Here’s what’s in New York’s new bitcoin mining ban

Following an early morning poll in Albany on Friday, New York lawmakers passed a bill banning new bitcoin mining operations. The measure now goes to the desk of Governor Kathy Hochul, who can sign it into law or veto it.

If Hochul signs the bill, it will 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 that it could have a domino effect across the United States, which is currently at the forefront of the global bitcoin mining industry, accounting for 38% of the world̵[ads1]7;s miners.

The New York bill, which was previously passed by the state legislature in late April before going to the state Senate, requires a two-year moratorium on certain cryptocurrency mining operations that use work-proof authentication methods to validate blockchain transactions. Proof-of-work mining, which requires sophisticated equipment and a lot of electricity, is used to make bitcoin. Ethereum is moving to a less energy-intensive process, but will continue to use this method for at least a few more months.

The pressure for an eleven-hour vote came when the leadership of the state capital managed to turn around some of the senators who were previously insecure.

Legislators who support 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 works – for two years, unless a mining company with proof of work uses 100% renewable energy, it will not be allowed to expand or renew permits, and new participants will not be allowed to come online.

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 technology and global financial services. More importantly, this decision will eliminate critical union jobs and further deprive economic access to the many underprivileged people living in the Empire State,” Boring says. CNBC.

It’s a sentiment repeated by Galaxy Digital’s Amando Fabiano, who says that “New York sets a bad precedent that other states can follow.”

In terms of timing, the law will come into force as soon as the governor announces.

Part of the bill involves conducting a nationwide study of the environmental impact of mining with evidence of work on New York’s ability to achieve aggressive climate goals set under the Climate Leadership and Community Protection Act, which requires cutting New York’s greenhouse gas emissions. by 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 for the 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 a leader in complying with that law.”

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 ​​close to 80% for members’ mining operations in the state of New York.

“The regulatory environment in New York will not only stop their goal – carbon-based fuel proof of mining operations – but will likely also discourage new, renewable-based miners from doing business with the state because of the potential for more regulatory creep.” said John Warren, CEO of the bitcoin mining company GEM Mining at the institutional level.

One-third of New York’s state production comes from renewable energy, according to the latest available data from the US Energy Information Administration. New York counts its nuclear power plants against its 100% carbon-free electricity target, and the state produces more hydropower than any other state east of the Rocky Mountains.

The state also has a cool climate, which means that less energy is needed to cool the width of computers used in crypto mining, as well as much abandoned industrial infrastructure that is ripe for reuse.

In an interview 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 can help develop the demand for a renewable energy source.

“In my mind, a lot of this will end up pushing activity to other places that may not achieve the goals of the politicians,” Yang said.

Some in the industry are not waiting for the state to make an official ban before taking action.

Data from digital currency company Foundry shows that New York’s share of the bitcoin mining network fell from 20% to 10% within a few months, as miners began to migrate to more crypto-friendly jurisdictions in other parts of the country.

“Our customers are discouraged from investing in New York State,” said Kevin Zhang of Foundry.

“Even since Foundry’s $ 500 million investment in mining equipment, less than 5% has gone to New York because of the unfriendly political landscape,” Zhang continued.

If the moratorium on crypto-mining is signed into law by the governor, it could have a number of repercussions.

In addition to potentially stifling investment in more sustainable energy sources, industry advocates tell CNBC that each of these facilities has a significant economic impact with many local suppliers consisting of electricians, engineers and construction workers. An exodus of crypto miners, according to experts, could lead to jobs and tax dollars moving out of the state.

“There are many unions that oppose this bill because it could have serious economic consequences,” Boring said. “Bitcoin mining provides highly paid and high-value, good jobs for communities. One of our members, their average salary is $ 80,000 a year.”

As Boring points out, New York is a leader in state law, so there is also the potential for a copying phenomenon that is shaking across the country.

“Other blue states often follow the lead of the state of New York, and this would give them an easy template to copy,” said Zhang, Foundry’s SVP for 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 evolve in the future are enormous,” Zhang continued.

However, many others in the industry believe the concern over the collapse of a mining moratorium in New York is excessive.

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 does not want you,” Feinstein said. “Bitcoin miners are really a data center business, and the data center must be located in jurisdictions that want to have data centers within their boundaries … If you are going to ignore that, you have to deal with the consequences of doing business in a region that does not want your business. “

Feinstein and other miners point out that there are many 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 prices, and access to significant redundant renewable energy, as well as stranded or flared natural gas. The state’s regulatory friendliness towards 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 distribute large amounts of capital in,” he said. “The large number of land agreements and power purchase agreements that are in various stages of negotiations is enormous.”

Meanwhile, the Biden administration is formulating its own policy aimed at bitcoin mining – with a goal of reducing energy consumption and emissions.

The White House Office of Science and Technology Policy examines the links between distributed ledger technology and energy transitions, the potential of these technologies to prevent or promote efforts to tackle climate change at home and abroad, and the impact these technologies have on the environment, according to Dr. Costa Samaras , who is Chief Assistant Director of Energy.

The effort is one of the results described in the president’s order issued in March.

Samaras tells CNBC that the White House is specifically examining the role these technologies may play in accounting for greenhouse gas emissions, as well as potentially supporting the development of a clean power grid.

They “also take a look at the implications for energy policy, including how cryptocurrencies can affect network governance and reliability.”

It is unclear whether these recommendations, which come in September, will culminate in the federal law on mining with evidence of work. For the time being, it is the states that are firing.