Benjamin Hall | CNBC
New York Governor Kathy Hochul signed into law Tuesday a law banning some bitcoins mining operations that run on carbon-based energy sources. For the next two years, unless a proof-of-work mining company uses 100% renewable energy, it will not be allowed to expand or renew permits, and new entrants will not be able to come online.
“It’s the first of its kind in the country,” Hochul said in a legal statement detailing his decision.
The governor added that it was a critical step for New York as the state seeks to reduce its carbon footprint by cracking down on mining that uses electricity from power plants that burn fossil fuels. The law also comes as the cryptocurrency 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 Mining Law, passed by the state assembly in late April and the state senate in June, provides 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 that it could have a knock-on effect in the United States, 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 in determining who can and cannot use power in New York State,” the Digital Chamber of Commerce said in a statement.
It’s a sentiment echoed by Kevin Zhang of digital currency firm Foundry.
“Not only is this a clear signal that New York is closed for business for bitcoin miners, but it sets a dangerous precedent for locating a particular industry to ban energy from,” said Zhang, senior vice president of the Foundry’s mining strategy.
The net effect of this, according to Perianne Boring of the Digital Chamber of 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 many populations of financial access subbanks living in the Empire State,” Boring previously told CNBC.
As for the timing, the law went into effect after the governor signed it.
The irony of banning bitcoin mining
A section of the law requires conducting a statewide study of the environmental impact of test-of-work mining operations on New York’s ability to meet aggressive climate goals set forth in the Climate Leadership and Community Protection Act, which requires reducing emissions of New York’s greenhouse gases by 85% by 2050.
Boring tells CNBC that the recent surge in support for the ban is tied to this mandate for the sustainable energy transition.
“Proof-of-work mining has the potential to lead the global transition to more sustainable energy,” Boring told CNBC’s Crypto World, underlining the irony of the moratorium. “The bitcoin mining industry is actually a leader in compliance with that law.”
The sustainable energy mix of the global bitcoin mining industry is estimated to be just under 60% today, and the Digital Chamber of Commerce has found the sustainable energy mix to be closer to 80% for its members who mine in the state of New York.
“New York’s regulatory environment will not only block their goal — job-safe carbon-based fuel mining — but also likely discourage new renewable-based miners from doing business with the state at due to the possibility of more regulatory slippage,” said John Warren, CEO of institutional-grade bitcoin mining firm GEM Mining.
One-third of generation in New York state comes from renewable sources, according to the latest available data from the US Energy Information Administration. New York counts its nuclear power plants towards its 100 percent carbon-free electricity goal, and the state produces more hydroelectricity than any other state east of the Rocky Mountains.
The state also has a cold climate, meaning less energy is needed to cool the computer banks used in cryptocurrency mining, as well as much abandoned industrial infrastructure that is ripe for reuse.
At the Bitcoin 2022 conference in Miami in April, former presidential candidate and New Yorker Andrew Yang told CNBC that when he talks to people in the industry, he has found that mining operations can help develop demand for renewable energy.
“In my mind, a lot of these things will eventually drive activity to other places that may not meet the goal of policy makers,” Yang said.
Some in the industry aren’t waiting for the state to make a ban official before they act.
Earlier this year, data from digital currency firm Foundry showed that New York’s share of the bitcoin mining network had dropped from 20% to 10% in just a few months as miners began to migrate to more cryptocurrency-friendly jurisdictions in other parts of the country.
“Our clients are scared to invest in upstate New York,” said Foundry’s Zhang.
“Even since Foundry’s deployment of $500 million of mining equipment capital, less than 5 percent has gone to New York due to the hostile political landscape,” Zhang continued.
The domino effect
Now that the cryptocurrency mining moratorium has been signed into law by the governor, it could have a number of aftereffects.
In addition to potentially stifling investments in more sustainable energy sources, industry advocates tell CNBC that each of these facilities has a significant economic impact with many local suppliers made up of electricians, engineers and construction workers. An exodus of cryptocurrency miners could result in jobs and tax dollars moving out of state, experts say.
“There are many unions against this bill because it could have dire economic consequences,” Boring said. “Bitcoin mining operations are providing great high-paying, high-paying jobs for local communities. One of our members, their average pay is $80,000 a year.”
Hochul addressed some of those concerns in his statement on Tuesday, noting that he recognized the importance of “creating economic opportunities in communities that have been left behind” and that he “will continue to invest in economic development projects that create jobs of the future .”
As Boring points out, New York is a leader when it comes to state legislation, so there’s also the potential for a copycat phenomenon spreading across the country.
“Other blue states often follow New York state’s lead, and that would give them a model that’s easy to replicate,” Foundry’s Zhang said.
“Sure, the network will be fine — it survived a nation-state attack from China last summer — but the implications for where the technology scales and pans out in the future are huge,” Zhang continued.
However, many others in the industry think worries about the fallout from a mining moratorium in New York are exaggerated.
Several miners told CNBC there are many friendlier jurisdictions: Georgia, North Carolina, North Dakota, Texas and Wyoming have all become major mining destinations.
Texas, for example, has cryptocurrency-friendly lawmakers, a deregulated power grid with real-time spot prices, and access to a significant amount of excess renewable energy, as well as stranded or burned natural gas. The state’s regulatory friendliness to miners also makes the industry very predictable, according to Alex Brammer of Luxor Mining, a cryptocurrency pool built for advanced miners.
“It’s a very attractive environment for miners to put large amounts of capital into,” he said. “The sheer number of land and power purchase contracts that are in various stages of negotiation is enormous.”