MINING FOR ANSWERS: DECRYPTING THE SECURITIES PUZZLE OF CRYPTOMINING HOSTING CONTRACTS
In the evolving realm of financial innovation, cryptocurrency has promised to stand out as a potential disruptor to traditional financial systems. However, in the midst of this excitement, many have fallen prey to cryptocurrency scams and deceptive schemes, drawing attention from regulatory bodies meant to protect investors like the Securities and Exchange Commission (“SEC”). While the SEC has commented on the status of certain cryptocurrencies as securities, it has rarely addressed cryptomining, the complex and foundational process many cryptocurrencies like Bitcoin depend on for network security and integrity. Over the past decade, the cryptomining industry has expanded substantially and now increasingly involves arrangements to clients for the sale and hosting of mining equipment in specialized facilities.
Cryptomining hosting arrangements recently came under scrutiny with the SEC’s prosecution of Green United, signaling the possibility of these “hosting contracts” being categorized as securities. While the pending Green United case involves allegedly fraudulent activity that is distinguishable from industry standard hosting contracts, it still hints at the SEC’s stance on such contracts moving forward. However, this Article argues that standard hosting contracts do not meet the requisite criteria to be considered “investment contract” securities and are better conceptualized as mere service agreements. While investor protection is crucial, the complexity and novelty of cryptomining make federal securities law and regulation ill-suited to directly regulate this fledgling and highly technical industry.
PDF: http://journals.law.unc.edu\/ncjolt/wp-content/uploads/sites/4/2024/04/Alkoor-Final.pdf
Author: Waleed Alkoor
Volume 25, Issue 4