New York Puts Bitcoin Mining in the Crosshairs

Big governments have many reasons to oppose sovereign monetary technologies like bitcoin. The existence of a permissionless money network provides escape hatches for these states’ many levers of centralized control. It is not surprising that they try to throw the regulatory book at cryptocurrencies from any possible angle.

The state of New York is a good case study of this dynamic. The Empire State, home to many titans of the legacy financial system, has promulgated hostile regulations against cryptocurrency applications for years. It set the standard for innovation-killing laws with its 2014 “BitLicense,” which led to a virtual exodus of bitcoin businesses from the state. New York’s attorney general has turned going after cryptocurrency platforms and users into something of a sport.

Now New York is again taking the lead on the next hot wave of crypto crackdowns: environmental regulations.

Early this month, the state Assembly passed a first-in-the-nation crackdown targeting a popular “consensus mechanism,” or technological method for distributed computers to agree on the state of a network, called proof of work, that is employed by cryptocurrencies like bitcoin and Ethereum. The bill is headed to Gov. Kathy Hochul’s desk for final approval, but there is some doubt over whether or not she will sign the bill.

The bill sets the tone by claiming that “climate change threatens the health, welfare, and economy of the state” through a parade of horribles including “flooding, sea level rise, heat waves, coastal erosion, erratic … weather patterns, shifting climactic zones, loss of wildlife, increased harmful algae blooms and invasive species, and increased risk of disease.” (What, no famine?) For these reasons, New York wants to start doing away with bitcoin mining.

The law would direct the New York Department of Energy to issue a moratorium on all new applications or permits for carbon-based electricity facilities that provide energy for “cryptocurrency mining operations that use proof-of-work authentication methods to validate blockchain transactions” for a period of two years.

No, New York has not quite “banned bitcoin mining.” Existing mining operations should be able to proceed normally, and mining that is not fueled by carbon-based sources—like the state’s abundant hydroelectric miners in the north—will presumably be spared. Supporters of the bill say it intends to kill off any opportunity for the state’s “oldest, dirtiest fossil fuel plants” to find a second life as a cryptocurrency mining operation.

Still, the bill demonstrates a worrying antagonism and ignorance about consensus mechanisms and carbon emissions. Many in the industry worry that this is merely the first step to a more hostile anti-cryptocurrency-mining regime in the state.

The bill also directs the Department of Energy to do studies on cryptocurrency and energy usage. This would not be a problem if the analyses were done well. However, much of the “science” on cryptocurrency mining and emissions is grounded in misunderstandings and bias that produces subpar research. If