While many states across the US are leaving no stones unturned to entice crypto mining companies to set up shop in their respective jurisdictions, New York’s lawmakers are moving in the opposite direction.
A bill was passed in Albany by an early vote on Friday morning as the NY State Legislature entered its final hour of 2022 session. It could potentially impose a two-year ban on new crypto mining permits. It also intends ban existing mining operations that use carbon-based energy sources. This includes those that repurpose fossil fuel burning plants.
The bill was passed in April by the Assembly. It remained in the Senate for several weeks before it was suddenly brought to life. This happened just as the Senate adjourned Friday morning. Soon after the Senate’s passage by the Assembly in April, the matter is set to be taken up by the Democrat-controlled Senate. Governor Kathy Hochul will then decide the bill’s fate.
NY lawmakers who supported the legislation also gave their reasoning behind it. They have clarified that this is being done to curb New York’s carbon footprint by cracking down on mining companies, especially those employing non-renewable resources. Unless a proof-of-work (PoW) mining company can show evidence that they are using 100% renewable energy, they wouldn’t be allowed to expand or renew their permits.
Is it a Draconian Law or a Well-Thought Move
The decision was supported by top brass. However, sharp criticism has come from the crypto community for this sudden move.
According to Narek Gevorgyan, CEO & Founder of CoinStats, “I’m unsurprised that New York politicians would take a stand against proof-of-work mining, similar to their European peers, but the New York bill epitomizes virtue signaling. I understand that New York has outlined aggressive goals to reduce reliance on fossil fuels, but conflating the matter with mining is short-sighted.”
Gevorgyan stresses, “Not only will this make proof of work mining firms more reluctant to do business in New York, but it will also directly impact the state’s tax coffers. Miners are voting with their feet by moving to friendlier jurisdictions, and the state has already lost considerable revenues by advancing this rather draconian regulation.”
Following China’s clampdown on crypto mining, New York has emerged as a major mining hub. This has led to a sharp rise in the “revival” of broken-down coal mines and low-cost natural gas use as miners experiment with alternatives to power the energy-intensive mining rigs.
New York’s mining companies have established themselves in power plants that were shut down due to inefficiency, high carbon emissions and excessive power consumption. The shutdowns have resulted in a significant reduction of greenhouse gas emissions. These plants can be repurposed and restarted. As a result, NY’s progress on meeting its climate goals – at least the limit it is legally bound to meet – has slowed significantly. This is why the bill may be a good idea if it passes.
There are also serious repercussions.
Crypto industry leaders aren’t very supportive of the bill, primarily because they believe that if Governor Hochul signs it into law, it will influence regulations in other states and even at the federal level. Meanwhile, miners feel that this move by New York lawmakers will backfire because miners will start moving out to other states, thereby weakening NY’s economy significantly.
Vincent Hung is the Head of Marketing Communications at ParallelChain Lab. “New York state has not been a place where the mining sector is significant. Even with China’s outright ban on mining last year, Bitcoin’s hash rate recovered pretty quickly. The major impact anticipated from this potential ban would be the existing operations in New York being driven to other states, and the impact will persist even after the ban is lifted in 2 years.”
He continues, “The environmental cost of mining is a known problem, hence the popularization of Proof-of-Stake. A notable variation can be observed in the energy use of Proof-of-Stake’s many variants. Being sustainable is an ongoing process, which means PoS protocols should be held to increasingly higher standards of energy efficiency.”
The latest data from Foundry indicates that New York’s share of the crypto mining market dropped from 20% to 10% since the bill was first floated in April. Because large mining companies moved to other crypto-friendly countries in the US, this happened.
From a miner’s perspective, New York provides the best conditions to mine cryptocurrencies using cheap power sources. NY is the east coast’s largest producer of hydroelectric energy and produces about one third of its electricity using renewable resources. The state’s chilly climate makes it easy to cool the rigs employed in crypto mining. A lot of industrial infrastructure has been abandoned and is still available to be reused.
The Climate Leadership and Community Protection Act of New York requires it to reduce greenhouse gas emissions by 15% by 2050. That said, since most of NY’s power is generated from renewable energy, isn’t the idea of outright banning mining operations a bit extreme?
NY lawmakers need to consider KenGen’s efforts to lure miners into using its renewable energy. It claims 86% is generated by renewable energy, most notably from geothermal areas scattered throughout the Great Rift Valley. New York generates a third of its electricity with renewables. It can also create laws to attract miners and not repel them.
Adrián Eidelman, RSK’s Head of Strategy & Co-founder at IOV Labs, argues, “Bitcoin is an energy scavenger looking for the cheapest available resources such as hydro, geothermal, and wind, in remote locations far from large urban areas. Bitcoin mining has proven to be cleaner than industry standards. As a subsidy, it can be used to help build distribution lines. This creates incentive for new energy sources and encourages them to grow. Bitcoin is creating the demand for green energy today until there is demand from cities that justifies high prices to cover transmission costs.”
He explains, “A Bitcoin mining ban will only prevent renewable-energy miners from running operations in the state, while the best way to discourage carbon-based power sources is to subsidize green mining. If the bill passes, the bill will force miners to relocate to regions that are more friendly to Bitcoin regulation, whether they be in the US or overseas. Last and most important, New York’s Bitcoin mining ban is extremely dangerous as it creates a precedent where governments intervene to tell society in which use cases energy is allowed to be used. If this trend continues, it could lead us to all kinds of dystopian situations.”
We are still waiting to see the long-term effects of this bill. However, the NY Governor Hochul signing the bill into law could trigger ripple effects that can impact US mining activities, pushing crypto-friendly countries to follow. Moreover, the consequences won’t just be limited to mining companies. This could impede investments in sustainable energy resources and drive local vendors (electricians or construction workers, etc.). out of work, and even lead to serious “taxable income” figures moving out of the state.