Following an early morning vote in Albany on Friday, lawmakers in New York passed a bill to ban certain bitcoin mining operations that run on carbon-based power sources. The measure now heads to the desk of Governor Kathy Hochul, who could sign it into 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 Chamber of Digital Commerce. Industry insiders also tell CNBC it could have a domino effect across the U.S., which is currently at the forefront of the global bitcoin mining industry, accounting for 38% of the world’s miners.
The New York bill, which previously passed the State Assembly in late April before heading to the State Senate, calls for a two-year moratorium on certain cryptocurrency mining operations which 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. Ethereum is switching to a less energy-intensive process, but will still use this method for at least for another few months.
The push for an eleventh-hour vote came as leadership in the state capitol managed to flip some of the senators who were previously undecided.
Lawmakers backing 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. If it passes — 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 Boring, would be to weaken New York’s economy by forcing businesses to take jobs elsewhere.
“This is a significant setback for the state and will stifle its future as a leader in technology and global financial services. More importantly, this decision will eliminate critical union jobs and further disenfranchise financial access to the many underbanked populations living in the Empire State,” Boring tells CNBC.
It is a sentiment echoed by Galaxy Digital’s Amando Fabiano, who says that “New York is setting a bad precedent that other states could follow.”
As for timing, the law would go into effect as soon as the governor signs off.
The irony of banning bitcoin mining
One section of the bill 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 Chamber of Digital 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.
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.
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 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 the state 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 began 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.
The domino effect
If the crypto mining moratorium is signed into law by the governor, 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 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, for example, 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.”
Meanwhile, the Biden Administration is formulating its own policy targeting bitcoin mining — with an aim to mitigate energy consumption and emissions.
The White House Office of Science and Technology Policy is examining the connections between distributed ledger technology and energy transitions, the potential for these technologies to impede or advance efforts to tackle climate change at home and abroad, and the impacts these technologies have on the environment, according to Dr. Costa Samaras, who is the principal assistant director for energy.
The effort is one of the deliverables spelled out in the president’s executive order that was issued in March.
Samaras tells CNBC that the White House is specifically examining the role these technologies might play in accounting for greenhouse gas emissions, as well as potentially supporting the buildout of a clean electricity grid.
They’re also “taking a look at the implications for energy policy, including how cryptocurrencies can affect grid management and reliability.”
It is unclear whether these recommendations, which are due in September, will culminate in federal law on proof-of-work mining. For now, states are calling the shots.