New York bitcoin mining moratorium underway through the State House

The state of New York wants to ban the new bitcoin mining operations, a move that some insiders fear may have a domino effect in the United States

the invoice, which is quickly making its way through the state capital of Albany, is calling for a two-year moratorium on some cryptocurrency mining operations that use proof-of-work authentication methods to validate blockchain transactions. However, proof-of-work mining is used to create bitcoin, which requires sophisticated equipment and a lot of electricity ethereumat least for a few more months – still uses this method to secure his network.

Lawmakers sponsoring the legislation say they are trying to curb the state’s carbon footprint by cracking down on mines that use electricity from power plants that burn fossil fuels. For two years, unless a proof-of-work mining company uses 100% renewable energy, it would not be allowed to expand or renew permits, and new entrants would not be allowed to go online.

The net effect of this, according to Amanda Fabiano, Head of Mining at Galaxy Digital, would be to weaken the New York economy by forcing companies to find work elsewhere.

“New York will be left behind, losing to other states at best and, at worst, to other more progressive nations. New York is setting a bad precedent that other states may follow,” Fabiano said, echoing a concern supported by many in the cryptocurrency industry.

At this point, the The State Assembly approved the bill, and is now being examined by the democratically controlled State Senate, which will soon vote on the measure. If it passes, it will land on Governor Kathy Hochul’s desk, who could sign it into law or veto it.

“If it passes, it would make New York the first state in the country to ban blockchain technology infrastructure,” explained Perianne Boring. founder and president of the Digital Chamber of Commerce.

New York’s love-hate relationship with cryptocurrencies

In a way, New York offers dream conditions to bitcoin miners.

Miners compete in a low-margin industry where the only variable cost is typically energy, so they have a strong economic incentive to migrate to the world’s cheapest energy sources, which also tend to be renewable. One-third of New York’s state production comes from renewable sources, according to the latest available US Energy Information Administration data. New York counts its nuclear power plants towards its 100% carbon-free electricity goal and the state produces more hydroelectricity than any other state east of the Rockies.

The state also has a cold climate, which means less energy is needed to cool the banks of the computers used in cryptocurrency mining, as well as many abandoned industrial infrastructures that are ripe for reuse. Cryptocurrency mining company Coinmint, for example, operates a facility in a former Alcoa aluminum smelter in Massena, which draws on the area’s abundant wind power, as well as low-cost electricity produced by the dams that line the St. Lawrence River. . The Massena site, with a transformer capacity of 435 megawatts, is ranked as one of the largest bitcoin mining facilities in the United States

But not all operations run on renewable energy. Companies like Greenidge Generation, which operates its bitcoin mining facility in a former coal-fired power plant adapted for natural gas, have drawn the ire of some lawmakers who now want to eliminate the state’s crypto mining industry.

The northern border town of Plattsburgh temporarily enacted its own local ban on cryptocurrency mining operations in 2018, and just last year, politicians tried to shut down parts of the mining industry across the state. That move failed after a union representing electrical workers came out in defense of the mining industry.

This latter effort, however, appears to have real teeth.

A section of the bill currently under consideration in Albany calls for conducting a statewide study of the environmental impact of proof-of-work mining operations on New York’s ability to meet aggressive climate goals set by Climate Leadership and Community Protection. Act, which requires the New York greenhouse gas emissions to be cut by 85% by 2050. Boring tells CNBC that the recent wave of support for the proposed ban this year has a lot to do with this sustainable energy transition mandate.

“Proof-of-work mining has the potential to drive the global transition to more sustainable energy,” Boring told CNBC’s Crypto World, noting the irony of the moratorium. “The bitcoin mining industry is actually a leader in terms of compliance with that law.”

The sustainable energy mix of the global bitcoin mining industry today is estimated to be just under 60%, and the Digital Chamber of Commerce found that the sustainable electricity mix is ​​closer to 80% for its mining members in the state of. New York .

“The regulatory environment in New York will not only stop their target – mining job-proof carbon-based fuel – but it will also likely discourage new renewable-based miners from doing business with the state due to the possibility of a increased regulatory scrolling, “said John Warren, CEO of an institutional-grade bitcoin mining company GEM extraction.

In a conversation at last month’s Bitcoin 2022 conference in Miami, former presidential candidate and New Yorker Andrew Yang told CNBC that when speaking to people in the industry, he found that mining operations can help develop demand for a source. of renewable energy.

“In my mind, a lot of these things will end up pushing business to other places that may not meet the politicians’ goal,” Yang said.

Some in the industry aren’t waiting for lawmakers to make a ban official before taking action.

Data from digital currency firm Foundry shows that New York’s share of the bitcoin mining network has dropped from 20% to 10% in a matter of months as miners begin migrating to more cryptocurrency jurisdictions in other parts of the country. .

“Our clients are scared of investing in upstate New York,” said Kevin Zhang of Foundry.

“Even since Foundry’s $ 500 million of capital was deployed to mining equipment, less than 5 percent went to New York due to the hostile political landscape,” Zhang continued.

The domino effect

If New York passes a moratorium on cryptocurrency mining, it could have a number of side effects.

Beyond the potentially stifling investments in more sustainable energy sources, industry advocates tell CNBC that each of these facilities has a significant economic impact with many local suppliers consisting of electricians, engineers and construction workers. An exodus of cryptocurrencies, experts say, could result in dollar jobs and taxes moving out of state.

“There are many unions who are against this bill because it could have serious economic consequences,” said Boring. “Bitcoin mining operations are providing great and high-level jobs for local communities. One of our members, their average pay is $ 80,000 per year.”

As boring points out, New York is a leader when it comes to state legislation, so there is also the potential for a copycat phenomenon spreading across the country.

“Other blue states often follow New York state’s lead and that would give them a model that is easy to replicate,” said Zhang, Foundry’s senior vice president of mining strategy.

“Sure, the network will be fine – it survived a nation-state attack from China last summer – but the implications for where the technology will expand and develop in the future are huge,” Zhang continued.

However, many others in the industry believe concerns over the fallout from a mining moratorium in New York are overstated.

Veteran bitcoin miners like Core Scientific co-founder Darin Feinstein say the industry already knows New York is generally hostile to the cryptocurrency mining business.

“There’s no reason to go to a region that doesn’t want you,” Feinstein said. “Bitcoin miners are truly a data center business and the data center must be in jurisdictions that want to have data centers within their boundaries … If you are going to ignore that, you must face the consequences of conducting business in a region that does not want your business. “

Feinstein and other miners point out that there are many friendlier jurisdictions – Georgia, North Carolina, North Dakota, Texas, and Wyoming have all become major mining destinations.

Texas has crypto-compliant legislators, a deregulated power grid with real-time spot prices, and access to a significant amount of excess renewable energy, as well as blocked or burned natural gas. The state’s regulatory compatibility towards miners also makes the industry very predictable, according to Alex Brammer of Luxor Mining, a cryptocurrency pool created for advanced miners.

“It is a very attractive environment for miners to deploy large amounts of capital,” he said. “The number of land deals and energy purchase agreements that are in various stages of negotiation is huge.”

Texas Blockchain Council President Lee Bratcher tells CNBC that if New York sends the bill to the governor’s desk, the New York hashrate (an industry term used to describe the collective computing power of the bitcoin network) will simply flow to other jurisdictions. within the United States who understand the benefit to their constituents of job creation, tax revenue and renewable energy generation incentives offered by bitcoin miners.

Senator Cynthia Lummis, R-Wy., Explains the allure of mining in her state.

“In my state, we export a large amount of energy, both hydrocarbon energy and green energy. We should use more of that energy in the state to produce bitcoin,” said Lummis, who went on to describe the process of using other natural waste. gas to power bitcoin mining operations.

“When China banned bitcoin mining, it actually proved to be an advantage here in the US as the miners just moved in,” Lummis continued, referring to China’s national ban on the entire sector in May 2021.

Feinstein tells CNBC that if New York is to take a similar approach by banning the industry, “it’s a gift to every other state in America that wants to embrace the most important financial accounting technology that has ever been invented by humans.”