How will New York’s proposed two-year moratorium on cryptocurrency mining affect miners?
While crypto advocacy organizations have labeled the bill’s contents as ‘draconian’, its actual impact on crypto mining operations in the state might be limited. This is mainly because the bill restricts denials to miners who generate electric power away from the grid. Anecdotal evidence suggests that there are very few such miners in New York.
What Does the Bill Propose?
The bill, which has already been approved by the House and Senate and is awaiting Gov. Kathy Hochul’s signature, proposes a two-year moratorium in the state on approvals to renew or establish new cryptocurrency mining operations using proof-of-work consensus algorithms and powered by fossil fuels.
The text states that approvals should be refused to facilities that use fossil fuels to generate electricity “behind-the-meter” i.e., they are responsible for generating their own electricity using carbon-based systems. It does not disallow approvals for mining operations that are already connected to the grid. (Bitcoin and cryptocurrency mining operations are a lucrative source of revenue for electric utilities).
A proof-of-work (PoW) consensus mechanism is energy intensive because it uses the brute force of many mining systems to mine bitcoin. According to some estimates, PoW mining operations can consume as much energy as entire countries. Eliminating PoW crypto miners powered by fossil fuel energy sources will also help New York state reach its aggressive climate change goals.
The bill also asks New York’s Department of Environmental Conservation to author an environmental impact statement for miners using PoW that, among other things, outlines their energy use, emissions, and effect on the grid.
An earlier version of the bill proposed banning bitcoin mining for three years to assess environmental assessment and gauge greenhouse gas emissions of cryptocurrency mining.
Why The Crypto Mining Bill’s Effect Will Be Limited in New York
While estimates of its share vary, New York has one of the highest concentrations of bitcoin miners in the country. An October 2021 CNBC report attributed almost twenty percent – the highest figure in the country – of the total U.S. hashrate, or computing power devoted to mining bitcoin, to New York. Two months later, the Cambridge Bitcoin Electricity Consumption Index estimated that the state’s average monthly hashrate was 9.77% – the third highest in the country after Texas and Kentucky.
Most bitcoin mining operations in New York are located upstate and are powered by the region’s grid, which draws power from its abundant hydroelectric energy and nuclear plants. In fact, a recent Politico story highlighted just two crypto miners which use fossil fuels for their crypto mining operations. One of them – Greenidge in the Finger Lakes region – has turned a retired coal plant into a crypto mining operation. It is awaiting renewal of its operations permit. The other one is Toronto-based Digihost, which is waiting for approval from the state’s PSC to buy a natural gas plant in Western New York. But the Politico piece states that New York’s proposed two-year moratorium will not affect either Greenidge or Digihost’s facilities. A glance through the New York Independent System Operator’s Gold Book also confirms the prevalence of hydroelectric and nuclear facilities in providing power to Upstate New York.
A Tested Playbook
The New York’s moratorium proposal draws from a playbook already tested at the local level.
Plattsburgh in upstate New York became a center for bitcoin mining in 2016. The entry of bitcoin miners boosted business taxes and ended up skyrocketing power demand. The placed an 18-month moratorium on new bitcoin mining operations in 2017. Sherburne, a village in southern New York, also enacted a 12-month moratorium while Massena, neighbor to Plattsburgh, placed a 90-day moratorium on bitcoin mining last year.
The moratoriums were meant to help the cities assess the effect of crypto mining on their economies. They did not contain restrictions based on the energy type and the consensus mechanism. This is unlike the state government’s strictures which target only certain types of miners. The actual numbers of such miners are not publicly available. However, as outlined above, anecdotal evidence seems to suggest that their numbers are few.
While advocates tout crypto mining’s economic benefits in the form of jobs and influx of new tech, its net effect on local economies in New York state has been negative. A study released earlier this year by researchers from the Haas Business School at Berkeley found that business taxes collected from crypto miners were not enough to offset the increased electricity bills. The cost of the bills were footed by ratepayers and not by crypto miners themselves.
A spike in bitcoin price was correlated with increased demand for electricity, the study found. Annual tax revenues increased by $40 million even as the ‘welfare cost’, in the form of high electricity bills, ballooned to $240 million in cities with crypto mining facilities. The study also found that crypto mining had a negative impact on the labor market because most miner operations were automated and did not require human intervention.
Where Will Miners Go?
If Gov. Hochul signs the bill into law, it will be the first such legislation in the country that targets crypto miners. The proposed legislation’s scope may be limited but it could set the ball rolling for similar laws in other parts of the country. Cryptocurrency mining companies have previously used regulatory arbitrage to move their operations to jurisdictions that do not limit their activity.
Texas and Kentucky, the other two states with a large share of cryptocurrency mining hash rate, could be potential beneficiaries. But Texas’s precarious grid situation, after last year’s winter storm fiasco, has made Electricity Reliability Council of Texas (ERCOT) cautious about outages. In March this year, ERCOT passed a rule requiring utilities to submit studies on the impact of crypto mining on the grid for approval before they begin supplying power to miners.
Meanwhile, Kentucky is rolling out the red carpet for crypto miners. The state generated 70% of its power from fossil fuels last year. According to a Reuters report, bitcoin miners are ‘springing up’ across the state – on top of abandoned coal miners, alongside highways, in industrial mines etc.