New York’s Crypto Mining Crackdown: A Game-Changing Decision for the Industry?

New York’s partial ban on crypto mining is the first of its kind in the country. It is affecting the growing industry and giving environmentalists the confidence to push for similar laws across the country.

New York’s Partial Ban on Crypto Mining Using Fossil Fuels

The two-year ban on new cryptocurrency mining projects that use fossil fuels that Gov. Kathy Hochul signed in November is already keeping some crypto businesses from investing in the state. Environmentalists say it can be a model for other states.

The Sierra and other environmental groups are pushing for a bill to study the energy and environmental effects of cryptocurrency mining across the country. Last month, Sen. Ed Markey (D-Mass.) introduced a bill requiring the Environmental Protection Agency to study the effects of the industry and require mining operations that use more than 5 megawatts of electricity to report their emissions.

Environmental Groups Advocate for Similar Measures in Other States

Megan Wachspress, a staff attorney at the Sierra Club, said in an interview, “We need to know more about what is going on and enforce our environmental laws against coal and gas plants that are being run mainly to help cryptocurrency operations.”

She said that the New York law was an important first step toward getting that information and learning more about how cryptocurrency miners are basically turning coal and gas into Bitcoin and what that means for the world.

Environmental groups pushed for a temporary stop to some types of crypto mining in New York because they were worried that old fossil fuel plants would be brought back online or turned up to run computers to make cryptocurrency, which uses a lot of energy. They have also said that the industry may be unable to work with the state’s new climate law, which calls for a big cut in emissions.

The law does not affect mining cryptocurrency with power from the electric grid. In upstate New York, both big and small sites, like a former aluminum smelter in Massena and a former coal plant in Somerset near Niagara Falls, can still do business.

The partial ban comes at a time when companies that mine digital currencies, like Bitcoin, have become interested in moving to upstate New York. The area has a lot of old power plants and factories with electrical infrastructure that isn’t being used. This is appealing to the industry.

Impact on Crypto Businesses in New York

Some business owners said that the law is likely to keep companies from coming to New York out of fear of more restrictions. It comes at the same time as the crash of the digital currency market after the bankruptcy of the Bahamas-based crypto exchange FTX, which adds to the uncertainty in the industry.

Foundry’s director of public policy, Kyle Schneps, said that cryptocurrency businesses are already putting their money elsewhere. He said that the Rochester company that mines Bitcoin has bought two sites in other states and is putting most of its money there.

“The feeling in the crypto industry right now is that New York is willing to use its climate goals to arbitrarily exclude any politically convenient industry to target,” Schneps said.

“At the moment, it’s unlikely that any proof-of-work or proof-of-stake cryptocurrency company that isn’t already grandfathered in by New York’s unique crypto laws will build their business in New York because no one knows who will be next on the chopping block.”

The moratorium bill made an exception for the only two power plants that use fossil fuels to run cryptocurrency mining machines. It did this by leaving out any power plants that had already been put in for a permit.

David Fogel, CEO of Coinmint, which runs the up to 160MW crypto mining facility in Massena, said, “The law does not affect how we do business. We continue to invest and create jobs at our facility.”

One Company has already felt the effects of the new law.

Blockfusion owns a cryptocurrency mining facility in Niagara Falls that the city has shut down. CEO Alex Martini-LoManto said that the Company lost its insurance coverage because of the statewide ban, even though it was not affected. He agreed with the ban but thought it should have gone further and made it illegal for any fossil fuel plant to start up again. When it was running, Blockfusion used power from the grid, which was mostly hydropower.

Martini-LoManto said, “There’s a lot of circus going on with the media and politics, but it doesn’t do much.” “It doesn’t change how Bitcoin is mined in New York, and it doesn’t affect the past.”

Environmentalists’ calls to expand the limits of the “proof of work” method that Bitcoin is based on and other states’ calls to do the same thing worry groups in the cryptocurrency industry. Miners compete with each other around the world to solve complicated math problems that verify transactions in exchange for a fee. This method is called “proof of work,” and a mining operation can earn more fees the more computing power it has. And that means a need for power.

“In some ways, all of the industry’s worries about this bill and the way it was being talked about were valid,” said John Olsen, the Blockchain Association’s lobbyist in Albany. “This isn’t about how the work affects the environment. It’s about how much energy is used and if it makes sense that that energy is for a certain operation.”

Continued Operations at Large and Small Sites Across Upstate New York

Greenidge, which used to be a coal plant but is now a gas plant and a site for mining cryptocurrency, is still running. In June, the state Department of Environmental Conservation turned down the Company’s request to renew a key air permit. However, administrative laws in the state allow the plant to keep running while the company appeals.

Also, the Fortistar gas plant near a neighborhood in North Tonawanda, Niagara County, can keep running. It has pods that look like storage containers and have cryptocurrency miners and fans outside. The building was bought by Digihost, a blockchain company based in Toronto. The state DEC is still processing an application for a Title V air permit. The agency has not yet said that the application is full.

Under the law, the DEC would not accept any new requests to mine cryptocurrency using a fossil fuel power plant.

The Company also has a big lift with a short timeline ahead. The law tells DEC to finish a “generic environmental impact statement” by Nov. 22 that looks at a wide range of issues related to mining cryptocurrencies that use the energy-intensive “proof of work” method that Bitcoin is based on.

This makes for a tight schedule because the law also says that DEC has to hold 120 days of public comment and multiple hearings across the state on a draft of this document.

The law requires the DEC to look into the number of “proof of work” cryptocurrency mining sites in the state, the amount and source of energy used, the greenhouse gases emitted from the operations, and any expected growth and possible effects of mining expansions. The study will also look at how people use water and how that affects public health.

The outcome and specifics of the final product of this process could lead the state Legislature to make more rules for the industry. For example, a generic environmental impact statement on hydraulic fracturing for natural gas was a key step toward New York banning the process in 2014, which was also the first in the country at the time.

Verdict

In my opinion, New York’s recent decision to partially ban cryptocurrency mining using fossil fuels is a major game changer for the industry and could potentially inspire other states to follow suit. The two-year moratorium on new fossil fuel-powered crypto-mining projects is already causing some businesses to reconsider investing in the state. Environmentalists are pushing for a bill to study the energy and environmental impacts of crypto mining nationwide. 

While the partial ban targets older fossil fuel plants that may be brought back online or ramped up to run computers for crypto mining, it is also intended to ensure the crypto industry is compatible with the state’s new climate law. However, the ban doesn’t apply to crypto mining using power from the electric grid, so large and small operations sites across upstate New York can continue. 

All in all, it’s a bold move that could have lasting consequences for the cryptocurrency industry.

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