Following an early morning vote in Albany on Friday, lawmakers in New York passed a bill to ban certain bitcoin mining operations that run on carbon-based power sources. The measure now heads to the desk of Governor Kathy Hochul, who could sign it into law or veto it.
If Hochul signs the bill, it would make New York the first state in the country to ban blockchain technology infrastructure, according to Perianne Boring, founder and president of the Chamber of Digital Commerce. Industry insiders also tell CNBC it could have a domino effect across the U.S., which is currently at the forefront of the global bitcoin mining industry, accounting for 38% of the world's miners.
The New York bill, which previously passed the State Assembly in late April before heading to the State Senate, calls for a two-year moratorium on certain cryptocurrency mining operations which use proof-of-work authentication methods to validate blockchain transactions. Proof-of-work mining, which requires sophisticated gear and a whole lot of electricity, is used to create bitcoin. Ethereum is switching to a less energy-intensive process, but will still use this method for at least for another few months.
"Proof-of-work mining has the potential to lead the global transition to more sustainable energy," Boring told CNBC's Crypto World, pointing to the irony of the moratorium. "The bitcoin mining industry is actually leading in terms of compliance with that Act."
The sustainable energy mix of the global bitcoin mining industry today is estimated to be just under 60%, and the Chamber of Digital Commerce has found that the sustainable electricity mix is closer to 80% for its members mining in the state of New York.
In a conversation at the Bitcoin 2022 conference in Miami in April, former presidential candidate and New Yorker Andrew Yang told CNBC that when he speaks to folks in the industry, he has found mining operations can help develop demand for a renewable source of energy.
Data from digital currency company Foundry shows that New York's share of the bitcoin mining network dropped from 20% to 10% in a matter of months, as miners began migrating to more crypto-friendly jurisdictions in other parts of the country.
"There are many labor unions who are against this bill because it could have dire economic consequences," said Boring. "Bitcoin mining operations are providing high-paying and high-grade, great jobs for local communities. One of our members, their average pay is $80,000 a year."
New York Gov. Kathy Hochul signed a law Tuesday banning certain bitcoin mining operations that run on carbon-based power sources. For the next two years, unless a proof-of-work mining company uses 100% renewable energy, it will not be allowed to expand or renew permits, and new entrants will not be allowed to come online.
New York's mining law, which passed the state assembly in late April and the state senate in June, calls for a two-year moratorium on certain cryptocurrency mining operations which use proof-of-work authentication methods to validate blockchain transactions. Proof-of-work mining, which requires sophisticated gear and a lot of electricity, is used to create bitcoin, among other tokens.
"Not only is it a clear signal that New York is closed for business to bitcoin miners, it sets a dangerous precedent for singling out a particular industry to ban from energy usage," said Zhang, Foundry's senior vice president of mining strategy.
At the Bitcoin 2022 conference in Miami in April, former presidential candidate and New Yorker Andrew Yang told CNBC that when he speaks to people in the industry, he has found mining operations can help develop demand for renewable energy.
Earlier this year, data from digital currency company Foundry showed New York's share of the bitcoin mining network dropped from 20% to 10% in a matter of months, as miners began migrating to more crypto-friendly jurisdictions in other parts of the country.
Before the crackdown, bitcoin mining in China was projected to generate more than 130 million metric tons of carbon emissions by 2024, according to a study published in scientific journal Nature Communications. If the global bitcoin mining industry were a country, it would be the 29th biggest consumer of power in the world on a list of nations by energy use, above Argentina, which has a population of roughly 45 million.
China first moved in 2013 to restrict its banks from using Bitcoin as currency, citing concerns its inherently speculative nature threatens the country's financial stability. Over the years, the government has become even more wary. Since May, Beijing moved to effectively shut down all crypto mining operations in the country. In late June, the central bank also required payment firms and banks shut down the accounts of individuals involved in crypto transactions.
Bitcoin mining is the process of creating new bitcoins by solving extremely complicated math problems that verify transactions in the currency. When a bitcoin is successfully mined, the miner receives a predetermined amount of bitcoin.
Bitcoin is powered by blockchain, which is the technology that powers many cryptocurrencies. A blockchain is a decentralized ledger of all the transactions across a network. Groups of approved transactions together form a block and are joined to create a chain. Think of it as a long public record that functions almost like a long running receipt. Bitcoin mining is the process of adding a block to the chain.
In order to successfully add a block, Bitcoin miners compete to solve extremely complex math problems that require the use of expensive computers and enormous amounts of electricity. To complete the mining process, miners must be first to arrive at the correct or closest answer to the question. The process of guessing the correct number (hash) is known as proof of work. Miners guess the target hash by randomly making as many guesses as quickly as they can, which requires major computing power. The difficulty only increases as more miners join the network.
If a miner is able to successfully add a block to the blockchain, they will receive 6.25 bitcoins as a reward. The reward amount is cut in half roughly every four years, or every 210,000 blocks. As of September 2022, Bitcoin traded at around $20,000, making 6.25 bitcoins worth $125,000.
Erik Thedéen, the vice chairman of the European Securities and Markets Authority, said that the main form of bitcoin mining was doing harm to the environment and was setting back efforts to combat climate change.
The city of Plattsburg did not impose a permanent ban on Bitcoin mining however. Instead, local authorities and residents released a moratorium which states that the city will not consider applications for commercial cryptocurrency mining for at least a year and a half. Bloomberg reported that the city can charge more than $1,000 per day if miners decide to use low-cost electricity of the city to mine. The authorities of Plattsburg said:
It is also not illegal to mine Bitcoin or any other cryptocurrency using electricity that is low cost. However, it is illegal to disguise cryptocurrency mining initiatives as a protected business in a development restricted area to take advantage of cheap electricity that is only provided to approved organizations and institutions. This is why South Korean authorities are currently drafting regulations to prevent mining facilities from taking advantage of cities with cheaper electricity.
Crypto mining businesses can have hundreds or even thousands of rigs in one location. A mining center in Kazakhstan is equipped to run 50,000 mining rigs, and another mining farm in China has a monthly electricity bill of more than $1 million as it mines 750 bitcoins a month.
Bitcoin mining uses around as much energy as Argentina, according to the Bitcoin Energy Consumption Index, and at that annualized level of 131.26 terawatt-hours, crypto mining would be in the top 30 of countries based on energy consumption.
There's also the issue of electronic waste. This can include broken computers, wires and other equipment no longer needed by the mining facility. Bitcoin mining's electronic waste is 34 kilotons, or comparable to the amount produced by the Netherlands.
Access to renewable energy at a low price, however, attracts crypto miners. China's Sichuan Province has the country's second-largest number of miners due to its abundance of cheap hydroelectric power. Its rainy season helps to generate so much energy that cities are looking for blockchain firms to relocate in order to avoid wasting power. Due to worries about energy shortages, China cracked down on bitcoin mining facilities in late 2021, but the farms went underground and rebounded.
To ensure miners do their job, each miner has to stake 32 ether coins, which is equivalent to $47,000, hence the term for this protocol: proof of stake. This change should reduce the amount of energy needed for ethereum mining by 99.95%. Ethereum is set to transition to the new protocol on Sept. 19, but that date is not final.
Where are the cheapest and most expensive places to mine this popular cryptocurrency? This graphic by 911 Metallurgist provides a snapshot of the estimated cost of mining bitcoin around the world, using pricing and relative costs from March 23, 2022. 2b1af7f3a8