Here’s what’s in New York’s new bitcoin mining ban

After an early morning vote in Albany on Friday, New York lawmakers passed a bill to ban certain bitcoin mining operations that run on carbon-based power sources. The measure now heads to the desk of Gov. Kathy Hochul, who can sign it into law or veto it.

If Hochul signs the bill, it would make New York the first state in the country to ban blockchain technology infrastructure, according to Perianne Boring, founder and president of the Chamber of Digital Commerce. Industry insiders also tell CNBC that 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 New York bill, which previously passed the state assembly in late April before moving to the state senate, 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. Ethereum is moving to a less energy-intensive process, but will continue to use this method for at least a few more months.

The push for an eleventh-hour vote came as the leadership in the state capital managed to turn some of the senators who were previously undecided.

Lawmakers who support the law say they are looking to curb the state’s carbon footprint by cracking down on mines that use electricity from power plants that burn fossil fuels. If it passes – for 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 entrants will not be allowed to come online.

The net effect of this, according to Boring, would be to 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 economic access,” Bored tells CNBC.

It’s a sentiment echoed by Galaxy Digital’s Amando Fabiano, who says that “New York is setting a bad precedent that other states can follow.”

As for timing, the law will go into effect as soon as the governor signs off.

Part of the bill involves conducting a statewide study of the environmental impact of mining with evidence of 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 in favor of this year’s proposed ban has a lot to do with 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.

Speaking 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 a renewable energy source.

“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.

Data from digital currency company Foundry shows 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,” said Foundry’s Kevin Zhang.

“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.

If the crypto mining moratorium is 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.”

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,” said Zhang, Foundry’s SVP of Mining Strategy.

“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.

Veteran bitcoin miners like Core Scientific co-founder Darin Feinstein say the industry already knows that New York is generally hostile to crypto mining.

“There’s no reason to go into a region that doesn’t want you,” Feinstein said. “Bitcoin miners are really a data center business and the data center has to locate in jurisdictions that want data centers within their borders…If you’re going to ignore that, you have to deal with the consequences of doing business in a region that doesn’t want your business .”

Feinstein and other miners point out 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 huge.”

Meanwhile, the Biden administration is formulating its own policy aimed at bitcoin mining — with a goal of reducing energy consumption and emissions.

The White House Office of Science and Technology Policy is examining the connections between distributed ledger technology and energy transitions, the potential for these technologies to prevent or advance efforts to address climate change at home and abroad, and the impacts these technologies have on the environment, according to Dr. Costa Samaras , who is the principal assistant director for energy.

The effort is one of the outcomes outlined in the president’s order issued in March.

Samaras tells CNBC that the White House is specifically examining the role these technologies could play in accounting for greenhouse gas emissions, as well as potentially supporting the development of a clean electricity grid.

They also “take a look at the implications for energy policy, including how cryptocurrencies could affect grid governance and reliability.”

It is unclear whether these recommendations, due in September, will culminate in federal proof-of-work mining law. For now, it is the states that call the shots.