New York governor signs law cracking down on bitcoin mining

New York Governor Kathy Hochul signed a law Tuesday banning certain bitcoin mining that runs on carbon-based power sources. For the next two years, unless a proof-of-work mining company uses 100% renewable energy, it will not be allowed to extend or renew permits, and new players will not be allowed to come online.

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

The governor added that it was an important step for New York as the state looks to curb its carbon footprint 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, which was once one of the most popular and trusted names in the 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 sophisticated equipment and lots of electricity, is used to create bitcoin, among other tokens.

Industry insiders tell 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 for determining who can or cannot use force in New York State,” the Chamber of Digital Commerce wrote in a statement.

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 for business to bitcoin miners, it sets a dangerous precedent for singling out a particular industry to ban energy use,” said Zhang, Foundry’s senior vice president of mining strategy.

The net effect of this, according to Perianne Boring of the Chamber of Digital 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. More importantly, this decision will eliminate critical union jobs and further deprive the many underbanked populations that live in the Empire State of financial access,” Kedelig said previously to CNBC.

In terms of timing, the law took effect after the governor resigned.

Part of the law involves conducting a statewide study of the environmental impact of mining with evidence to work on New York’s ability to meet aggressive climate goals set under the Climate Leadership and Community Protection Act, which requires New York’s greenhouse gas emissions to be cut. with 85% by 2050.

Boring tells CNBC that the recent surge of support for the ban is related to this 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 compliance with that law.”

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

“The regulatory environment in New York will not only stop their goal – carbon-based fuel proof of work mining – but will also likely discourage new, renewable-based miners from doing business with the state due to the possibility of more regulatory creep.” said John Warren, CEO of institutional-grade bitcoin mining company GEM Mining.

A third of New York’s statewide generation comes from renewable energy, according to the latest available data from the US Energy Information Administration. New York counts its nuclear plants toward its 100% carbon-free electricity goal, and the state produces more hydropower 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 breadth of computers used in crypto mining, 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 Yorker Andrew Yang told CNBC that in talking to people in the industry, he has found that mining can help develop demand for renewable energy.

“In my mind, a lot of this will end up pushing activity to other places that might not achieve the goals of the politicians,” Yang said.

Some in the industry are not waiting for the state to make a ban official 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 migrating to more crypto-friendly jurisdictions in other parts of the country.

“Our clients are being scared away from investing in New York state,” Foundry’s Zhang said.

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

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

Beyond potentially stifling investment in more sustainable energy sources, industry advocates tell CNBC that each of these facilities provides significant economic impact with many local suppliers consisting of electricians, engineers and construction workers. An exodus of crypto miners, according to experts, could translate to jobs and tax dollars moving out of state.

“There are many unions that oppose this bill because it could have serious economic consequences,” Boring said. “Bitcoin mining provides high-paying, high-value, good jobs for local communities. One of our members, their average salary is $80,000 a year.”

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

As Boring points out, New York is a leader in state law, so there’s also the potential for a copycat phenomenon to ripple across the country.

“Other blue states often follow the lead of New York state, and this would give them an easy template to copy,” Foundry’s Zhang said.

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

However, many others in the industry believe the concern over the fallout from a mining moratorium in New York is overblown.

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

Texas, for example, has crypto-friendly legislators, a deregulated power grid with real-time spot prices, and access to significant excess renewable energy, as well as stranded or flared natural gas. The state’s regulatory friendliness toward miners also makes the industry highly predictable, according to Alex Brammer of Luxor Mining, a cryptocurrency pool built for advanced miners.

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