Fight looms over New York’s bid to slow cryptocurrency mining boom

ALBANY, NY — Across the country, some states are trying to entice cryptocurrency mining companies to set up shop, offering tax breaks in hopes of creating jobs and expanding their presence in the tech sector.

In New York, lawmakers went in a different direction: In the closing hours of its 2022 session, the State Legislature unexpectedly last week passed a bill that would impose a two-year ban on new cryptocurrency mining licenses, specifically. in burning fossil fuel. plants, which some companies have reused to feed energy-intensive activity.

The groundbreaking legislation, which would make New York the first state to enact such a moratorium, has the potential to influence regulations in other states or at the federal level.

The bill’s approval marked a significant defeat for a thriving and wealthy industry at the hands of a coalition of left-wing lawmakers, climate activists and even winemakers, who argued that there would be an environmental cost to the future cryptocurrency. mining.

“Other blue states could potentially introduce legislation like this, based on the efforts of the environmental lobby,” said John Olsen, principal New York representative for the Blockchain Association, an industry group that opposed the moratorium. “That’s certainly a concern.”

It is unclear, however, whether Governor Kathy Hochul will sign off on the bill. And the cryptocurrency industry is expected to invest heavily in efforts to convince it to reject the measure and try to influence other industry-friendly regulations in Albany.

Hochul’s campaign has already received $40,000 from Ashton Soniat, the chief executive of Coinmint, which has a cryptocurrency mining operation in a former aluminum factory in Massena, NY, a small town northeast of Niagara Falls.

A much bigger political gift went to Hochul’s lieutenant governor Antonio Delgado, who faces two primary opponents this month. A super PAC, backed by the founder of FTX, a major cryptocurrency exchange, has spent about $1 million on digital ads in recent weeks in support of his campaign, according to state records.

Michael Levine, a spokesperson for the super PAC, said he is only focused on supporting candidates he believes will support the pandemic preparedness measures. But the five ads running across the state also highlight Delgado’s work on climate change, infrastructure, abortion and schools.

The company is also paying $12,000 a month to a consulting firm, Hinman Straub, to pressure the state government over cryptocurrency regulations, according to state filings. Sam Bankman-Fried, founder of FTX, said in a statement that the company has applied for a fiduciary letter to operate in New York and is engaged in talks with regulators about its application.

The governor, a moderate Democrat facing a June 28 primary, has not committed to signing the bill, a priority of environmental activists and the party’s left flank. Mrs. Hochul probably won’t have to make a decision until December 31.

“We’ll be looking at all the accounts very, very closely,” Hochul said during a press conference in Manhattan on Tuesday. “We have a lot of work to do in the next six months.”

Mrs. Hochul previously said that she was “open-minded” about the moratorium, but that she was also careful not to pass legislation that could impede job creation in the interior communities, where many of the mining operations are located.

Bitcoin mining is an essential verification process for the Bitcoin economy. Powerful computers connect to the Bitcoin network and perform complex mathematical tasks to confirm the legitimacy of transactions, making quintillion numerical guesses per second. As a reward for this service, digital miners receive new Bitcoins, providing a financial incentive to keep computers running.

In the early years of Bitcoin, a cryptocurrency enthusiast could mine coins by running software at home, but as digital assets became more popular, the amount of energy needed to generate Bitcoin skyrocketed.

As cryptocurrencies grew in value, Bitcoin mining became a huge industry. There are publicly traded cryptocurrency mining companies like Riot Blockchain and Marathon Digital Holdings that are worth hundreds of millions of dollars. While estimates vary, there appear to be 19 mining operations in New York that are either fully operational or could be by the end of the year, according to Representative Anna Kelles, a Democrat who sponsored the project in the lower house.

The measure passed by the Democrat-controlled State Legislature closely targets cryptocurrency mining companies looking to repurpose some of New York’s oldest and dirtiest fossil fuel plants as they are taken out of service.

Over the next two years, the bill would place a moratorium on new projects that use fossil fuel plants to generate “behind the meter” electricity for cryptocurrency mining and would require the state to study the industry’s impact.

“Any delay in signing the bill puts our state at serious risk of many old, inefficient and retired power plants being purchased and reactivated for consolidated cryptocurrency mining operations for private profit,” Kelles said.

The proposed ban has drawn intense opposition from national cryptocurrency industry groups who feared the moratorium could be a precursor to similar regulations across the country, and some lawmakers who said it unfairly targeted the nascent industry.

The industry has had a warmer reception in other states, leading some opponents of the ban to argue that those interested in mining in New York can simply move. Last year, Kentucky passed two bills creating tax breaks for cryptocurrency mining companies. Legislation proposed in Illinois in January would amend a state law to extend incentives to mining companies that have established themselves there. And Texas and Georgia have taken friendly stances towards the industry.

“It is a shame that the Legislature voted to impose a moratorium on Bitcoin miners in New York,” Perianne Boring, president of the Chamber of Digital Commerce, an industry advocacy group, said in a statement. “This is a significant setback for the state and will smother its future as a leader in technology and global financial services.”

The bill passed the House in April, but stalled for weeks in the Senate until it was unexpectedly revived and passed just before the Senate left session on Friday morning, after frantic lobbying efforts and late-night discussions.

Senator Kevin Parker, a Brooklyn Democrat who sponsored the bill, said he did not intend to discourage the industry. “If people want to mine cryptocurrency in the state of New York, which I’m very open to, we need to do it in a sustainable way,” he said.

The legislation in New York comes after China cracked down on cryptocurrency mining last year, forcing some operations to relocate to the United States. Some miners are now reviving broken coal plants or using low-cost natural gas to power their computers.

In New York, the spaces available for these businesses are former power plants scattered across the state’s countryside that were among the most polluting and inefficient in the state. Restarting them would reverse the reductions in greenhouse gas emissions that these shutdowns have achieved. This would slow the state’s progress toward the climate goals it is legally required to meet, amid growing concern that it is already behind schedule.

The bill would not affect cryptocurrency mining projects that draw electricity from the grid. But some advocates say they should also be banned because they would consume precious electricity as the state scrambles to electrify homes, buildings and cars to meet climate goals.

The moratorium would also not affect existing projects such as the highly debated one in Greenidge on Lake Seneca, although residents and tourism businesses in the Finger Lakes region have championed the bill to prevent similar projects from taking root.

Also unaffected are cryptocurrency miners, such as individuals operating from their homes, an important distinction aimed at preserving the potential benefit of cryptocurrency for marginalized people, according to Kelles.

The Senate passed a broader version of the cryptocurrency moratorium bill last year, but it failed to gain enough traction in the Assembly. When the moratorium proposal resurfaced in 2022, during an election year for state lawmakers, it quickly became a controversial issue as environmental groups renewed their pressure and the cryptocurrency industry began to muster its own lobbying forces.

While some Democrats facing potential left-wing primaries have been pressured to support this and other environmental laws, others have spoken out vehemently against it, arguing that it would kill jobs and unfairly hit an industry, leaving other energy-intensive industries off the hook.

“I think most members still don’t understand the industry and technology,” said State Senator Jeremy Cooney, a Democrat from Rochester, who opposed the moratorium. “This is bigger than cryptocurrency. It’s about New York being an open and inviting place to do business and engage in emerging technologies.”

Lobbyists from two national groups — the Blockchain Association and the Digital Currency Group — also chimed in in the New York debate, seeing the bill’s defeat as necessary to prevent similar legislation from spreading across the country.

Even so, environmental groups continued to cry out, as did Kelles, who called and texted his colleagues in the Senate to put pressure on them directly.

Senator Liz Krueger, a high-ranking Democrat from Upper Manhattan, said she also called and texted colleagues to convince them to change their votes, and personally lobbied others at the State Capitol on Thursday night.

“Smart entrepreneurs entering the cryptocurrency field will realize that they can build a better mousetrap and make us buy it if they are not destroying our environment,” she said.

Anne Barnard contributed reporting.

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