These machines, known as mining rigs, work around the clock to find new cryptocurrency units.
Benjamin Halle | CNBC
New York government. Kathy Hochul signed into law Tuesday banning certain people Bitcoin Mining operations powered by carbon-based energy sources. For the next two years, a proof-of-work mining company is not allowed to expand or renew permits unless using 100% renewable energy, and new entrants are not allowed to go online.
“It is the first of its kind in the country,” Hochul said in a court filing detailing their decision.
The governor added that it’s an important step for New York as the state seeks 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 is rocked by the implosion of Sam Bankman-Frieds FTX, which was once one of the most popular and trusted names in the industry.
The New York Mining Act, passed by the State Assembly in late April and the 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 produce Bitcoin, among other things.
Industry insiders tell CNBC that this could have a knock-on effect in the US, which is currently at the forefront of the global bitcoin mining industry and accounts for 38% of the world’s miners.
“The approval will set a dangerous precedent in deciding who may or may not exercise power in New York State,” the Chamber of Digital Commerce wrote in a statement.
This opinion is also shared by Kevin Zhang of digital currency company Foundry.
“Not only is it a clear signal that New York is closed to dealings with bitcoin miners, it also sets a dangerous precedent for singleing out a specific industry to ban energy consumption,” said Zhang, senior vice president of mining Strategy at Foundry.
The net effect of this, according to Perianne Boring of the Chamber of Digital Commerce, would weaken New York’s economy by forcing companies 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 key union jobs and further deprive the Empire State’s many underbanked populations of financial access. Boring previously told CNBC.
As for timing, the law went into effect after the governor approved it.
The Irony of Banning Bitcoin Mining
A section of the law includes conducting a statewide study of the environmental impact of proof-of-work mining operations on New York’s ability to meet aggressive climate goals set under the Climate Leadership and Community Protection Act, which mandates New York’s greenhouse gas emissions by up Reduce by 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 power the global transition to more sustainable energy,” Boring told CNBC’s Crypto World, noting the irony of the moratorium. “The bitcoin mining industry is actually a leader in terms of compliance with this law.”
The sustainable energy mix of the global bitcoin mining industry today is estimated at just under 60%, and the Chamber of Digital Commerce has determined that the sustainable power mix for its members mining in New York State is closer to 80%.
“The regulatory environment in New York will not only halt its goal — carbon-based fuel Proof of Work Mining — but will likely discourage new renewable energy-based miners from doing business with the state due to the possibility of further regulation creep. said John Warren, CEO of institutional bitcoin mining firm GEM Mining.
According to the latest available data from the US Energy Information Administration, one-third of New York State’s electricity generation comes from renewable sources. New York counts its nuclear power plants toward its goal of generating 100% carbon-free electricity, and the state produces more hydroelectric power than any other state east of the Rocky Mountains.
The state also has a cool climate, meaning less energy is needed to cool the computer banks used in crypto mining, as well as many abandoned industrial infrastructures ripe for repurposing.
At the Bitcoin 2022 conference in Miami in April, former presidential candidate and New Yorker Andrew Yang told CNBC that in discussions with industry officials he found that mining operations can help drive demand for renewable energy.
“In my opinion, a lot of these things will lead to activities moving to other places that may not achieve the goal of policymakers,” Yang said.
Some in the industry are not waiting for the state to issue an official ban before taking action.
Earlier this year, data from digital currency company Foundry showed that New York’s share of the Bitcoin mining network has dropped 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 deterred from investing in upstate New York,” said Zhang of Foundry.
“Even of Foundry’s $500 million investment in mining equipment, less than 5% has gone to New York due to the unfriendly political landscape,” Zhang continued.
The domino effect
Now that the crypto mining moratorium has been put into effect by the governor, it could have a number of knock-on effects.
Aside from potentially stifling investment in more sustainable energy sources, industry officials tell CNBC that each of these facilities has a significant economic impact, as many local providers are made up of electricians, engineers and construction workers. An exodus of crypto miners could result in jobs and tax dollars migrating out of the state, experts say.
“There are many unions opposed to this law because it could have dire economic consequences,” Boring said. “Bitcoin mining farms provide high-paying, high-quality, great jobs for local communities. One of our members whose average salary is $80,000 per year.”
Hochul addressed some of those concerns in her statement on Tuesday, noting that she recognizes the importance of “creating economic opportunity in communities 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 at the forefront when it comes to state legislation, so there’s also the potential for a copycat phenomenon to spread across the country.
“Other blue states often follow New York State’s lead, and this would give them an easy template to replicate,” said Zhang of Foundry.
“Sure, the network will be fine — it survived a nation-state attack from China last summer — but the impact on where the technology will scale and develop in the future is huge,” Zhang continued.
However, many others in the industry say concerns about the consequences of a mining moratorium in New York are overblown.
Several miners told CNBC there are many friendlier jurisdictions: Georgia, North Carolina, North Dakota, Texas and Wyoming have all become major mining targets.
Texas, for example, has crypto-friendly lawmakers, a deregulated power grid with real-time spot pricing, and access to significant excess renewable energy and stranded or flared natural gas. The government’s regulatory friendliness towards miners also makes the industry very predictable, according to Alex Brammer of Luxor Mining, a cryptocurrency pool for advanced miners.
“It’s a very attractive environment for miners to deploy large amounts of capital,” he said. “The sheer number of land deals and power purchase agreements that are in various stages of negotiation is enormous.”