New York becomes the first state in the United States to prohibit some types of crypto mining. On Tuesday, Governor Kathy Hochul signed legislation that immediately halts the use of fossil fuels for energy-intensive “proof-of-work” crypto mining. According to the law (A7389C), no new permits will be awarded for such mining activities for two years, and no existing permissions will be renewed.
The measure bases its reasoning on the substantial infrastructure and environmental costs of crypto mining. In addition to the ban, the new law mandates that the New York Department of Environmental Conservation produce within a year an environmental impact statement examining the statewide impact of proof of work, which can be used to shape future policy.
Proof-of-work crypto mining employs vast computer networks to produce encoded blocks on the blockchain. Computers compete to solve long strings of pointless, arbitrary, and more difficult mathematical equations that authenticate their intentions, and then they summarize and track transaction information throughout the network. In the end, the successful miners are rewarded with a share of the newly created cryptocurrency, making mining lucrative.
Proof-of-work is meant to make the blockchain impartial and fraud-free by imposing a prohibitively expensive participation fee, which is paid for using energy. European regulators have also considered imposing limitations and prohibitions on the practice. Crypto mining is a significant demand on the electrical grid, and the business as a whole emits an enormous quantity of carbon dioxide.
“I am signing this legislation into law to build on New York’s nation-leading Climate Leadership and Community Protection Act, the most aggressive climate and clean energy law in the nation, while also continuing in our steadfast efforts to support economic development and job creation in upstate New York, I recognize the importance of creating economic opportunity in communities that have been left behind. This is why I will continue to invest in economic development projects that create the jobs of the future…while also taking important steps to prioritize the protection of our environment,” Hochul said.
Notable is the fact that the ban still permits crypto operators to utilize the substantially less energy-intensive “proof of stake” mechanism. And miners are permitted to continue operating and constructing proof of work systems that use non-fossil fuel sources such as hydroelectric, nuclear, and renewable. But even this removes precious green energy from the grid that could be used for more essential purposes.
The recent failure of one of the largest cryptocurrency exchanges, FTX, has sent shockwaves across the blockchain, causing the value of bitcoin to plummet and other exchanges to be downgraded. FTX primarily imploded due to founder and CEO Sam Bankman-Fried’s potentially illegal and ill-judged administration of investor monies. And regardless of whether courts ultimately hold SBF liable for all of those missing funds, it is apparent that crypto is rife with scams.
Consider also that the crypto sector gives value to a relatively tiny number of individuals. Not precisely a public good. And as Texas has proved, crypto mining is a significant drain on the electricity grid – possibly equivalent to all Houston households.
In recent years, there has been a surge in crypto mining operations in New York, and in certain cases, the sector has had a severe impact on local communities, even apart from its harmful effects on the environment. According to an article by MIT Technology Review, the inflow of miners in Plattsburgh resulted in increasing winter heating costs and widespread noise complaints but produced no economic gain for the local community. “From 2016 to 2018, crypto mining in upstate New York boosted annual electric rates for small enterprises by around $165 million and for individuals by about $79 million,” the article states.
So, inhabitants of Plattsburg and environmental groups are likely encouraged by the new regulation. Earthjustice, an environmental advocacy organization, said in a statement, “This first-in-the-nation law should set the standard for every other state where crypto miners are coming in, extracting resources, and wreaking havoc. We’re very much looking forward to the DEC’s fact-finding review, which we’re confident will affirm…[that] crypto mining is a major threat to climate security and needs to be closely regulated”.
Read Also: Following FTX, Another Famous Crypto Lender Goes Bankrupt
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