The Arkansas General Assembly recently passed House Bill 1799 – and Governor Sarah Huckabee Sanders is expected to sign into law – a subchapter of “The Arkansas Data Center Act of 2023” that would group small-scale blockchain and cyber-currency mining with larger, more established data center environments.
The Data Center Act lacks citizen protection
This is hailed by proponents of Digital Asset Mining as a first in the US. But reading through this legislation that purports to “protect” Arkansans from “fraudulent business practices” shows that there is actually no protection for citizens at all.
In fact, the only reference to “protection” is in the bill’s intent “to clarify the guidelines necessary to protect data asset miners from discriminatory industry-specific regulations and taxes.” Okay then not you, only those who have the money to invest in mining hardware and a place to put it.
Small mining versus large data centers
Perhaps even more ironic is their claim to “recognize that data centers create jobs, pay taxes, and provide general economic value to local communities and this state,” while simultaneously lowering the entry threshold to include any site that “consumes more than one megawatt (1 MW ) on an average annual basis.”
First, this could theoretically include anyone in the state, given that the average home in the southern US consumes between 8-10 MWh per year. It is also unrealistic to equate a small, 1-2 person home-based mining operation with a large data center that can cover tens of thousands of square meters and employ dozens to hundreds of management, technical and security personnel.
On the other hand, the proposed subchapter appears to require data asset companies to comply with many of the same business regulations of their larger counterparts. According to the bill, a digital asset mining business can operate in Arkansas if it complies with:
- State law on business guidelines and tax policy.
- Any regulation on operation and safety.
- Any rule or rate for utility services provided by or on behalf of a public entity.
- State and federal labor laws.
In addition, a digital asset miner must also “pay applicable taxes and government fees in acceptable forms of currency, and operate in a manner that does not cause stress on an electric utility’s generation capacity or transmission network.” Well, that seems fair… even if it could possibly lead to more legal red tape than it eliminates.
New fines and penalties
Unfortunately, there is one aspect of the bill that could potentially be problematic: “A person who engages in digital asset mining at home or who engages in digital asset mining shall not be considered a money transmitter under the Uniform Money Services Act, 23-55- 101 et seq.”
While this specifically refers to the Arkansas Uniform Money Services Act of 2020, at the federal level, virtual currency mining is regulated by the Financial Crimes Enforcement Network (FinCEN). According to FinCEN’s latest update, the term “money transmission services” means: “The acceptance of currency, funds, or other value in lieu of currency from one person and the transfer of currency, funds, or other value in lieu of currency to another place or person by any means.”
While it seems likely that systems that solely support the blockchain and generate proof of work for coins may not fall under that definition, any conversion to and from legal tender may involve some risk; and the very real fines and penalties for violations make it well worth investing in some professional legal advice.
“A Fundamental Misunderstanding”
Ultimately, this relatively innocuous bill appears to be the result of a combination of lobbying by special interest groups and the desire to be first on something, while sidestepping any local concerns. But given the current environment of state-level politics in the United States, that hardly moves the needle on the government’s Bad Choice-o-Meter.
This bill illustrates a fundamental misunderstanding that most lawmakers have about the technology industry. Running a cobblestone mess of video cards, gaming systems, and generic computers for the express purpose of personal gain is not a data center.
Rather, modern data centers are the result of decades of evolution, research and development that continuously strive for best practices in efficiency, security and ecological sustainability. In addition, a growing number of data center operators are also focusing on non-technical environmental, social and corporate governance (ESG) issues; considerations designed to target actual protection for citizens, rather than benefiting a very small number of bitcoin miners.
Lumping small-scale miners and data centers into the same category is a mistake, and it does a disservice to data center operators who face far more legal, financial and technological challenges than their hobbyist peers.
