Bitcoin offices in Istanbul, Turkey, on May 11, 2022.
Umit Turhan Coskun/NurPhoto via Getty Images
New York State Assemblymember Anna Kelles is tired of all the fear-mongering about the bill she wrote — and sponsored — to place a two-year moratorium on certain types of new cryptocurrency mines in the state. The fate of the measure, which passed the state senate in the wee hours of Friday morning, rests in the hands of Governor Kathy Hochul, who could sign it into law or veto it.
“It’s important to understand that it’s not a ban,” Kelles said in a call with CNBC on Friday.
“It’s like a three-page bill. So it would be wonderful to just have people read it, but it often ends up being an interpretation based on emotions.”
The legislation aims to curb the state’s carbon footprint by cracking down on crypto mines that meet very specific criteria.
For one, they need to use the energy-intensive proof-of-work authentication method to validate blockchain transactions. Second, they must draw electricity from power plants that burn fossil fuels. Within that subcategory of mines, the measure only applies to those looking to expand or renew permits, while new entrants would not be allowed to come online.
Proof-of-work mining, which requires sophisticated gear and a whole lot of electricity, is virtually synonymous with bitcoin. Ethereum is switching to a less energy-intensive process, but will still use this method for at least for another few months.
“If there is a cryptocurrency mining operation, like there is one in Syracuse, where there are thousands of cryptocurrency mining computer processors, and they are directly tied into the grid: It is not a moratorium on that facility,” explained Kelles, who disclosed to CNBC that she does not own any cryptocurrencies but actively researches the sector.
In addition, it won’t affect existing operations in power plants because it’s not retroactive, nor will it impact “boutique or small-scale cryptocurrency miners that are doing, you know, four, five, ten, twenty computers in their basement,” she said.
Kelles says that her bill is essentially just a big pause button, designed to halt the actions of a corner of the state’s crypto mining industry running on coal- and natural gas-based power plants. Those energy sources interfere with the state’s aggressive climate laws requiring it to become net-neutral in its greenhouse gas emissions by 2050.
“It’s very narrow, and it won’t, in any way, affect anyone’s ability to buy, use, sell or invest in any cryptocurrency, including any cryptocurrency that is based off of proof-of-work validation methods like bitcoin,” continued Kelles.
Crypto bloc blowback
The crypto mining industry has banded together to challenge the legislation.
Miners tell CNBC that even though this bill is relatively narrow, they’re concerned about the possibility of regulatory creep.
“A moratorium and ban on how a miner sources energy — behind the meter versus grid — is not hospitable to miners,” said Marathon Digital’s Fred Thiel.
“New York has a grid congestion issue which is not at all impacted by behind-the-meter energy consumption,” continued Thiel. “In the end, this is sending a message to miners to stay away from New York, because these are only the first steps in what may become a wholesale ban of mining in the state.”
Miners make large capital investments that can require up to five years to provide a payback, plus return on investment. Thiel says that no company is willing to risk investing in a state where after two years, or even sooner, they might be forced to shut down and relocate.
Kelles tells CNBC that crypto miners challenging the bill sound a whole lot like the oil and gas industry. She says both use lines, such as, “If you do this, in the future, it will put a damper on free trade and free commerce – and any regulation is bad.”
She also isn’t worried about crypto miners leaving New York because ultimately, like any company, their interest is profits.
Miners at scale compete in a low-margin industry where their only variable cost is typically energy, so they are incentivized to migrate to the world’s cheapest sources of power – which also tend to be renewable. New York is a bastion of cheap and renewable energy, which is a huge draw for the industry.
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, and the state produces more hydroelectric power than any other state east of the Rocky Mountains.
“The oldest and largest cryptocurrency mining operation in the country is in New York State, and it is fully on hydroelectric. Hydroelectric can’t be picked up and moved,” said Kelles, who also noted that hydropower is the cheapest form of renewable energy.
In addition, the state has a chilly climate, which means less energy is needed to cool down the banks of computers used in crypto mining. New York has a lot of abandoned industrial infrastructure that’s ripe for repurposing, as well.
“To say that miners can pick up and leave and go to any state and have access to that form of energy…I think that it is fear-mongering to say that,” said Kelles.
However, some data suggests miners began leaving New York for friendlier political jurisdictions like Wyoming and Texas last year, ahead of the anticipated crackdown. Data from digital currency company Foundry shows that New York’s share of the bitcoin mining network dropped from 20% to 10% between Oct. 2021 and the end of January.
“Our customers are being scared off from investing in New York state,” said Kevin Zhang of crypto mining pool 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.
Deciding who to regulate
The real sticking point of the legislation comes down to the question of who to regulate: The proof-of-work crypto miners or the energy generators.
“It is a two-year moratorium on the use of power plants,” Kelles said. “Some of my colleagues say, ‘You know, this is really a power plant bill.'”
That logic irks some crypto miners.
“If this was only about refiring coal-fired plants then it would be much easier – and more fair – to just ban refiring coal-fired plants,” said Thiel. “Problem solved.”
Some of the biggest names in bitcoin — including Jack Dorsey, Tom Lee, Nic Carter, and Michael Saylor — recently co-signed a letter to the Environmental Protection Agency in which they took issue with congressional Democrats conflating data centers with power generation facilities. The issue was totally separate from New York’s moratorium bill, but the same reasoning applies.
The rebuttal letter said data centers that contain “miners″ are no different than data centers owned and operated by Amazon, Apple, Google, Meta, and Microsoft. According to the letter, each is just a building in which electricity powers IT equipment to run computing workloads.
“Regulating what data centers allow their computers to do would be a massive shift in policy in the United States,” the letter read.
Kelles says the New York bill isn’t singling out crypto miners over other large energy consumers — it’s just that “there are no other energy consumers that are buying power plants.”
“This is not about the industry, this is about the use of power plants,” she said.
But Castle Island Venture’s Nic Carter makes the case that New York is now “regulating the contents of the data center” and has effectively “banned a kind of computation.”
“They’re directly controlling what constitutes a valid use of power,” Carter wrote in a tweet.
Unemotional policy decisions
Kelles says the key here is to make sure the state isn’t making emotionally or politically based decisions. She says that’s why the second half of the bill, which requires the state government to evaluate the impact of the industry, is the most important part of it.
“Our scientific experts and environmental experts will be collecting data about the industry’s impact on our ability to reach our CLCPA goals,” she said, referring to the Climate Leadership and Community Protection Act. The CLCPA is “among the most ambitious climate laws in the world” and requires New York to reduce economy-wide greenhouse gas emissions 40% by 2030 and no less than 85% by 2050 (from 1990 levels).
Kelles says the two-year moratorium on the purchasing of fossil fuel-based power plants in New York will give scientists and experts from the Department of Environmental Conservation the time they need to complete a comprehensive and transparent environmental impact statement.
“The charge for them, as outlined in the bill, is to evaluate the impact of the cryptocurrency mining industry on our ability to reach our CLCPA goals,” continued Kelles.
It is unclear whether the investigation will also examine the ways in which proof-of-work miners might help with grid resilience and incentivizing the buildout of renewable infrastructure.
Texas, for example, has served as a case study in how bitcoin mines can help stabilize power grids by ensuring that demand is always even with supply.
Bitcoin miners have also improved the economics of renewables. When these energy buyers co-locate with renewables, it creates a financial incentive for buildout and improves the core economics of renewable power production, which has been fraught with volatility.