crypto mining
New York’s two-year ban on new proof-of-work cryptocurrency mining is likely to have only a small direct effect on the power-hungry industry–which is shrinking anyway–but the Empire State’s influence elsewhere may be a longer-term problem.
“I think a big issue here is that other states could use this moratorium and in turn enact similar laws locally,” says Brendon Sedo, head of partnerships at CoreDAO, which operates a blockchain that runs on a combination of elements from proof-of-work and proof-of stake, the two main systems by which information is added.
Sedo maintains that New York has a lot of “sway,” as laws adopted in Albany are sometimes replicated in other states. This can be seen in New York’s BitLicense, which allows companies to conduct virtual-currency business activities in New York and which California legislators attempted to copy before it was vetoed by Governor Gavin Newsom.
While a U.S. state has yet to follow New York’s lead, Canada’s Manitoba province set an 18-month moratorium on new crypto-mining operations last month, just days after the moratorium was signed into law on November 22
The Finger Lakes region has helped New York become one of the largest states for bitcoin mining by processing power, accounting for about 10% of the U.S. total late last year, according to research from Cambridge University.
As Rust Belt manufacturing declined, starting in the 1950s, it left behind underused and abandoned power plants and factories in upstate New York, convenient sites for crypto miners. But proof-of-work mining, which requires participants to solve mathematical equations in a way that helps prevent anybody from gaming the system, is opposed by environmental groups as industrialized nations strive to reduce carbon dioxide emissions to counteract climate change.
“This first-in-the-nation law should set the standard for every other state where crypto miners are coming in, extracting resources and wreaking havoc,” says Liz Moran, the New York policy advocate at Earthjustice, a nonprofit public-interest environmental-law organization.
The two-year ban is not absolute. It does not affect existing businesses and does not apply to miners whose power is not derived from fossil fuels. But new mining operations will be banned, and licenses will not be renewed.
“This bill will create the pause we need in the current trend of purchasing old power plants in New York for corporate profits and allow us to properly evaluate the impact of this industry on our climate goals before it is too late,” says Anna Kelles, a nutritionist and Democrat in the state Assembly, whose district spans parts of Cortland County and all of Tompkins, including the college town of Ithaca.
Kelles sponsored the bill to focus on the environmental impacts of crypto mining.
To the south, New York City Mayor Eric Adams, also a Democrat, has committed himself to making the state a crypto hub. Adams has vowed to meet with legislators to come to a compromise on digital assets. Adams took his first three paychecks in bitcoin, despite the market downturn, to make that point.
If the mayor cannot craft a deal, it seems like proof-of-work miners–mainly bitcoin since ether switched to proof-of-stake in September–will have little choice but to flee to more hospitable locales.
“Other states have taken a somewhat different approach to bitcoin mining and are encouraging it rather than trying to eliminate it,” says Andrew Webber, founder and CEO of Digital Power Optimization, a service provider that designs, builds, and manages vertically-integrated bitcoin mining operations on behalf of the energy sector. “Sales-tax exemptions and other incentives are being used by places like Ohio, Wyoming, Kentucky Texas and others to attract more mining activity because it’s a profitable and flexible load that can actually help stabilize the energy grids.”
Riot Blockchain RIOT , a leading crypto miner, has already abandoned upstate New York for Texas, shifting its operations to Rockdale, about 50 miles northeast of Austin, in July from Massena just across the St. Lawrence River from Canada.
These moves could potentially stifle financial innovation in New York, while benefiting conservative states such as Georgia, Texas and Kentucky, the U.S. leaders in bitcoin mining in 2021, according to the Cambridge report
“I don’t think a two-year period of thoughtful review should really be viewed as anything other than the State, the energy regulatory authorities, and politicians getting themselves prepared for what comes next,” says Webber. “This isn’t positive or negative yet,” he adds,”but we’ll have to see what comes out of it.”
On the one hand, Webber maintains that the two years could be a chance for policymakers to understand the costs and benefits of the activity while allowing the state to proceed with mining in a deliberate way. On the other, he believes they could enact a permanent ban, which could be the wrong move.
“We agree that the carbon footprint is important to analyze and address, but that has to be done thoughtfully,” says Webber. “That said, no one seems to care much about using power for keeping the lights on at Yankee’s games or to make neckties–why is this particular use of power so objectionable?”
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