The Case for the Regulation of Bitcoin Mining as a Security
37 Pages Posted: 5 Feb 2015
Date Written: January 30, 2015
Bitcoin is rapidly increasing in use throughout the world. Instrumental to the Bitcoin system, the process for introducing new bitcoin into the system is known as “mining.” Mining involves the use of powerful computer systems and complex, computational algorithms to verify or validate prior bitcoin transactions. The reward for successfully undertaking this process is the creation and award of new bitcoin to the miner. Bitcoin mining has become a tedious and difficult process. The race to verify transactions, and thereby earn bitcoin, necessitates more sophisticated processes for verification and greater computational power.
Many bitcoin miners band together in groups called “pools” to create a powerful mining platform. Some miners invest time and effort to build or maintain a suitable computer system, while others passively provide money or other resources toward the creation of the mining system. Many such mining pools have grown to allow individuals to collectively contribute effort to the transaction verification process in exchange for an interest in the proceeds from the mining activity. The bitcoin mining pool has largely escaped regulation. This paper argues that the mining pool should be regulated under the existing federal securities regulation regime.
Keywords: Bitcoin, Securities, Virtual Currency, Regulation
JEL Classification: K22, G18, O30
Suggested Citation: Suggested Citation