New York state pumps the brakes on crypto mining

A technician inspects the backside of bitcoin mining at Bitfarms in Saint Hyacinthe, Quebec on March 19, 2018.

A technician inspects the backside of bitcoin mining at Bitfarms in Saint Hyacinthe, Quebec on March 19, 2018.GETTYIMAGES/LARS HAGBERG / CONTRIBUTOR

Cryptocurrency watchers are waiting to see whether New York Gov. Kathy Hochul will sign a bill that would impose a two-year moratorium on setting up or renewing permits for fossil-fuel powered crypto mining operations. 

The bill, which was passed by the state legislature June 2, calls for a two-year pause on approving applications and renewal of permits for carbon-fuel-based electricity plants that are built for cryptocurrency mining operations that use proof-of-work authentication to validate blockchain transactions.

“The continued and expanded operation of cryptocurrency mining operations running proof-of-work authentication methods to validate blockchain transactions will greatly increase the amount of energy usage in the state of New York, and impact compliance with the Climate Leadership and Community Protection Act,” the bill states. 

The bill also calls for a generic environmental impact statement that addresses the scope of cryptocurrency mining in the state, anticipated industry expansion, the amount and sources of electricity those plants use as well as greenhouse gas emissions and pollutants attributable to crypto mining.  It also requires data on the amount of water used, ecological impact of cooling water and potential health impacts due to reduced air and water quality in nearby communities as well as the social and economic costs and benefits.

A second bill before the governor also calls for more reflection. It would establish a cryptocurrency and blockchain task force that would report to the governor and legislature with “legislative and regulatory recommendations, if any, to increase transparency and security, enhance consumer protections, and to address the long-term impact related to the use of cryptocurrency.”

The proposed pause on mining comes at a time when the value of Bitcoin and other cryptocurrencies  is fluctuating wildly, and environmental concerns are moving front and center.

In upstate New York, inexpensive power and electric transmission infrastructure from abandoned industrial sites have attracted cryptocurrency mining companies. Those businesses are urging Hochul to veto the bill calling for a two-year hiatus, saying it will stifle the nascent mining industry in the state, encourage businesses to locate in more crypto-friendly states and possibly spawn similar legislation in other states.

Those supporting the bill see the two-year pause as a way to ensure the state can meet its goals of getting to net zero by 2050 and a chance to fully understand what could be a transformative technology before jumping in.

Versions of the debate in New York are taking place in several states. In Texas, Bitcoin supporters seem to have the louder voice.

Crypto advocates in Texas, for example, are working to make the state the Bitcoin capital of the world. Besides cheap power and a deregulated and diversifying power market, lawmakers have created a crypto-friendly business environment, thanks to their willingness to “negotiate ‘fantastic’ rates for the power-heavy activity, according to the Dallas Morning News. Crypto talent is available in Dallas and Austin, and the state allows banks chartered in Texas to provide custody or safekeeping services for virtual currencies – a positive signal for institutional investors.

Crypto mining advocates in Texas say Bitcoin miners are energy customers that can help balance power demand on the grid by limiting operations when energy demand from consumers gets too high. Natural gas companies that would normally flare off excess fuel can use that energy for cryptocurrency mining and cut their carbon footprint, they suggest.

Plus, Bitcoin mining “provides a natural free market incentive for the development of more wind and solar in West Texas,” Lee Bratcher, president and founder of the Texas Blockchain Council, said in a January YouTube video.

Some U.S. senators are also on board with requiring crypto miners use zero-carbon energy sources and improve their transparency around the industry’s carbon footprint.

In a June 14 letter to Alondra Nelson at the Office of Science and Technology Policy, Sen. Sheldon Whitehouse (D-R.I.) and four fellow Democrats urged the administration to “implement policies that drastically reduce if not eliminate emissions from this sector and require transparency from this sector.” They point to cryptocurrency mining companies’ high energy requirements, lack of transparency associated with power consumption and economic impact on communities where crypto mining companies set up operations, including higher energy prices, taxes used as incentive to lure companies and empty promises of new jobs.

Meanwhile, all manner of cryptocurrency legislation is working its way through statehouses – from allowing states to accept crypto currencies and exempting virtual currencies from taxation to permitting employees to be paid in cryptocurrency if requested.  A summary of recent legislation is available from the National Council of State Legislatures.