On March 20, 2025, the SEC’s Division of Corporation Finance (“CorpFin”) issued a statement on certain proof-of-work mining activities. Illustrating CorpFin’s evolving understanding of the digital world, the statement drills down to a very specific aspect of the crypto mining industry.
The CorpFin statement “addresses 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 such network.” In the statement, CorpFin refers to these mined crypto assets as “Covered Crypto Assets” and the mining as “Protocol Mining.”
Protocol Mining
Networks utilizing Protocol Mining are governed by computer code eliminating the need for designated trusted intermediaries. The programmed software enforces certain network rules, technical requirements, and rewards distributions. Public, permissionless networks allow anyone to participate in the network’s operation, including the validation of new transactions to the network in accordance with the network’s consensus mechanism.
“Proof-of-work” is a consensus mechanism that incentivizes network transaction validation by rewarding network participants, called “miners,” who operate nodes adding computational resources to the network. The proof-of-work validates transactions resulting in adding new blocks to the network. Proof-of-work (unlike staking) involves the use of a miner’s computational resources and as such does not require that the miner own the network’s Covered Crypto Assets in order to validate transactions.
More particularly, a miner’s computer solves complex mathematical equations. Miners compete with their peers to solve these equations, and the first miner to correctly solve a puzzle accepts batches of transactions from other nodes and validates new blocks of transactions to the network. Once a miner solves the equation, the information is broadcast to other miners to verify its accuracy. In exchange, the miner receives rewards in the form of newly “minted” or created Covered Crypto Assets.
In addition to solo miners, networks allow for the creation of “mining pools” allowing miners to combine computational resources. Mining pools can take on different formats but in general, a pool operator 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 which is taken off the top of any rewards granted by the network.
A proof-of-work network is designed to secure the network by requiring miners to spend considerable time and computational resources to authenticate transactions. The process reduces (or even eliminates) the ability to alter or otherwise fraudulently effect the network.
It is the view of CorpFin that mining activity, as described above, does not involve the offer or sale of securities within the meaning of either the Securities Act or Exchange Act. Accordingly, it is the SEC’s view that participants in mining activities do not need to register transactions with the SEC under the Securities Act or fall within one of the Securities Act’s exemptions from registration in connection with these mining activities.
The following mining activities are covered by CorpFin’s statement: (i) mining Covered Crypto Assets on a proof-of-work network (whether solo or part of a mining pool); and (ii) the roles of mining pools and pool operators involved in the Protocol Mining process, including their roles in connection with the earning and distribution of Rewards.
In reaching its conclusion, CorpFin applies the Howey Test to Covered Crypto Asset in the context of Protocol Mining. The Howey Test requires an evaluation of 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. Generally “efforts of others” is satisfied when “the efforts made by those other than the investor are the undeniably significant ones, those essential managerial efforts which affect the failure or success of the enterprise.” For a more indepth discussion of the Howey Test see HERE and
Solo mining is not undertaken with a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others. Rather a miner contributes its own computational resources and in order to earn a reward that miner must follow the programmed protocol. A miner’s expectation to earn a reward does not involve any third party’s managerial or entrepreneurial efforts. Rewards are payments to the miner in exchange for services it provides to the network rather than profits derived from the entrepreneurial or managerial efforts of others.
CorpFin applies the same analysis to mining pools. By adding its own computational resources to a mining pool, the miner merely is engaging in an administrative or ministerial activity to secure the network, validate transactions and add new blocks, and receive rewards. Even though a pool operators performs managerial functions, it is the individual miners that perform the actual mining activity that can result in a reward. While some of the pool operator’s activities may benefit the group of miners, any such efforts are not sufficient to satisfy Howey’s “efforts of others” requirement because miners primarily are relying on the computational resources that they provide in conjunction with other members to the mining pool to earn profits.
The Author
Laura Anthony, Esq.
Founding Partner
Anthony, Linder & Cacomanolis
A Corporate and Securities Law Firm
Securities attorney Laura Anthony and her experienced legal team provide ongoing corporate counsel to small and mid-size private companies, public companies as well as private companies going public on the Nasdaq, NYSE American or over-the-counter market, such as the OTCQB and OTCQX. For more than two decades Anthony, Linder & Cacomanolis, PLLC has served clients providing fast, personalized, cutting-edge legal service. The firm’s reputation and relationships provide invaluable resources to clients including introductions to investment bankers, broker-dealers, institutional investors and other strategic alliances. The firm’s focus includes, but is not limited to, compliance with the Securities Act of 1933 offer sale and registration requirements, including private placement transactions under Regulation D and Regulation S and PIPE Transactions, securities token offerings and initial coin offerings, Regulation A/A+ offerings, as well as registration statements on Forms S-1, S-3, S-8 and merger registrations on Form S-4; compliance with the Securities Exchange Act of 1934, including registration on Form 10, reporting on Forms 10-Q, 10-K and 8-K, and 14C Information and 14A Proxy Statements; all forms of going public transactions; mergers and acquisitions including both reverse mergers and forward mergers; applications to and compliance with the corporate governance requirements of securities exchanges including Nasdaq and NYSE American; general corporate; and general contract and business transactions. Ms. Anthony and her firm represent both target and acquiring companies in merger and acquisition transactions, including the preparation of transaction documents such as merger agreements, share exchange agreements, stock purchase agreements, asset purchase agreements and reorganization agreements. The ALC legal team assists Pubcos in complying with the requirements of federal and state securities laws and SROs such as FINRA for 15c2-11 applications, corporate name changes, reverse and forward splits and changes of domicile. Ms. Anthony is also the author of SecuritiesLawBlog.com, the small-cap and middle market’s top source for industry news, and the producer and host of LawCast.com, Corporate Finance in Focus. In addition to many other major metropolitan areas, the firm currently represents clients in New York, Los Angeles, Miami, Boca Raton, West Palm Beach, Atlanta, Phoenix, Scottsdale, Charlotte, Cincinnati, Cleveland, Washington, D.C., Denver, Tampa, Detroit and Dallas.
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Ms. Anthony is an honors graduate from Florida State University College of Law and has been practicing law since 1993.
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