New York’s governor signs a law limiting bitcoin mining

These machines, known as miners, work around the clock to find new units of cryptocurrency.

Benjamin Hall | CNBC

New York Gov. Kathy Hochul on Tuesday signed into law a law banning some bitcoin Mining operations that operate on carbon-based energy sources. For the next two years, unless a PoW miner uses 100% renewable energy, they will not be allowed to expand or renew permits, and newcomers will not be allowed to go online.

“It is the first of its kind in the country,” Hochul said in a legal notice detailing its decision.

It was an essential step for New York, the governor added, as the state looks to reduce carbon emissions, by cracking down on mines that use electricity from power plants that burn fossil fuels. The law also comes as the crypto industry reels from the implosion of Sam Bankman-Fried’s FTX, once one of the most reputable and trusted names in the industry.

New York’s mining law, which passed the state house in late April and the Senate in June, calls for a two-year moratorium on some cryptocurrency mining operations that use proof-of-work authentication methods to validate blockchain transactions. Proof-of-work mining, which requires sophisticated equipment and a lot of electricity, is used to create bitcoin, among other tokens.

Industry insiders 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 world’s miners.

“The approval would set a dangerous precedent in determining who may or may not use the power in New York State,” the Chamber of Digital Commerce wrote in a statement.

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It’s a sentiment echoed by Kevin Zhang of cryptocurrency firm Foundry.

“Not only is it a clear signal that New York is closed to bitcoin miners, it also sets a dangerous precedent for singling out a specific industry for energy bans,” said Chang, senior vice president of mining strategy at Foundry.

The net effect of this, according to Perianne Boring of the Chamber of Digital Commerce, would be to weaken New York’s economy by forcing companies to take jobs elsewhere.

“This is a major setback for the state and will stifle its future as a global leader in technology and financial services. More importantly, this decision will eliminate important union jobs and further deny financial access to the many under-banked residents who live in the Empire State,” Boring said. Previously to CNBC.

As for the timing, the law came into effect after the governor’s signature.

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The irony of banning bitcoin mining

One section of the law includes conducting a statewide study of the environmental impact of mining operations to prove work on New York’s ability to reach the strict climate targets set out in the Climate Leadership and Community Protection Act, which requires reductions in New York’s greenhouse gas emissions. by 85% by 2050.

Boring tells CNBC that the recent surge in support for the ban is related to this mandate to transition to sustainable energy.

“Proof-of-work mining has the potential to drive the global transition to more sustainable energy,” Boring told CNBC’s Crypto World, referring to the endowment paradox. “The bitcoin mining industry is actually leading the way in terms of complying with this law.”

Today the global bitcoin mining industry’s sustainable energy mix is ​​estimated to be just under 60%, and the Chamber of Digital Commerce has found the sustainable electricity mix closer to 80% for its members who mine in New York State.

“New York’s regulatory environment will not only stop its goal — proving carbon-based fuels for mining to work — but also potentially discourage new miners and renewable energy miners from doing business with the state because of the potential for further regulatory creep,” said John Warren, president. CEO of institutional-level bitcoin mining company GEM Mining.

One-third of in-state generation in New York comes from renewables, according to the most recent data available from the US Energy Information Administration. New York is preparing its nuclear power plants toward its goal of 100% carbon-free electricity, and the state produces more hydroelectric power than any other state east of the Rocky Mountains.

The state also has a cold climate, which means that less energy is needed to cool the banks of computers used for cryptocurrency mining, as well as a lot of abandoned industrial infrastructure that is ripe for reuse.

At the Bitcoin 2022 conference in Miami in April, former presidential candidate and New Yorker Andrew Yang told CNBC that when he spoke to people in the industry, he found that mining operations could help develop demand for renewable energy.

“In my view, a lot of these things will end up driving activity to other places that may not meet the policymakers’ goal,” Yang said.

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

Earlier this year, data from cryptocurrency firm Foundry showed that New York’s share of the bitcoin mining network had fallen 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 clients are afraid to invest in New York State,” said Zhang Foundry.

“Even of Foundry’s deployments of $500 million in capital toward mining equipment, less than 5% went to New York because of the unfriendly political landscape,” Zhang continued.

Domino effect

Now that a cryptocurrency mining moratorium has been signed into law by the governor, it could have a number of follow-on effects.

Besides potentially stifling investment in more sustainable energy sources, industry advocates tell CNBC that each of these utilities has a significant economic impact with many local vendors consisting of electricians, engineers and construction workers. According to experts, the exodus of crypto miners could translate into jobs and taxes out of the country.

“There are many labor unions who are against the bill because it could have severe economic consequences,” Bowring said. “Bitcoin mining provides high-paying, high-quality jobs to local communities. One of our members, the average wage is $80,000 a year.”

Hochul addressed some of those concerns in its statement on Tuesday, stating that it recognized the importance of “creating economic opportunities in communities that have been left behind” and that it “will continue to invest in economic development projects that create jobs of the future.”

As Boring points out, New York is a leader when it comes to state legislation, so there’s also the potential for a copycat phenomenon spreading across the country.

“Other blue states often follow New York’s lead and that should give them an easy model to replicate,” said Zhang Foundry.

“Sure, the network will be fine — it survived a nation-state attack from China last summer — but the implications for where the technology will expand and evolve in the future are huge,” Zhang continued.

However, many in the industry believe that concerns about the implications of suspending mining in New York are exaggerated.

There are plenty of friendlier jurisdictions out there, several miners told CNBC: Georgia, North Carolina, North Dakota, Texas and Wyoming have become prime mining destinations.

Texas, for example, has crypto-friendly lawmakers, an unregulated energy grid with real-time spot pricing, and access to vastly excess renewable energy, as well as stranded or flared natural gas. The state’s regulatory friendliness towards miners also makes the industry highly predictable, according to Alex Brammer of Luxor Mining, a cryptocurrency pool designed for advanced miners.

“It’s a very attractive environment for miners to put large amounts of capital into,” he said. “The sheer number of land deals and power purchase agreements that are in various stages of negotiation is overwhelming.”

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