GDPR audit and remediation procedure for potentially the world’s largest crypto DAOs; – Advising variously on the launch and operation of several blockchain protocols; – Assisting crypto-miners; – Advising government on various blockchain related matters, including smart contract vulnerabilities and structures; privacy coins and privacy enhancing technologies leveraged in the blockchain industry including ZKPs, secure multi-party computation (SMPC), encryption and digital identities; – Advising on NFTs; Advising on ‘staking’; -Advising on the UK and EU technology, online and platform regulations governing user-to-user networks, platform-to-business networks and platform-to-consumer networks. – Appointed to the Expert Panel of the European Commission’s European Blockchain Observatory & Forum – Former Co-Chair of INATBA’s Privacy Working Group. Currently member of the AI and Blockchain Convergence Taskforce and the Digital Identity Taskforce (the International Association for Trusted Blockchain Applications). [https://inatba.org/] Some of the UK laws regulating blockchain protocols and mining which should be considered before launching any project include: – the Online Safety Act 2023 – the Digital Markets, Competition and Consumer Act 2024, -the Electronic Commerce (EC Directive) Regulations 2002. Product Regulation and Metrology Bill, Electronic Commerce (EC Directive) Regulations 2002GDPR, – the Privacy and Electronic Communications Regulations and the Data Protection Act. See our publications relating to matters to consider when establishing or running blockchain related projects: Toolkit – launching and running a digital business. | – Urgent applications for freezing injunctions and proprietary injunctions to preserve misappropriated assets; – Tracing and recovery actions, both domestic and cross-border; – Claims involving breach of contract, misrepresentation, and fraud in crypto-related investments; – Working with blockchain forensics experts to track and identify wallet movements and asset destinations; – Multi-jurisdictional enforcement of judgments and awards; – Emergency relief in the English courts and arbitration institutions to prevent further dissipation of assets. UK REMEDIES & LEGAL RECOVERY OPTIONS Victims of smart-contract exploits or crypto-related fraud may have access to civil remedies under English law, including: – Proprietary claims to assert ownership of misappropriated crypto assets; – Injunctions, including worldwide freezing orders (WFOs), to preserve assets; – Norwich Pharmacal and Bankers Trust orders to obtain disclosure from exchanges or intermediaries; – Constructive trust or restitutionary claims based on unjust enrichment or breach of fiduciary duty; – Civil fraud and deceit claims, including misrepresentation, conspiracy, and dishonest assistance; – Recognition and enforcement of foreign judgments or arbitral awards involving digital assets. Case law, such as AA v Persons Unknown [2019] EWHC 3556 (Comm) confirms that English courts are willing to recognise cryptocurrencies as property and provide equitable relief. With the potential introduction of the Property (Digital Assets etc.) Bill (at the Report Stage in the House of Lords at time of writing) we see the ever-expanding trend of asset protection in this space – see this article written by our Andre Yeghiazarian for further information. |
[1] https://www.sec.gov/newsroom/speeches-statements/statement-certain-proof-work-mining-activities-032025#_ftn10
[2] https://www.sec.gov/newsroom/speeches-statements/crenshaw-statement-crypto-mining-032025
[3] Section 2(a)(1) of the Securities Act of 1933 (the “Securities Act”) and Section 3(a)(10) of the Securities Exchange Act of 1934 (the “Exchange Act”
[4] EC v. W.J. Howey Co. 328 U.S. 293 (1946 ), The “Howey test”
[5] https://www.sec.gov/newsroom/speeches-statements
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