The state of New York wants to ban new bitcoin mining operations, a move that some industry insiders fear could have a domino effect across the U.S.
The bill, which is swiftly making its way through the state capitol in Albany, calls for a two-year moratorium on certain cryptocurrency mining operations that use proof-of-work authentication methods to validate blockchain transactions. Proof-of-work mining, which requires sophisticated gear and a whole lot of electricity, is used to create bitcoin, though ethereum — at least for another few months — still uses this method to secure its network.
Lawmakers sponsoring the legislation say they are looking 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 come online.
The net effect of this, according to Galaxy Digital’s Head of Mining Amanda Fabiano, would be to weaken New York’s economy by forcing businesses to take 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,” said Fabiano, echoing a concern held by many in the crypto industry.
At this point, the State Assembly has passed the bill, and it is now under consideration by the Democratic-controlled State Senate, which will soon vote on the measure. If it passes, it will land on the desk of Governor Kathy Hochul, 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.
In some ways, 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 sources of power – which also tend to be renewable. A third of New York’s in-state generation comes from renewables, according to the latest available data from the U.S. Energy Information Administration. New York counts its nuclear power plants toward its 100% carbon free electricity goal, and the state produces more hydroelectric power than any other state east of the Rocky Mountains.
The state also has a chilly climate, which means less energy is needed to cool down the banks of computers used in crypto mining, as well as a lot of abandoned industrial infrastructure that’s ripe for repurposing. Crypto mining company Coinmint, for example, operates a facility in a former Alcoa aluminum smelter in Massena, which taps into the area’s abundant wind power, plus the cheap electricity produced from the dams that line the St. Lawrence River. The Massena site, at 435 megawatts of transformer capacity, is billed as one of the largest bitcoin mining facilities in the U.S.
But not all operations run on renewables. Companies like Greenidge Generation, which operates its bitcoin mining facility in a former coal plant retrofitted for natural gas, have drawn the ire of some lawmakers who now want to stamp out 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 statewide. That move failed after a union representing electrical workers came out in defense of the mining industry.
This latest effort, however, appears to have real teeth.
One section of the bill currently under consideration in Albany involves conducting a statewide study of the environmental impact of proof-of-work mining operations on New York’s ability to reach aggressive climate goals set under the Climate Leadership and Community Protection Act, which requires New York’s greenhouse gas emissions be cut by 85% by 2050. Boring tells CNBC the recent swell of support in favor of this year’s proposed ban has a whole lot to do with this mandate to transition to sustainable energy.
“Proof-of-work mining has the potential to lead the global transition to more sustainable energy,” Boring told CNBC’s Crypto World, pointing to the irony of the moratorium. “The bitcoin mining industry is actually leading in terms of compliance with that Act.”
The sustainable energy mix of the global bitcoin mining industry today is estimated to be just under 60%, and the Digital Chamber of Commerce has found that the sustainable electricity mix is closer to 80% for its members mining in the state of New York.
“The regulatory environment in New York will not only halt their target – carbon-based fuel proof of work mining – but will also likely discourage new, renewable-based miners from doing business with the state due to the possibility of more regulatory creep,” 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 presidential candidate and New Yorker Andrew Yang told CNBC that when he speaks to folks in the industry, he has found mining operations can help develop demand for a renewable source of energy.
“In my mind, a lot of this stuff is going to end up pushing activity to other places that might not achieve the goal of the policymakers,” said Yang.
Some in the industry aren’t waiting for lawmakers to make a ban official before taking action.
Data from digital currency company Foundry shows that New York’s share of the bitcoin mining network dropped from 20% to 10% in a matter of months, as miners begin migrating to more crypto-friendly jurisdictions in other parts of the country.
“Our customers are being scared off from investing in New York state,” said Kevin Zhang of Foundry.
“Even from Foundry’s deployments of $500 million in capital towards mining equipment, less than 5% has gone to New York because of the unfriendly political landscape,” continued Zhang.
If New York passes a crypto mining moratorium, it could have a number of follow-on effects.
Beyond potentially stifling investment in more sustainable energy sources, industry advocates tell CNBC that each of these facilities drives significant economic impact with many local vendors consisting of electricians, engineers, and construction workers. An exodus of crypto miners, according to experts, could translate to jobs and tax dollars moving out of state.
“There are many unions labor unions who are against this bill because it could have dire economic consequences,” said Boring. “Bitcoin mining operations are providing high-paying and high-grade, great jobs for local communities. One of our members, their average pay is $80,000 a 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 rippling across the country.
“Other blue states often follow the lead of New York state and this would be giving them an easy template to replicate,” said Zhang, Foundry’s SVP 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 scale and develop in the future are massive,” continued Zhang.
However, many others in the industry think concerns over the fallout of a mining moratorium in New York are overblown.
Veteran bitcoin miners like Core Scientific co-founder Darin Feinstein say the industry already knows New York is generally hostile to the crypto mining business.
“There’s no reason to go into a region that doesn’t want you,” said Feinstein. “Bitcoin miners are really a data center business, and the data center needs to locate 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 conducting business in a region that doesn’t want your business.”
Feinstein and other miners point out that there are plenty of friendlier jurisdictions: Georgia, North Carolina, North Dakota, Texas and Wyoming have all become major mining destinations.
Texas has crypto-friendly lawmakers, a deregulated power grid with real-time spot pricing, and access to significant excess renewable energy, as well as stranded or flared natural gas. The state’s regulatory friendliness toward miners also makes the industry very predictable, according to Alex Brammer of Luxor Mining, a cryptocurrency pool built for advanced miners.
“It is a very attractive environment for miners to deploy large amounts of capital in,” he said. “The sheer number of land deals and power purchase agreements that are in various stages of negotiation is enormous.”
Texas Blockchain Council President Lee Bratcher tells CNBC that if New York does send the bill to the Governor’s desk, New York’s hashrate (an industry term used to describe the collective computing power of the bitcoin network) will just flow to other jurisdictions within the United States that 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 great deal of energy, both hydrocarbon energy and green energy. We should be using more of that energy in state to produce bitcoin,” said Lummis, who went on to describe the process of using other wasted natural gas to power bitcoin mining operations.
“When China banned bitcoin mining, it actually proved a benefit here in the United States in that miners just moved,” continued Lummis, referring to China’s countrywide ban on the entire industry in May 2021.
Feinstein tells CNBC that if New York wants 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 economic financial accounting technology that’s been invented by humans ever.”