These machines, known as miners, work around the clock to find new units of cryptocurrency.
Benjamin Hall | CNBC
New York Gov. Kathy Hochul signed legislation Tuesday that would ban some states bitcoin mining operations running on carbon-based energy sources. Over the next two years, permits will not be extended or renewed, and new entrants will not be allowed to come online unless a mining company that has proven its case is using 100% renewable energy.
“This is the first of its kind in the country,” Hochul said in a legal filing detailing his decision.
The governor added that this is a key step for New York as the state tries to curb its carbon footprint by cracking down on mines that use electricity from fossil-fuel power plants. The law stems from the implosion of Sam Bankman-Fried’s FTX, once one of the most popular and trusted names in the cryptocurrency industry.
New York’s 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 blockchain transactions. Proof-of-work mining, which requires a complex mechanism and a lot of electricity, is used to create bitcoin, among other tokens.
Industry insiders tell CNBC that this could create a domino effect in the US, which currently leads the global bitcoin mining industry, accounting for 38% of the world’s miners.
The Digital Chamber of Commerce said in a statement: “The approval would set a dangerous precedent in New York State for determining who may or may not use the power.”
This is an idea echoed by Kevin Zhang of digital currency company Foundry.
“This is not only a clear signal that New York is closed for business to bitcoin miners, but it also sets a dangerous precedent for choosing a specific industry to ban energy use,” said Zhang, Foundry’s senior vice president of mining strategy.
The net effect, according to Perianne Boring of the Digital Chamber of Commerce, would be to weaken New York’s economy by forcing businesses to find work 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 disenfranchise the many unbanked residents of the Empire State,” Boring previously said. told CNBC.
As for timing, the law went into effect after the governor signed it.
The irony of banning bitcoin mining
One section of the law involves a statewide study of the environmental impact of mining operations as proof-of-work on New York’s ability to meet aggressive climate goals set by the Climate Stewardship and Community Protection Act, which requires reductions in greenhouse gas emissions. 85% by 2050.
Boring told CNBC that the recent surge in support for the ban is tied to that mandate for a 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 out the irony of the moratorium. “The bitcoin mining industry is actually leading the way in terms of compliance with this Act.”
Today, the global bitcoin mining industry is estimated to have a sustainable power mix of just under 60%, and the Digital Chamber of Commerce has determined that the sustainable power mix for its mining members in New York state is closer to 80%.
“The regulatory environment in New York will not only stop their goal of proving their carbon-based fuel business, but also discourage new, renewable-based miners from doing business with the state due to the possibility of more regulatory drag.” said John Warren, CEO of institutional-grade bitcoin mining company GEM Mining.
A third of New York’s in-state generation comes from renewable sources, according to the most recent data from the US Energy Information Administration. New York is counting nuclear power plants toward its goal of 100% carbon-free electricity, and the state produces more hydroelectricity than any other state east of the Rocky Mountains.
The state also has a cooler climate, which means less energy is needed to cool banks of computers used in cryptocurrency, as well as a lot of abandoned industrial infrastructure ripe for reuse.
At the Bitcoin 2022 conference in Miami in April, former presidential candidate and New York resident Andrew Yang told CNBC that he found that mining operations could help drive demand for renewable energy when he spoke to people in the industry.
“I think a lot of these things are going to push activity to other places that won’t be what the policymakers are aiming for,” Yang said.
Some in the industry are not waiting for the state to formalize the ban before taking action.
Earlier this year, data from digital currency company Foundry showed that New York’s share of the bitcoin mining network fell from 20% to 10% in a matter of months as miners began moving to more crypto-friendly jurisdictions in other parts of the country.
“Our clients are afraid to invest in New York State,” said Foundry’s Zhang.
“Even of Foundry’s $500 million capital investment in mining equipment, less than 5% went to New York because of the unfriendly political landscape,” Zhang said.
The domino effect
Now that the cryptocurrency moratorium has been signed into law by the governor, it could have several ramifications.
Industry advocates tell CNBC that in addition to stifling investment in more sustainable energy sources, each of these facilities has a significant economic impact on many local suppliers of electricians, engineers and construction workers. Cryptocurrency miners moving out of the country could result in jobs and tax dollars, experts say.
“There are many unions that oppose this bill because it could have severe economic consequences,” Boring said. “Bitcoin mining operations provide high-paying and high-quality, excellent jobs for local communities. One of our members, their average salary is $80,000 a year.”
Hochul addressed some of those concerns in a statement Tuesday, saying he recognizes the importance of “creating economic opportunity in underserved communities” and will “continue to invest in economic development projects that create the jobs of the future.” .”
As Boring points out, New York is a leader when it comes to state legislation, so there’s the potential for a copycat phenomenon that ripples across the country.
“Other blue states often follow New York state’s lead, which will give them an easy template to replicate,” Foundry’s Zhang said.
“Of course, the network will be fine — it survived a nation-state attack from China last summer — but the implications for the scale and where the technology will develop in the future are huge,” Zhang said.
However, many others in the industry think concerns about the outcome of New York’s mining moratorium are overblown.
Many miners told CNBC that there are many friendly jurisdictions: Georgia, North Carolina, North Dakota, Texas and Wyoming have all become prime mining areas.
Texas, for example, has crypto-friendly lawmakers, an unregulated power grid with real-time pricing, and access to significantly more renewable energy as well as capped or flared natural gas. According to Alex Brammer of Luxor Mining, a cryptocurrency pool built for advanced miners, the government’s regulatory friendliness towards miners also makes the industry too predictable.
“It’s a very attractive environment for miners to deploy large amounts of capital,” he said. “The number of land deals and power purchase agreements in various stages of negotiation is huge.”