In Nov. 2022, New York became the first state to impose a temporary ban on new cryptocurrency mining permits to address environmental concerns about the energy-intensive activity.
The bill, signed by Gov. Kathy Hochul, was the latest setback in a tumultuous year for the crypto industry, which had lobbied vigorously against it but was unable to counter a successful push by an alliance of left-leaning legislators and environmental activists.
The bill will enforce a two-year moratorium on crypto-mining companies seeking new permits to convert some of the state’s oldest fossil fuel facilities into digital currency mining operations. It also requires New York to examine the industry’s impact on the state’s efforts to cut greenhouse gas emissions.
This short article will examine the moratorium’s potential impact and explore ways to circumvent it. But before we get to that, let’s first explain crypto mining and why it’s getting such a bad rep.
Crypto Mining Defined
Crypto mining refers to creating new digital currency units and putting them into circulation. It’s also how a network confirms new transactions and is integral to a blockchain ledger’s maintenance and development.
“Mining” is a metaphor for network nodes’ complex computational work to earn new tokens. In truth, miners are being compensated for their work as auditors. They are in charge of determining the legitimacy of crypto transactions.
Mining is time-consuming and expensive; nonetheless, it has a strong allure for many crypto investors because miners are compensated with crypto tokens for their efforts.
The reward miners receive is an incentive to help with the primary goal of mining: legitimizing and monitoring cryptocurrency transactions to ensure their validity.
The Problem With Crypto Mining
Crypto mining, especially proof-of-work (PoW) systems like Bitcoin, is an energy-hungry enterprise. As a result, there are concerns about the environmental impact and carbon footprint of crypto mining.
Let’s consider the energy consumed in bitcoin mining, the most prevalent form of crypto mining.
Current estimates range from 75 to 140 TWh/yr, depending on your data source. Because the code that underpins the Bitcoin network only allows a fixed amount of bitcoin to be created at set intervals (currently set at 6.25 bitcoin every ten minutes), all that power raises the rate at which bitcoin mining machines must work to generate the same amount of coins.
The Bitcoin network’s soaring energy needs are astounding compared to other potential uses. According to the lower 75 TWh/yr estimate, each new bitcoin currently consumes approximately 228,000 KWh.
The chart below shows how much of a country’s power supply could be covered by the energy consumed in bitcoin mining. For instance, the power expended in BTC mining could supply more than 165% of the Czech Republic’s annualized energy needs. It could also cover the Netherlands’ electricity needs and nearly half of Australia’s.
Percentage of a country’s power needs that could be provided by what BTC uses. Source: Digiconomist
Top-down estimates of crypto mining power consumption in the United States paint a similarly gloomy picture. According to Earth Justice, the industry was responsible for an excess of 27.4 million tons of CO2 between mid-2021 and 2022. This figure is three times the amount emitted by the largest coal plant in the United States in 2021.
To environmentalists and sustainability proponents, this is a wasteful energy-use with a massive environmental impact. To them, it also raises ethical concerns, especially when nearly half of the world is without reliable electricity.
What Will Be the Impact of New York’s Ban on Crypto Mining?
Legislators deliberately kept the ban’s scope narrow to limit its effect on the broader crypto-mining industry while satisfying environmental interests.
Individuals buying or mining for cryptocurrency or other blockchain activities would be unaffected, as would New York’s roughly dozen mining operations that draw power from the grid. Furthermore, for crypto miners who had already filed paperwork to operate in the state, the moratorium on new or renewed permits won’t apply.
But limited as it is, the bill will still have some measurable impact. Below, we’ll look at several ways we expect the new law to affect the crypto-mining industry and the state of New York.
1. No New Fossil-Fuel-Powered Crypto Miners Will Be Allowed
The most immediate effect of the bill will be that it stops fossil-fueled mining operations dead in their tracks for at least the next two years. The legislation is aimed specifically at crypto mining companies that use PoW authentication, which consumes a lot of energy. This means that bitcoin miners looking to repurpose old coal plants won’t be able to do so in New York. Additionally, mining concerns that are already operational may be forced to close since authorities won’t renew their permits in the lifetime of the moratorium.
2. Mining Operations May Move Out of State
A hostile regulatory environment will probably push many crypto miners out of New York. States like Texas are offering incentives for miners to lower their power usage rather than pushing them out. They could become more attractive destinations for New-York-Based operations that don’t want to risk running afoul of the new law.
Data from crypto company Foundry backs this up. It revealed that New York’s share of the bitcoin mining network fell from 20% to 10% in months as miners relocated to more crypto-friendly localities in other parts of the US.
3. Loss of Jobs
Many feel the bill is a significant setback for the state’s economy as it will force potential employers to take jobs elsewhere. Supporters of the industry claim the crypto mining plants have helped rebuild upstate New York’s struggling economy. They’ve also contributed substantial tax revenues to several local governments.
Each facility has a significant economic impact because it employs many local vendors, such as electricians, engineers, and construction workers. According to experts, an exodus of crypto miners could relocate jobs and tax dollars out of state.
“This decision will eliminate critical union jobs and further disenfranchise financial access to the many underbanked populations living in the Empire State,” said Perianne Boring of the NY Chamber of Digital Commerce.
4. Other States May Change Their Regulatory Stance
There is a risk that future legislation will further restrict cryptocurrency mining or impose other restrictions on the crypto industry. Regulations, like those in banking and Wall Street investment brokerages, can shift and evolve. Because New York is frequently a forerunner in financial regulations, it may foreshadow future changes in other states.
Critics of the bill, like GEM Mining CEO John Warren, have postulated that the moratorium will discourage new miners, even those relying on renewable energy, from setting up in New York due to the possibility of what they call “regulatory creep.” Simply put, the industry fears the moratorium might be the first step toward more strangulating regulations that may find their way into other state legislatures around the country.
Kevin Zhang, a senior vice president at the crypto mining company, Foundry, shares this sentiment. “Other blue states often follow the lead of New York state, and this would give them an easy template to replicate,” Zhang said.
Is There a Way Around the Bill?
For those caught in the crosshairs of the new law, there seem to be very few viable ways around it. For many crypto mining operations, going green is the most straightforward way out of this legislative quagmire. Bitcoin miners should be the first to build renewable infrastructure or increase demand for more environmentally friendly utilities in the state.
It’s not a novel concept: prominent bitcoin supporters, including Block Inc. CEO Jack Dorsey, have contended that bitcoin mining could incentivize the construction of wind and solar farms.
Indeed, the Bitcoin network may become an essential part of the global renewable industry. Mining facilities could generate revenue for energy producers while also turning on and off based on demand. In Texas, for example, miners have responded to grid load by scaling back operations during peak demand.
Apart from that, the only recourse for crypto miners would be to plug directly into the New York power grid and abandon their fossil-fueled power production. Twelve of them are already doing that.
New York’s anti-crypto mining bill comes when the industry is facing severe challenges stemming from a crippling bear market that has driven digital currencies to new lows and resulted in many mining operations closing shops.
Proponents claim the bill is a step in the right direction toward helping New York achieve net-zero electricity by stopping fossil-fueled power plants from coming back online. But opponents believe it will negatively impact the crypto industry and the state. In their opinion, the bill will chase out new crypto miners from New York and hundreds of well-paying jobs and millions in tax revenues with them.
Many also believe the bill might herald the beginning of even more anti-crypto-mining regulations, not only in New York but in other blue states as well.
However, there is a small ray of hope for the intrepid crypto miner. The two-year moratorium could be an opportunity for them to adopt renewable energy to a greater degree and escape the narrow focus of the new law.