New York Governor Signs Bill Banning Bitcoin Mining

New York Governor Signs Bill Banning Bitcoin Mining

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

Benjamin Hall | CNBC

New York Gov. Kathy Hochul signed into law a law on Tuesday banning bitcoin mining operations that run on carbon-based energy sources. For the next two years, if a proof-of-work mining company does not use 100% renewable energy, it will not be allowed to expand or renew permits, and new entrants will not be allowed to connect to the grid.

“This is the first case of its kind in the country,” Hochul said in a legal document detailing her decision.

The governor added that it was a key move for New York as the state seeks to reduce its carbon footprint by cracking down on mines that use electricity from fossil fuel-burning power plants. The law also comes into effect as the crypto industry recovers from the collapse of Sam Bankman-Freed’s FTX, which was once one of the most popular and trusted names in the industry.

The New York Mining Act, which was passed by the State Assembly in late April and the State Senate in June, provides for a two-year moratorium on certain cryptocurrency mining operations that use proof-of-work authentication methods to validate transactions on the blockchain. Proof-of-work mining, which requires sophisticated hardware and large amounts of electricity, is used to create bitcoins, among other tokens.

Industry insiders tell CNBC this could have a domino effect in the US, which is currently at the forefront of the global bitcoin mining industry, which accounts for 38% of global miners.

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

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This opinion is shared by Kevin Zhang of digital currency company Foundry.

“Not only is this a clear signal that New York is closed to bitcoin miners, but it also sets a dangerous precedent for singling out a specific industry that is banned from using energy,” said Zhang, Foundry’s senior vice president of mining strategy.

The net effect of this, according to Chamber of Digital Commerce’s Periann Boring, will weaken New York’s economy, forcing businesses to take jobs elsewhere.

“This is a major 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 disenfranchise many financially excluded communities living in the Empire State.” Boring previously told CNBC.

As for the timing, the law came into force after it was signed by the governor.

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The irony of bitcoin mining ban

One section of the law calls for a statewide study of the environmental impact of mining operations on New York City’s ability to meet aggressive climate targets set by the Climate Leadership and Community Protection Act, which requires New York City to reduce its greenhouse gas emissions. York. by 85% by 2050.

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

“Proof-of-work mining could lead to a global shift towards more sustainable energy,” Boring told Crypto World CNBC, pointing out the irony of the moratorium. “The bitcoin mining industry is actually leading the way in terms of enforcing this law.”

The sustainable energy balance of the global bitcoin mining industry today is estimated at just under 60%, and the Chamber of Digital Commerce has found that the sustainable energy balance for its New York State mining members is approaching 80%.

“The regulatory environment in New York City will not only stop their goal of mining with carbon fuels, but will also likely discourage new renewable energy miners from doing business with the government due to the possibility of even more relaxation of regulation. said John Warren, CEO of institutional grade bitcoin mining company GEM Mining.

According to the latest available data from the US Energy Information Administration, a third of New York State’s electricity comes from renewable sources. New York considers its nuclear power plants to meet its 100% carbon-free electricity generation goal, 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 less energy is needed to cool the banks of computers used to mine cryptocurrencies, 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 when he spoke to industry representatives, he found that mining operations could help boost demand for renewable energy.

“In my view, many of these things will eventually move activity to other places that may not reach the goal of politicians,” Yang said.

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Some in the industry do not wait for the state to issue a formal ban before taking action.

Earlier this year, data from digital currency firm Foundry showed that New York’s share of the bitcoin mining network had fallen from 20% to 10% in a few months as miners began migrating to more cryptocurrency-friendly jurisdictions elsewhere in the country.

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

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

Domino effect

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

Industry advocates tell CNBC that in addition to potentially deterring investment in more sustainable energy sources, each of these facilities has a significant economic impact on many local suppliers made up of electricians, engineers and builders. An exodus of cryptocurrency miners could move jobs and taxes out of the state, experts say.

“Many unions oppose this bill because it could have dire economic consequences,” Boring said. “Bitcoin mining operations provide high-paying, high-quality jobs for local communities. One of our members, his average salary is $80,000 a year.”

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

As Boring points out, New York is a leader when it comes to state law, so there is potential for a copycat phenomenon to spread throughout the country.

“Other blue states often follow New York’s lead, and that gives them an easy pattern to copy,” Foundry’s Zhang said.

“Of course, the network will be fine — last summer it survived a nation-state attack from China — but the implications of where the technology scales and develops in the future are huge,” Zhang continued.

However, many others in the industry believe that fears about the impact of a moratorium on mining in New York are exaggerated.

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

Texas, for example, has cryptocurrency-friendly legislators, a deregulated power grid with real-time spot prices, and access to a significant surplus of renewable energy, as well as discarded or flared natural gas. According to Alex Brammer of Luxor Mining, a cryptocurrency pool built for advanced miners, government loyalty to miners also makes the industry highly predictable.

“This is a very attractive environment for miners to place large amounts of capital in,” he said. “The sheer volume of land deals and power purchase agreements that are in various stages of negotiation is huge.”

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