New York State wants to ban new bitcoin mining operations, a move some industry experts fear could have a domino effect in the US.
The bill, which is rapidly making its way through the state capital in Albany, calls for a two-year moratorium on certain cryptocurrency mining operations that use working test authentication methods to validate blockchain transactions. Job-proof mining, which requires sophisticated equipment and a lot of electricity, is used to create bitcoins, although ethereum, at least for other months, still uses this method to protect its network.
Lawmakers who sponsor the legislation say they are looking to curb the state’s carbon footprint by cracking down on electricity-fired mines that burn fossil fuels. For two years, unless a mining test company uses 100% renewable energy, permits would not be allowed to be extended or renewed, and new entrants would not be allowed to go online.
The net effect of this, according to Galaxy Digital mining chief Amanda Fabiano, would be to weaken New York’s economy by forcing companies to look for jobs elsewhere.
“New York will be left behind, losing to other states at best and, at worst, other more progressive nations. New York is setting a bad precedent that other states could follow,” Fabiano said, echoing a concern they maintained. many in cryptography. industry.
At this point, the The State Assembly passed the bill, and is now being considered by the Democratic-controlled state Senate, which will soon vote on the measure. If approved, it will land on the table of Governor Kathy Hochul, who could sign or veto it.
“If passed, it would make New York the first state in the country to ban blockchain technology infrastructure,” said Perianne Boring. founder and president of the Digital Chamber of Commerce.
NY’s love-hate relationship with crypto
Somehow, New York offers dream conditions for bitcoin miners.
Miners compete in a low-margin industry where the only variable cost is usually energy, so they have a strong economic incentive to migrate to the world’s cheapest energy sources, which are also often renewable. One-third of the generation in New York State comes from renewable energy, according to the latest available data from the U.S. Energy Information Administration. New York counts its nuclear power plants on its 100% carbon-free electricity target and the state produces more hydroelectric power than any other state east of the Rocky Mountains.
The state also has a cold climate, which means less energy is needed to cool the banks of computers used in cryptographic mining, as well as a large amount of abandoned industrial infrastructure that is ripe for reuse. Cryptographic mining company Coinmint, for example, operates a facility at a former Alcoa aluminum smelter in Massena, which harnesses the area’s abundant wind energy, as well as cheap electricity produced by dams along the San Lourenzo River. The Massena site, with a transformer capacity of 435 megawatts, is listed 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 facilities on a former coal-fired natural gas plant, have angered some lawmakers who now want to end the state’s crypto mining industry.
The northern border town of Plattsburgh has 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 electric workers came out in defense of the mining industry.
This last effort, however, seems to have real teeth.
A section of the bill currently being considered in Albany involves conducting a state study on the environmental impact of labor testing mining operations on New York’s ability to meet the aggressive climate targets set under the Climate Leadership Act and Community Protection, required by New York law. Greenhouse gas emissions will be reduced by 85% by 2050. Boring tells CNBC that the recent wave of support for this year’s proposed ban has a lot to do with this mandate to transition to sustainable energy.
“Job-proof mining has the potential to lead the global transition to more sustainable energy,” Boring told CNBC’s Crypto World, noting the irony of the moratorium. “The bitcoin mining industry is really a leader in enforcing that law.”
The global energy mix of the global bitcoin mining industry is estimated to be just under 60% today, and the Digital Chamber of Commerce has found that the sustainable electricity mix is closer to 80% for its mining members in New York State. .
“New York’s regulatory environment will not only halt its goal, carbon-based fuel testing, labor mining, but it will also discourage new renewable-base miners from doing business with the state due to the possibility of more fluency. regulations “. said John Warren, CEO of institutional-grade bitcoin mining company GEM Mining.
In a conversation at the Bitcoin 2022 conference last month in Miami, former New York presidential candidate Andrew Yang told CNBC that when he talks to industry, he found that mining operations can help develop demand for a renewable energy source.
“In my mind, many of these things will end up driving activity to other places that may not reach the goal of policymakers,” Yang said.
Some in the industry are not waiting for lawmakers to make the ban official before taking action.
Digital currency company Foundry’s data show 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-friendly jurisdictions in other parts of the country. .
“Our clients are afraid to invest in New York State,” said Kevin Zhang of Foundry.
“Despite Foundry’s $ 500 million deployment for mining equipment, less than 5% went to New York due to the hostile political landscape,” Zhang continued.
The domino effect
If New York approves a moratorium on cryptographic mining, it could have a number of side effects.
In addition to stifling investment in more sustainable energy sources, industry advocates tell CNBC that each of these facilities has a significant economic impact with many local suppliers made up of electricians, engineers, and construction workers. An exodus of cryptographic miners, experts say, could translate into jobs and tax dollars moving out of state.
“There are a lot of unions that are against this bill because it could have dire economic consequences,” Boring said. “Bitcoin mining operations are providing excellent, high-level jobs for local communities. One of our members, his average salary is $ 80,000 a year.”
As Boring points out, New York is a leader in state legislation, so there is also the potential for an imitation phenomenon to spread across the country.
“Other blue states often follow the example of New York State and this would give them an easy model to replicate,” said Zhang, senior vice president of Foundry Mining Strategy.
“Of course, the network will be fine, it survived an attack by the nation-state of China last summer, but the implications for where the technology will be scaled and developed in the future are huge,” Zhang continued.
However, many others in the industry think that concerns about the consequences of a mining moratorium in New York are exaggerated.
Veteran bitcoins miners like Core Scientific co-founder Darin Feinstein say the industry already knows that New York is generally hostile to the crypto mining business.
“There’s no reason to go into a region that doesn’t want you,” Feinstein said. “Bitcoin miners are really a data center business, and the data center must be located in jurisdictions that want to have data centers within their borders … If you’re going to ignore that, then you have to deal with the consequences of doing business in a region that doesn’t want your business “.
Feinstein and other miners point out that there are many more friendly jurisdictions: Georgia, North Carolina, North Dakota, Texas, and Wyoming have become major mining destinations.
Texas has legislators that support cryptocurrency, a deregulated power grid with real-time spot prices, and access to significant excess renewable energy, as well as stranded or burned natural gas. According to Alex Brammer of Luxor Mining, a cryptocurrency group built for advanced miners, state regulatory compatibility with miners also makes the industry very predictable.
“It’s a very attractive environment for miners to deploy large amounts of capital,” he said. “The large number of land and energy purchase agreements that are in various stages of negotiation is huge.”
Texas Blockchain Council Chairman Lee Bratcher told 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 only flow. to other jurisdictions within the United States. who understand the benefit to their constituents of the job creation, tax revenue, and renewable energy generation incentives that bitcoin miners bring.
Senator Cynthia Lummis, R-Wy., Explains the appeal of mining to her state.
“In my state, we export a lot of energy, both hydrocarbon energy and green energy. We should be using more of that energy in the state to produce bitcoins,” said Lummis, who described the process of using other natural waste. gas to power bitcoin mining operations.
“When China banned bitcoin mining, it actually showed a profit here in the United States because the miners had just moved,” Lummis continued. China’s national ban on the entire industry in May 2021.
Feinstein told CNBC that if New York wants to take a similar approach by banning industry, “it’s a gift to every other U.S. state that wants to adopt the most important economic financial accounting technology ever invented by humans.”