New York became the first state to impose a temporary moratorium on new cryptocurrency mining permits at fossil fuel plants, in an effort to address environmental concerns about the energy-intensive activity.
The bill, signed by Gov. Kathy Hochul on Tuesday, was the latest setback in a tumultuous month for the cryptocurrency industry, which had lobbied vehemently against it but was unable to overcome a successful push by a coalition of left-leaning lawmakers and environmental activists.
The bill will impose a two-year moratorium on crypto-mining companies seeking new permits to convert some of the state’s oldest and dirtiest fossil fuel plants into digital mining operations. It also requires New York to investigate the impact of the industry on the state’s efforts to reduce greenhouse gas emissions.
The move in New York comes months after other states adopted more pro-industry policies, offering tax breaks in the hopes of luring crypto-mining operations after China cracked down on the activity last year.
It couldn’t have come at a worse time
However, it comes at a time when the cryptocurrency sector is experiencing intense turbulence and may be at a crossroads.
FTX, the cryptocurrency exchange, decl
ared bankruptcy earlier this month after a rapid and public collapse. The demise of a previously trusted player in the new market has raised broader concerns about the exchange’s future, as well as the possibility of criminal charges against its principal, Sam Bankman-Fried.
Mr. Bankman-Fried was lobbying New York regulators to allow his exchange to operate in the state. He is also a major Democratic donor who contributed $1 million to a super PAC that helped Ms. Hochul’s running mate, Antonio Delgado, win his primary earlier this year.
Ms. Hochul had been noncommittal on whether she supported the bill for months, saying that her office was reviewing it and that she was weighing concerns that a moratorium would stifle economic activity in the region. National cryptocurrency industry groups lobbied the governor’s office strongly against the temporary ban, fearing that other states would follow New York’s lead and impose moratoriums or other restrictions.
By staying away from the bill during the general election, Ms. Hochul avoided a polarizing issue while facing a tough challenge from Republican Representative Lee Zeldin, who opposed the bill and called it anti-business.
Ms. Hochul, a Democrat from Buffalo, narrowly defeated Mr. Zeldin two weeks ago. She has since shifted her focus to the hundreds of bills she must sign or veto before the end of the year, including the moratorium.
Ms. Hochul stated in a memo explaining her support for the bill on Tuesday that she recognized “the importance of creating economic opportunity in communities that have been left behind” as the first governor from upstate in nearly a century.
She did, however, call the bill “a critical step for New York as we work to address the global climate crisis.”
The spending drew criticism from Ms. Hochul’s political opponents, who claimed it was a sign that the industry was attempting to exert pressure on the governor to veto the mining moratorium.
The legislation was passed in the waning hours of this year’s legislative session, which ended in June, following successful lobbying efforts that included winemakers and other concerned business owners upstate, where many of the existing mining operations are located.
Bitcoin’s environmental impact
Bitcoin mining is a critical component of the cryptocurrency economy. This is the process by which powerful computers solve complex mathematical equations to validate transactions. And, while amateurs could once mine coins at home, the complexity of equations, as well as the energy required to solve them, has increased in tandem with Bitcoin’s growing popularity and value.
However, environmentalists have long claimed that the value of crypto-mining operations is not worth the environmental costs. The process consumes a massive amount of electricity, so much so that China banned it last year in order to meet its climate goals.
The Chamber of Digital Commerce, a crypto advocacy group, condemned the bill as unfairly targeting the cryptocurrency industry in a statement, saying, “To date, no other industry in the state has been sidelined like this for its energy usage.” Setting a dangerous precedent in determining who may or may not use power is risky.” Supporters of the bill have emphasized that the legislation will not affect existing mining facilities or halt all crypto-mining activities in the state, but will only affect those seeking permits to re-power fossil fuel plants, leaving those that connect directly to the power grid or use renewable energy sources unaffected.
On Tuesday, supporters of the legislation celebrated its signing, viewing it as a hopeful sign that New York’s action will set the tone for other states considering regulations
“This bill will provide the necessary pause in the current trend of purchasing old power plants in New York for corporate profits, allowing us to properly evaluate the impact of this industry on our climate goals before it is too late,” said Assemblywoman Anna Kelles, a Democrat who sponsored the bill in the lower chamber, in a statement on Tuesday. “Reactivating old retired power plants that use fossil fuels as an energy source is a step backward, and we cannot afford to do so.”