The U.S. SEC recently released a pivotal statement regarding the regulatory stance on **Proof-of-Work** (PoW) mining activities, shedding light on how federal **securities laws** apply to the evolving **crypto asset** landscape. This statement, issued by the SEC’s Division of Corporate Finance, clarifies the parameters around the mining of **crypto assets** linked to the operational functionalities of public, permissionless networks. Such assets, recognized as **Covered Crypto Assets**, are obtained through participation in the network’s consensus mechanisms or in maintaining network security and functionality, a process termed **Protocol Mining**.
In light of Sections 2(a)(1) of the **Securities Act** and 3(a)(10) of the **Exchange Act**, the SEC underlines that **Covered Crypto Assets** do not qualify as traditional **securities** like stocks or bonds. Instead, the evaluation of transactions involving these assets during Protocol Mining is grounded in the **investment contract** test from the landmark SEC v. W.J. Howey Co. case, emphasizing the importance of economic realities over formal definitions. This nuanced approach aims to create a clearer regulatory framework amidst the complexities of the crypto sector.