New York governor signs law cracking down on bitcoin mining

These machines, known as mining rigs, work round the clock to get new units of cryptocurrency.

Benjamin Hall | CNBC

New York Gov. Kathy Hochul signed a law Tuesday that bans certain bitcoin mining operations run on carbon-based power sources. For the next two years, unless a proof-of-work mining company uses 100% renewable energy, they will not be allowed to expand or renew their permits, and new entrants will not be allowed to come online.

“It’s the first of its kind in the country,” Hochul said in a legal filing detailing his decision.

The governor added that it was a key step for New York, as the state seeks to reduce its carbon footprint by restricting mining that uses electricity from power plants that burn fossil fuels. The law also comes as the crypto industry is reeling from the implosion of Sam Bankman-Fried’s FTX, which was once one of the most popular and trusted names in the industry.

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The New York mining law, which passed the state assembly in late April and the state senate in June, calls for a two-year moratorium on certain cryptocurrency mining operations that use proof-of-work authentication methods to validate block transactions. Proof-of-work mining, which requires sophisticated gear and a lot of electricity, is used to create bitcoin, among other tokens.

Industry insiders told CNBC it could have a domino effect across the US, which is currently at the forefront of the global bitcoin mining industry, accounting for 38% of the world’s miners.

“The approval will set a dangerous precedent in determining who can and cannot exercise power in New York State,” the Digital Chamber of Commerce wrote in a statement.

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It’s a sentiment echoed by Kevin Zhang of digital currency company Foundry.

“Not only is it a clear signal that New York is closed to business and bitcoin miners, it sets a dangerous precedent to single out a particular industry to ban in energy use,” said Zhang, Foundry’s senior vice president of mining strategy.

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The net effect, according to Perianne Boring of the Digital Chamber of Commerce, would weaken New York’s economy by forcing businesses 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. Most importantly, this decision will eliminate critical unionized jobs and further deprive many populations of under the banks living in the Empire State,” Boring previously told CNBC.

As for time, the law entered into force after the governor signed.

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The irony of banning bitcoin mining

One section of the law involves conducting a statewide study on the environmental impacts of mining operations to test New York’s ability to meet aggressive climate goals set out under the Climate Leadership and Community Protection Act, which requires reducing greenhouse gas emissions. thermal effects of New York. by 85% by 2050.

Boring told CNBC that recent support for the ban is related to the mandate to 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 leading the way in terms of compliance with this Act.”

The sustainable energy mix of the global bitcoin mining industry today is estimated to be just under 60%, and the Digital Chamber of Commerce found the sustainable electricity mix to be closer to 80% for its members mining in New York state.

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

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

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

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

“In my mind, a lot of these things will end up pushing activities in other places that might not achieve their political goals,” said Yang.

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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 digital currency firm Foundry showed New York’s share of the bitcoin mining network dropped from 20% to 10% in a matter of months, as miners began migrating to more crypto-critical jurisdictions. friendly in other parts of the country.

“Our clients are afraid to invest in New York state,” said Foundry Zhang.

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

The domino effect

Now that the governor has signed the moratorium on crypto mining, it could have a number of follow-on effects.

In addition to potentially stifling investment in more sustainable energy sources, industry advocates told CNBC that each of these facilities has a significant economic impact on many local tradespeople including electricians, engineers, and construction workers. According to experts, an exodus of cryptocurrency miners could translate into jobs and tax dollars moving out of the state.

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“There are many labor unions that are against this bill because it could have serious economic consequences,” said Boring. “Bitcoin mining operations are providing great jobs and great classes for local communities. One of our members, their average salary is $80,000 a year.”

Hochul addressed some of those concerns in his statement Tuesday, noting that he recognizes the importance of “creating economic opportunity in communities that have been left behind” and that he will “continue to invest in economic development projects that create jobs in the future.” . . .

As Boring points out, New York is a leader in terms of state legislation, so there is the possibility of a copycat phenomenon spreading across the country as well.

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

“Sure, the network will be fine – it survived an attack by the Chinese nation state last summer – but the implications for where the technology will scale and develop in the future are massive,” continued Zhang.

However, many others in the industry think concerns about the fallout from a mining moratorium in New York are overblown.

Several miners told CNBC there are many friendly jurisdictions: Georgia, North Carolina, North Dakota, Texas and Wyoming have become major mining destinations.

Texas, for example, has crypto-friendly lawmakers, a deregulated electric grid with real-time pricing, and access to significant renewable energy surpluses, as well as blocked or flaring natural gas. The state’s regulatory friendliness toward miners also makes the industry highly predictable, according to Alex Brammer of Luxor Mining, a crypto pool built for advanced miners.

“It is a very attractive environment for miners to deploy large amounts of capital in,” he said. “The number of land deals and power purchase agreements in various stages of negotiation is enormous.”

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