Battle Benches Over New York's Proposal to Slow the Crypto-Mining Boom

Battle Benches Over New York’s Proposal to Slow the Crypto-Mining Boom

ALBANY, NY – Across the country, some states are trying to persuade cryptocurrency mining companies to open shops by offering tax incentives in hopes of creating jobs and expanding their foothold in the tech industry.

In New York, lawmakers have taken a different direction: In the waning hours of the 2022 session, the State Legislature unexpectedly passed a bill last week that would impose a two-year ban on new cryptocurrency mining permits, specifically on fossil fuel burning. facilities that some businesses have redesigned to power energy-intensive operation.

The groundbreaking legislation that would make New York the first state to enact such a moratorium has the potential to impact regulation in other states or at the federal level.

The bill’s passage marked a significant defeat for a thriving, deep-pocketed industry at the hands of a grassroots coalition of left-leaning lawmakers, climate activists and even winemakers who argued that future cryptocurrency would have an environmental cost. mining

“Other blue states could potentially pass such laws based on efforts by the environmental lobby,” said John Olsen, chief representative in New York for the Blockchain Association, an industry group that opposes the moratorium. “It’s definitely a concern.”

However, it is unclear whether Government Kathy Hochul will sign the bill. The cryptocurrency industry is expected to invest heavily in efforts to persuade him to reject the measure and influence other industry-friendly regulations in Albany.

Ms. Hochul’s campaign has already received $40,000 from Ashton Soniat, CEO of Coinmint, who runs a crypto mining operation on the grounds of a former aluminum factory in Massena, NY, a small town northeast of Niagara Falls.

An even bigger political gift went to vice-governor Antonio Delgado, who faced Ms. Hochul’s two main rivals this month. A super PAC backed by the founder of major cryptocurrency exchange FTX has spent nearly $1 million on digital ads to support its campaign in the past few weeks, according to state filings.

Super PAC spokesman Michael Levine said he is focused solely on supporting candidates he believes will support pandemic preparedness measures. But the five ads that aired across the state also highlight Mr. Delgado’s work on climate change, infrastructure, abortion and schools.

The firm also pays $12,000 a month to a consulting firm, Hinman Straub, to lobby the state government on cryptocurrency regulations, according to state records. Sam Bankman-Fried, founder of FTX, said in a statement that the company has applied for a trust agreement to operate in New York and is in talks with regulators about the practice.

The governor, a moderate Democrat facing a June 28 primary, was hesitant to sign the bill, a priority for environmental activists and the party’s left wing. Ms. Hochul probably won’t have to make a decision until December 31st.

“We’re going to take a very, very close look at all the bills,” Ms. Hochul said at a press conference in Manhattan on Tuesday. We have a lot of work to do in the next six months,” she said.

Ms Hochul previously said she was “open-minded” about the moratorium, but was also careful not to pass laws that could hinder job creation in the suburban communities where most mining operations are based.

Bitcoin mining is a necessary verification process for the Bitcoin economy. Powerful computers connect to the Bitcoin network and perform quintillions of numerical predictions per second, performing complex mathematical tasks to verify the legitimacy of transactions. As a reward for this service, digital miners receive new Bitcoins, which provide a financial incentive to keep computers running.

In Bitcoin’s early years, a crypto enthusiast could mine coins by running software at home, but as digital assets became more popular, the amount of power required to produce Bitcoin increased.

As the value of cryptocurrencies has increased, Bitcoin mining has become a major industry. There are hundreds of millions of dollars worth of public crypto mining companies like Riot Blockchain and Marathon Digital Holdings. Estimates vary, but according to Democratic Congresswoman Anna Kelles, who sponsored the bill in the lower house, it looks like there are 19 mining businesses in New York that are either fully operational or may be by the end of the year.

The measure, passed by the Democratic-controlled State Legislature, aims to narrowly target crypto mining companies that want to reuse some of the oldest, dirtiest fossil fuel facilities in New York when they are decommissioned.

Over the next two years, the bill will place a moratorium on new projects that use fossil-fired power plants to generate electricity “behind the counter” for crypto mining, and will require the government to examine the impact of the industry.

“Any delay in signing the bill puts our state at serious risk of purchasing many old, inefficient, retired power plants and re-running them for consolidated crypto mining operations for private profit,” Ms Kelles said.

The proposed ban has seen intense opposition from national cryptocurrency industry groups, who worry that the moratorium could be a precursor to similar regulations across the country, and from some lawmakers who say it unfairly targets the startup industry.

The industry was more warmly received in other states, leading some opponents of the ban to argue that those interested in mining in New York could simply be relocated. Last year, Kentucky passed a pair of bills that created tax incentives for crypto mining companies. Legislation proposed in Illinois in January would amend a state law to expand incentives to mining companies that set up shops there. And Texas and Georgia have adopted friendly attitudes towards the industry.

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

The bill passed the House in April, but lingered in the Senate for weeks, until it was unexpectedly revived and passed just before the Senate walked out of session early Friday morning after frenzied lobbying and late-night debate.

Democratic Senator Kevin Parker of Brooklyn, who sponsored the bill, said it was not designed to discourage the industry. “If people want to mine cryptocurrencies in New York state, which I’m very open to, then we have to do it sustainably,” he said.

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

In New York, areas available for such businesses are former power plants scattered throughout the state, which are among the state’s most polluting and inefficient plants. Restarting them will reverse the reductions in greenhouse gas emissions these shutdowns have achieved. This will slow the government’s progress towards climate goals it is legally required to meet, and there are growing concerns that it is already behind schedule.

The bill will not affect crypto mining projects that draw electricity from the grid. But some supporters say they should also be banned, as they will collect valuable electricity as the state tries to electrify homes, buildings and cars to meet climate targets.

The moratorium will also not affect existing projects in Greenidge, such as the much-discussed project in Seneca Lake, but residents and tourism businesses in the surrounding Finger Lakes region have supported the bill to prevent similar projects from taking root.

According to Ms. Kelles, boutique crypto miners are not affected, as are individuals working from their homes; this is an important distinction meant to preserve the potential usefulness of crypto to marginalized people.

The Senate passed a broader version of the cryptocurrency moratorium bill last year, but it failed to gain sufficient traction in the House. The moratorium proposal quickly became a hot topic when it resurfaced in 2022, an election year for state legislators, as environmental groups renewed their pressure and the cryptocurrency industry began to organize their own lobbying forces.

Faced with potential primaries from the left, some Democrats have come under pressure to support this and other environmental laws, while others vehemently opposed it, arguing that it would kill jobs and unfairly target one industry while keeping other energy-intensive industries off the hook.

“I think the majority of members still don’t understand the industry and technology,” said Jeremy Cooney, a Democratic State Senator from Rochester, who opposes the moratorium. “This is bigger than cryptocurrency. It’s about whether New York will be an open and welcoming place to do business and engage with emerging technologies.”

Lobbyists from two national groups (Blockchain Association and Digital Currency Group) also included themselves in the debate in New York, deeming it necessary to defeat the law to prevent similar legislation from spreading across the country.

Even so, environmental groups continued to make a fuss, and so did Ms. Kelles, who called her Senate colleagues and texted them to lobby directly.

Senator Liz Krueger, a senior Democrat from Upper Manhattan, said she also called and texted her colleagues to persuade them to change their vote, and personally lobbied others in the State Capitol on Thursday night.

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

Anne Barnard contributed to the reporting.

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