Bitcoin offices in Istanbul, Turkey, on May 11, 2022.
Umit Turhan Coskun/NoorPhoto via Getty Images
New York State Assemblyman Anna Kellys is fed up with all the apprehension about the bill she wrote — and sponsored — to impose a two-year ban on certain types of new crypto-miners in the state. The fate of the measure, which the Senate passed in the early hours of Friday morning, rests with Governor Cathy Hochhol, who can sign it into law or veto it.
“It’s important to understand that it’s not a ban,” Kelis said in a call with CNBC on Friday.
“It’s like a three-page bill. So it would be nice for people to just read it, but it often ends up being a sentiment-based explanation.”
The legislation aims to reduce the state’s carbon footprint by cracking down on crypto-mines that meet very specific criteria.
First, they need to use an energy-intensive Proof of Work authentication method to validate blockchain transactions. Second, they must draw electricity from power plants that burn fossil fuels. Within this subcategory of mines, the measure only applies to those looking to expand or renew permits, while new entrants will not be allowed online.
Proof of Work mining, which requires sophisticated equipment and a large amount of electricity, is almost synonymous with bitcoin. Ethereum is switching to a less energy-intensive process, but it will still be using this method for at least a few more months.
“If there is a cryptocurrency mining operation, like the one in Syracuse, where there are thousands of crypto-mining computer processors, and they are connected directly to the network: it’s not a stop at that facility,” Kellis explained, telling CNBC that they don’t own any cryptocurrency. But it is actively looking into this sector.
Plus, it wouldn’t affect current operations at power plants because it’s not retroactive, and it won’t affect “small or small miners that do, you know, four, five, ten, twenty computers in the basement,” she said.
Its bill is basically just a big pause button, Kelis says, designed to stop the actions of a corner of the state’s crypto-mining industry that runs on coal and natural gas-based power plants. These energy sources overlap with the state’s strict climate laws that require it to become completely greenhouse gas emissions-neutral by 2050.
“It is very narrow, and will not in any way affect anyone’s ability to buy, use, sell or invest in any cryptocurrency, including any cryptocurrency based on Proof of Work verification methods such as bitcoin,” Kellys said.
cipher block reaction
Crypto mining industry has They gathered together to challenge the legislation.
Miners tell CNBC that while the law is relatively narrow, they are concerned about the potential for regulatory creep.
“The moratoriums and bans on how miners generate power – behind the counter versus on the grid – are inhospitable to miners,” said Fred Thiel of Marathon Digital.
“New York has a grid congestion problem that is absolutely not affected by the energy consumption from behind a meter,” Thiel continued. “Ultimately, this sends a message to miners to stay away from New York, as these are only the first steps in what could become a blanket ban on mining in the state.”
Miners make significant capital investments that may require up to five years to provide a return, in addition to a return on investment. Thiel says no company is willing to risk investing in a country where after two years, or even sooner, they may have to close and relocate.
Kelles tells CNBC that the bill-defying crypto miners are a lot like the oil and gas industry. Both use lines, she says, such as, “If you do this, in the future, it will impede free trade, free trade – and any bad regulation.”
Nor is she concerned about crypto miners leaving New York because in the end, like any company, their interest is profits.
Large-scale miners compete in a low-margin industry where their only variable cost is usually energy, so they are incentivized to migrate to the world’s cheapest energy sources – which also tend to be renewable. New York is a stronghold of cheap and renewable energy, which is a huge draw for the industry.
A third of all in-state generation in New York comes from renewables, according to the latest available data from the US Energy Information Administration, and the state produces more hydroelectric power than any other state east of the Rocky Mountains.
“The oldest and largest cryptocurrency mining operation in the country is in New York State, and it is entirely hydropower. Hydropower cannot be captured and transmitted,” said Kellys, who also noted that hydropower is the cheapest form of energy. renewable.
In addition, the state has a cold climate, which means less energy is required to cool the computer banks used to mine cryptocurrency. New York has a lot of abandoned industrial infrastructure ready for reuse as well.
“To say that miners can meet up and leave and go to any state and have that kind of energy… I think it’s frightening to say that,” Kellis said.
However, some data suggests that miners began leaving New York for more politically friendly jurisdictions such as Wyoming and Texas last year, ahead of the expected crackdown. Data from cryptocurrency firm Foundry shows that New York’s stake in the bitcoin mining network fell from 20% to 10% between October 2021 and the end of January.
“Our clients are afraid to invest in New York State,” said Kevin Zhang of the crypto-mining smelter.
“Even from foundry deployments of $500 million in capital for mining equipment, less than 5% went to New York due to the unfriendly political scene,” Zhang continued.
Determine who organizes
The real sticking point in the legislation is the question of who should regulate: Proof of Work crypto miners or power generators.
“It’s a two-year suspension on the use of power plants,” Kilis said. “Some of my colleagues say, ‘You know, that’s really a power station bill.'”
This reasoning bothers some crypto miners.
“If it was just about restarting coal plants, it would be easier — and fairer — just to ban the renewal of coal plants,” Thiel said. “The problem has been resolved.”
Some of the biggest names in Bitcoin – Including Jack Dorsey, Tom Lee, Nick Carter, and Michael Saylor – they recently co-signed a letter to the Environmental Protection Agency in which they spoke with congressional Democrats to integrate data centers with power generation facilities. The case was entirely separate from New York’s adjournment bill, but the same reasoning applies.
The veto letter said data centers containing “miners” are no different from data centers owned and operated by Amazon, Apple, Google, Meta and Microsoft. According to the letter, each is just a building where electricity powers IT equipment to power them. computing burdens.
“Regulating what data centers allow for their computers would be a massive shift in policy in the United States,” the letter said.
Kelis says the New York bill doesn’t single out crypto miners over other big consumers of energy — it’s just that “no other energy consumers are buying power plants.”
“It’s not about the industry, it’s about the use of power plants,” she said.
But the Castle Island project Nick Carter makes The case that New York is now “regulating the contents of the data center” and has “banned some kind of account”.
“They directly control what constitutes a valid use of power,” Carter wrote in a tweet.
Non-emotional policy decisions
The key here, Kelis says, is to make sure the state doesn’t make decisions based on emotional or political grounds. She says that’s why the second half of the bill, which requires the state government to assess the industry’s impact, is the most important part of it.
She said, referring to Climate Leadership and Community Protection Act. The CLCPA is “among the world’s most ambitious climate laws” and requires New York to reduce economy-wide greenhouse gas emissions by 40% by 2030 and no less than 85% by 2050 (from 1990 levels).
A two-year moratorium on the purchase of fossil-fuel-based power plants in New York will give scientists and experts from the Department of Environmental Conservation the time they need to complete a comprehensive and transparent environmental impact statement, Kelis says.
“The fee charged to them, as described in the law, is to assess the impact of the crypto-mining industry on our ability to reach our CLCPA goals,” Kilis continued.
It’s unclear whether the investigation will also look at ways proof-of-work miners might help with network resilience and spur construction of renewable infrastructure.
Texas, for example, served as a case study on how bitcoin miners can help stabilize power grids by ensuring that demand is always equal to supply.
Bitcoin miners have also improved the economics of renewables. When these energy buyers partner with renewables, it creates a financial incentive to build and improves the underlying economy of renewable energy production, which has been fraught with volatility.