On March 21, the US SEC issued a "Statement on Certain Proof-of-Work Mining Activities," as part of its efforts to provide greater clarity on the application of federal securities laws in the crypto asset space. The Division of Corporation Finance expressed its views on certain activities (referred to as "mining") conducted on Proof-of-Work (PoW) networks.

The statement specifically addresses the mining of crypto assets that are closely tied to the programmatic functionality of public, permissionless networks, which are used to participate in or are obtained as a result of participating in the network's consensus mechanism, or are used to maintain or are obtained as a result of maintaining the technical operations and security of the network. We refer to these crypto assets as "Covered Crypto Assets" and their mining activities on PoW networks as "Protocol Mining."

Section 2(a)(1) of the Securities Act and Section 3(a)(10) of the Exchange Act define the term "security" by enumerating various financial instruments, including "stocks," "notes," and "bonds." Since Covered Crypto Assets do not constitute any of the financial instruments explicitly listed in the definition of "security," our analysis of certain transactions involving Covered Crypto Assets in the context of Protocol Mining is based on the "investment contract" test established in the case of SEC v. W.J. Howey Co., the "Howey Test," which is used to analyze arrangements or instruments that are not explicitly listed in the aforementioned statutory provisions, based on their "economic reality."