Regulators and Bitcoin
Regulators view Bitcoin and other proof-of-work cryptocurrencies as commodities, but there are still risks for mining firms when it comes to securities regulations. Bitcoin maximalists, who see Bitcoin as a commodity rather than a security, have supported the SEC’s efforts to regulate the crypto industry. Bitcoin dominance has increased as a result of the SEC’s actions.
The Nuance of Bitcoin Mining
Bitcoin miners can still be subject to SEC risk if they wrap commodity bitcoin in securities contracts. Early SEC actions targeted cloud miners, who offered colocation and management services. Cloud mining contracts were seen as securities because they implied a performance standard. However, many cloud miners engaged in fraud and mismanagement, leading to a stain on the industry’s reputation.
The Rise of Hosted Mining
Hosted mining, also known as mining as a service, has emerged as a safer alternative to cloud mining. Instead of selling hashrate, hosted mining firms sell specific machines and charge monthly service fees for remote management. This model leaves less room for deception and allows customers to monitor their machines in real time. Hosted mining services are seen as a potential improvement on the flawed cloud mining model.
The Distinction Between Cloud Mining and Hosted Mining
The distinction between cloud mining and hosted mining is similar to the distinction between different models for offering third-party staking services for proof-of-stake systems. Kraken’s staking service engaged in more intermediary management, making it a risk-bearing yield product and subject to SEC fines. Coinbase, on the other hand, acted as a direct conduit to on-chain staking systems and is fighting classification as a securities offering.
The Risk of Turning Bitcoin Mining into Securities Contracts
Turning Bitcoin mining into securities contracts can be risky. Fraudulent crypto “bank” Celsius was implicated in SEC claims for violating securities laws due to its mining operation. Investors handing over money in expectation of returns created by a third party can turn a seemingly innocuous activity into a fraught securities contract.
Hot Take: The Challenges of Mining and Securities
Mining Bitcoin and other proof-of-work cryptocurrencies may be seen as a commodity, but there are still risks of falling into securities regulations. Cloud mining has faced scrutiny due to fraud and mismanagement, while hosted mining offers a potentially safer alternative. The distinction between different mining models and third-party services can determine whether they are subject to securities regulations. It is important for miners to navigate these challenges to avoid regulatory issues.
Cora Skindell is a standout figure in the world of cryptocurrency analysis, research, and editorial expertise. As a seasoned crypto analyst and researcher, Cora’s insights delve deep into the complexities of digital assets, resonating with a diverse audience. Her ability to dissect intricate crypto concepts is complemented by her adept editorial skills, enabling her to distill complex information into easily understandable content. Cora’s contributions serve as a valuable compass for both seasoned and novice individuals seeking to navigate the dynamic landscape of cryptocurrencies. With a keen eye for detail and a commitment to accuracy, she empowers informed decision-making in the ever-evolving crypto space.
