Crypto mining is using specialized computers to solve complex mathematical problems and earn rewards in the form of cryptocurrencies such as bitcoin (BTC).
The state of crypto mining in the U.S. is dynamic and diverse, as different states have different approaches to regulating, incentivizing, and supporting this emerging industry.
The country currently hosts about a third of the world’s crypto-mining operations, but its share may change depending on how each state adapts to this fast-growing sector.
Some states, such as Texas and Wyoming, have enacted laws to attract crypto miners and investors, offering low electricity costs, tax breaks, and legal frameworks for crypto banks.
Other states, such as Kentucky and North Dakota, have leveraged their mining heritage and renewable energy sources to provide favorable conditions for crypto mining.
However, not all states welcome crypto mining, as some have expressed concerns about its environmental impact, power consumption, and volatility.
This article will compare crypto mining in Texas and New York, two states with contrasting approaches to this emerging industry. To do that, we will look at several essential factors crypto miners consider when setting up shop in a location and see how these factors match up in the two states.
Texas: A Crypto-Friendly State?
Texas is one of the most crypto-friendly states in the U.S., with a favorable regulatory environment and abundant energy resources. It became a hotspot for crypto mining because of its low-cost and abundant energy sources, especially wind and solar power.
According to Lee Bratcher, president of the industry group Texas Blockchain Council, Bitcoin miners consume about 2.1 gigawatts (G.W.) of the state’s power supplies, up 75% from last year and nearly triple from two years ago.
Texas also has a deregulated power market that allows customers to choose from different providers and negotiate long-term contracts at fixed prices. It gives miners more flexibility and options to find cheap and reliable power sources and maintain stability in their operations.
According to ERCOT, the grid operator for most of Texas, miners had applied to connect up to 33 gigawatts of electricity to the grid as of August 2022, which was enough to power all of New York State. However, only some of these applications were approved or built; some were speculative or redundant.
Renewable energy and friendly regulations
Texas also has abundant renewable energy sources, especially wind, and solar, which can provide low-cost and clean power for miners. The state leads the nation in wind power generation, accounting for about 28% of its total electricity production in 2020. Solar power is also growing rapidly in Texas, with more than 7 gigawatts of installed capacity as of June 2021. Some miners have partnered with renewable energy developers to secure long-term contracts at fixed prices.
Furthermore, Texas has a favorable regulatory climate for crypto businesses, with no state-level taxes on digital assets and supportive lawmakers who have passed bills recognizing blockchain technology and smart contracts.
The state does not require a license or registration for cryptocurrency businesses, including miners, unless they offer money transmission services to customers.
The Texas Department of Banking issued guidance in 2014 stating that cryptocurrencies are not considered money under state law and therefore are not subject to money transmitter regulations.
Unreliable power grid and environmental impact of crypto mining
However, not everything is rosy for the crypto mining industry in Texas. The sector faces several challenges and risks that could hamper its growth or threaten its viability.
One of these challenges is the reliability of the state’s power grid, which was exposed during a winter storm blackout in February 2021 that left millions of Texans without electricity for days. The grid operator, ERCOT, struggled to balance supply and demand amid record-low temperatures and frozen power plants. Crypto miners were among the customers who had to curtail their consumption or face rolling blackouts.
Another challenge is the environmental impact of crypto mining, which consumes large amounts of electricity and generates carbon emissions. According to a study by Cambridge University, Bitcoin mining alone accounts for about 0.6% of global electricity consumption and 0.3% of global carbon emissions.
Others have argued that crypto mining can incentivize renewable energy development by creating demand for excess or stranded power.
A third challenge is regulatory uncertainty at the federal level, where authorities have expressed concerns about the potential use of cryptocurrencies for illicit activities such as money laundering, tax evasion, and terrorism financing.
The U.S. Treasury Secretary, Janet Yellen, has called for a regulatory framework for cryptocurrencies to protect investors and consumers while preventing abuse.
The U.S. Securities and Exchange Commission (SEC) has also been cracking down on some crypto projects it deems as securities offerings without proper registration or disclosure.
New York: A Crypto-Hostile State?
New York State initially emerged as a leading destination for crypto mining in the United States, thanks to its abundant and cheap hydroelectric power and the availability of vacant industrial sites that could be easily converted into mining facilities.
The state also has a more reliable and interconnected grid than Texas. It can draw power from neighboring states and Canada. These factors made New York an appealing destination for crypto miners who wanted to reduce their environmental impact and comply with regulatory standards.
According to a report by CoinShares, a digital asset research firm, New York accounted for about 7% of global Bitcoin mining capacity as of June 2021.
Big-name players established in New York
Some of the significant crypto-mining operations in New York include Greenidge Generation, a former coal-fired power plant in Dresden, near Seneca Lake, converted into a natural gas plant and started mining Bitcoin in 2019.
The company claims to use carbon offsets and renewable energy credits to mitigate its environmental impact and plans to expand its operations to South Carolina.
Another facility calling New York home is BitRiver, a Russian company that operates one of North America’s largest crypto mining sites at a former aluminum smelter in Massena, near the Canadian border. The company leases space and power to other miners and uses mainly hydroelectricity from the St. Lawrence River.
Digihost is a Canadian company that operates a Bitcoin mining facility at a former coal plant in North Tonawanda, near Niagara Falls. The company uses 90% renewable energy sources and aims to achieve carbon neutrality by 2022.
Unfriendly regulations and expensive power
However, New York is taking a more adversarial stance towards crypto mining, enacting stricter regulations discouraging industry players from investing in the state.
New York requires a license called BitLicense for any business that engages in virtual currency activities, including mining. The BitLicense was introduced in 2015 by the New York Department of Financial Services (NYDFS) and has been criticized by many as being too burdensome and expensive. Only about 30 companies have obtained a BitLicense so far.
New York also has a regulated electricity market that limits choices and prices for consumers. The average retail price of electricity in New York was about 15 cents per kilowatt-hour (kWh) in June 2021, compared to about 10 cents per kWh in Texas.
Moreover, some local governments have imposed moratoriums or bans on cryptocurrency mining due to environmental concerns. For example, Plattsburgh banned new crypto mining operations for 18 months in March 2018 after residents complained about high electricity bills caused by miners.
New York also has fewer renewable energy sources than Texas, mainly relying on natural gas and nuclear power for electricity generation.
The state has set ambitious goals to achieve 70% renewable energy by 2030 and 100% carbon-free electricity by 2040; it faces challenges such as transmission constraints and land use conflicts. Some miners have tried to use renewable energy sources such as hydroelectric dams or biogas plants in New York, but they still face regulatory hurdles and public opposition.
Cryptocurrency mining is a lucrative but risky business that depends on various factors such as regulations, electricity costs, the availability of hardware and software, and market conditions. Texas and New York represent two opposite ends of the spectrum regarding crypto mining in the U.S.
While Texas offers a friendly and flexible environment for miners, New York imposes strict and costly rules that hamper their operations.
The crypto mining industry in Texas is still young and dynamic, with many opportunities and challenges ahead.
However, Texas also faces some drawbacks to crypto mining. The state’s grid is isolated from the rest of the country, which limits its ability to import or export power during periods of high demand or low supply. It can lead to instability and blackouts, as seen during the winter storm in February 2021 that left millions of Texans without power for days.
Crypto miners also have to deal with high temperatures and humidity, which can affect the performance and lifespan of their equipment.
New York has some disadvantages of its own. The state has some of the highest electricity prices in the country, which can eat into the profits of crypto miners.
The state also has a more strict and complex regulatory framework for crypto activities, which can pose legal risks and compliance costs for miners.
Crypto miners must also compete with other high-demand sectors, such as finance and technology, for space and infrastructure.
Considering all the above, we can safely say that as things stand right now, Texas is a more attractive proposition for crypto miners than New York, especially if we consider the cost of living in both states too.