Following a morning vote in Albany on Friday, New York lawmakers passed a bill to ban certain bitcoin mining operations that run on carbon-based energy sources. The measure is now aimed at the office of Governor Kathy Hochul, who could sign it as a law or veto it.
If Hochul signs the bill, it would make New York the first state in the country to ban blockchain technology infrastructure, according to Perianne Boring, founder and president of the Digital Chamber of Commerce. Industry experts also tell CNBC that it could have a domino effect in the United States, which is currently at the forefront of the global bitcoin mining industry, which accounts for 38% of the world’s miners.
The New York bill, which was previously passed by the state assembly in late April before it was addressed by the state Senate, calls for a two-year moratorium on certain cryptocurrency mining operations that they 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. Ethereum is switching to a less energy-intensive process, but will still use this method for at least a few more months.
The push for an eleven-hour vote came when the leadership in the state capital managed to turn some of the previously undecided senators upside down.
Lawmakers who support the legislation say they seek to curb the state’s carbon footprint by cracking down on mines that use electricity from power plants that burn fossil fuels. If it is approved for two years unless a mining test company uses 100% renewable energy, permits will not be allowed to be extended or renewed, and new entrants will not be able to connect.
The net effect of this, according to Boring, would be to weaken New York’s economy by forcing companies to take jobs elsewhere.
“This is a significant setback for the state and will stifle its future as a leader in global technology and financial services. Most importantly, this decision will eliminate critical jobs from unions and further deprive financial access to the many bankless people living in the Empire State Building, “Boring told CNBC.
It’s a sentiment echoed by Galaxy Digital’s Amando Fabiano, who says “New York is setting a bad precedent that other states could follow.”
As for the timetable, the law would come into force as soon as the governor authorized it.
The irony of banning bitcoin mining
A section of the bill involves conducting a statewide study on the environmental impact of labor testing mining operations on New York’s ability to meet the aggressive climate goals set under the Act. of climate leadership and community protection, which requires a reduction in New York’s greenhouse gas emissions. 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 truly a leader in compliance with this 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 combination of sustainable electricity is closer to 80% for its members mining in New York State.
“New York’s regulatory environment will not only stop its goal, the carbon-based fuel mining test, but it will also discourage new renewable energy-based miners from doing business with the state because of the possibility of ‘more regulation’. said John Warren, CEO of institutional-grade bitcoin mining company GEM Mining.
One-third of the generation in New York State comes from renewable energy sources, according to the latest available data from the U.S. Energy Information Administration. New York has its own nuclear power plants for its goal of 100% carbon-free electricity, and the state produces more hydroelectric power than any other state in the eastern Rocky Mountains.
The state also has a cold climate, which means less energy is needed to cool computer banks used in cryptographic mining, as well as a large amount of abandoned industrial infrastructure that is ripe for reuse.
In a conversation at the Bitcoin 2022 conference in Miami in April, former presidential candidate and New Yorker Andrew Yang told CNBC that when he talks to people in the industry, he has found that mining operations can help develop demand. from a renewable energy source.
“In my mind, many of these things will end up driving activity to other places that may not achieve the goal of policymakers,” Yang said.
Some in the industry do not expect the state to formalize a ban before taking action.
Digital currency company Foundry’s data show that New York’s share of the bitcoin mining network fell from 20% to 10% in a matter of months as miners began migrating to friendlier jurisdictions. with cryptocurrencies from other parts of the country.
“Our clients are afraid to invest in New York State,” said Kevin Zhang of Foundry.
“Even of Foundry’s $ 500 million in capital deployments for mining equipment, less than 5% has gone to New York because of the hostile political landscape,” Zhang continued.
The domino effect
If the governor signs the moratorium on cryptographic mining, it could have a number of side effects.
Beyond the possibility of stifling investment in more sustainable energy sources, industry advocates tell CNBC that each of these facilities has a significant economic impact with many local vendors made up of electricians, engineers and workers. construction. According to experts, an exodus of cryptocurrencies could result in jobs and tax money 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 provide excellent and well-paid 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 law, so there is also the possibility of an imitation phenomenon happening across the country.
“Other blue states often follow the example of New York State and that would give them an easy-to-replicate template,” said Zhang, Foundry Mining Strategy SVP.
“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 massive,” he said. Zhang continued.
However, many others in the industry believe that concerns about the consequences of a mining moratorium in New York are exaggerated.
Veteran bitcoin 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 has to be located in jurisdictions that want to have data centers within their borders … If you don’t know, you’ll 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, for example, has legislators that support cryptography, a deregulated power grid with spot prices in real time, and access to significant excess renewable energy, as well as stranded or burning natural gas. According to Alex Brammer of Luxor Mining, a cryptocurrency group built for advanced miners, compatibility with state regulations toward 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 agreements and energy purchase agreements that are in various stages of negotiation is huge.”
A national mining mandate
Meanwhile, the Biden Administration is formulating its own policy aimed at bitcoin mining, with the aim of mitigating energy consumption and emissions.
The White House Office of Science and Technology Policy is examining the connections between distributed logging technology and energy transitions, the potential of these technologies to prevent or advance efforts to address climate change at home and abroad. and the environmental impacts of these technologies. according to Dr. Costa Samaras, who is the chief deputy director of energy.
The effort is one of the detailed results in the president’s executive order issued in March.
Samaras tells CNBC that the White House is specifically examining the role these technologies can play in accounting for greenhouse gas emissions, as well as potentially supporting the construction of a clean power grid.
They are also “looking at the implications for energy policy, including how cryptocurrencies can affect the management and reliability of the network.”
It is unclear whether these recommendations, which will be introduced in September, will culminate in the federal Mining Act. At the moment, the states are calling the shots.