Marathon Digital Holdings Launches Mining Pool That Will Be Fully-Compliant With U.S. Regulations

May 5, 2021 03:30 PM
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Crypto mining firm Marathon Digital Holdings has launched a mining pool it claims will be fully compliant by only processing transactions that “meet U.S. regulatory standards.” We review what the application of such compliance measures could mean for BTC.

According to Marathon, which trades on the Nasdaq (MARA), the effort represents the first North American mining pool that will be compliant with U.S. regulations, including AML and Office of Foreign Asset Controls (OFAC, a department of the Treasury which oversees sanctions on foreign actors) standards. The pool involves the use of technology from DMG Blockchain, a firm describing itself as focusing on 2 main areas: “mining public blockchains and applying permissioned blockchain technology.” 

Using DMG’s tech, the pool will be able to “filter transactions” in order to “ensure that its mining pool adheres to AML regulations and that all transactions are compliant with OFAC’s standards.” The pool will attempt to deny the processing of any transactions found to be associated with the Treasury’s Specially Designated Nationals and Blocked Persons List. According to Marathon’s CEO, Merrick Okamoto, the firm believes that as a “publicly listed company… and as one focused on enabling more institutional adoption of [BTC], it is [their] responsibility to follow [U.S.] regulations.” Marathon will direct “100% of its hash rate to the new mining pool.”

In December 2020, OFAC announced settling with crypto custodian BitGo over allegations that due to “deficiencies'' regarding “sanctions compliance procedures,” the firm failed to prevent individuals residing in sanctioned jurisdictions from using its services. BitGo paid a USD 98,000 fine as part of the settlement. 

OFAC has previously-published wallet addresses associated with sanctioned individuals. According to the first such publication involving 2 Iranian nationals, “U.S. persons generally are prohibited from dealing with” sanctioned individuals. 

The BTC network was designed in a way that allows miners to discriminate between transactions. For example, miners can choose to process transactions which have paid higher fees. This approach is supported by BTC’s free-market ethos, which would foresee miners facilitating transactions in line with their own economic interests. As such, Marathon’s participation in BTC mining would not undermine the philosophy of the network. 

However, the geographical distribution of BTC mining implies that miners will remain in territories where U.S. sanctions aren’t recognized, i.e. sanctioned nations themselves. These miners would have little incentive not to process such transactions. Ultimately, while the Marathon strategy could add a nuance to BTC mining, we don’t expect a material impact on current functionality.

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FRNT Financial is a technology and sales layer that offers institutional and accredited investors access to various forms of exposure to crypto-assets. You can subscribe to FRNT Financial Morning Note at https://www.frnt.io/morningnote