New York PoW mining ban is about to take effect, mining companies are fleeing, what do industry insiders think?

On Friday morning local time, the New York State Senate passed a bill that will ban new mining using carbon-based energy (such as proof of work) within two years, and existing mining companies or companies that are currently renewing their licenses will be allowed to continue operating. The bill has now been submitted to Governor Kathy Hochul, and once the governor signs it, the law will take effect immediately.

The United States is currently at the forefront of the global Bitcoin mining industry, accounting for 38% of the global market. Perianne Boring , founder and president of the Chamber of Digital Commerce , said that if Hochul signs the bill, New York will become the first state in the United States to ban blockchain technology infrastructure, and industry insiders told CNBC that this could have a domino effect in the United States.

Proof-of-Work (PoW) mining requires complex equipment and large amounts of electricity to mine Bitcoin. Ethereum , the second-largest cryptocurrency by market value, is transitioning to a proof-of-stake consensus process to improve security, reduce centralization risks and save energy.

Lawmakers supporting the legislation said the move was an effort to curb the state’s carbon footprint. If signed into law, within two years, POW mining companies would not be allowed to expand or renew licenses unless they used 100% renewable energy, and new entrants would not be allowed to mine.

Perianne Boring

The most immediate impact, according to Boring, would be to weaken New York's economy by forcing businesses to operate elsewhere.

“This is a major setback for the state and will stifle its future as a leader in technology and global financial services,” Boring told CNBC. “More importantly, this decision will eliminate important union jobs and further disfinance the financial rights of many of New York State’s underbanked population.”

Amando Fabiano, head of mining at Galaxy Digital , echoed that sentiment, saying: “New York is setting a bad precedent that other states could follow.”

Banning Bitcoin mining is 'ironic'

Part of the bill includes a statewide study of the environmental impacts of POW mining on meeting the aggressive climate goals of the Climate Leadership and Community Protection Act, which calls for an 85 percent reduction in New York’s greenhouse gas emissions by 2050.

Boring told CNBC that the surge in support for the proposed ban has a lot to do with the political mandate to transition to sustainable energy.

Boring commented: “It’s ironic that proof-of-work mining has the potential to lead the global transition to more sustainable energy, and the Bitcoin mining industry is actually leading the way when it comes to complying with this bill.”

The sustainable energy mix of the global bitcoin mining industry today is estimated to be just under 60%, while the Chamber of Digital Commerce found that the sustainable electricity mix of its New York State mining members is closer to 80%.

“New York’s regulatory environment not only puts a moratorium on carbon-based, fuel proof-of-work mining — it also threatens to discourage new, renewable energy-based miners from doing business with the state due to the potential for more regulatory sprawl,” said John Warren, CEO of institutional-grade Bitcoin mining company GEM Mining.

One-third of New York’s electricity generation comes from renewable sources, according to the most recent data from the U.S. Energy Information Administration. New York counts its nuclear plants toward its goal of 100% carbon-free electricity, and the state produces more hydroelectric power than any other state in the Midwest.

New York state also has a cooler climate, which means less energy is needed to cool the banks of computers used for cryptocurrency mining, as well as a lot of abandoned industrial infrastructure that could be repurposed.

Some industry insiders did not wait for the ban to take action.

Data from digital currency company Foundry shows that New York's share of the Bitcoin mining network has fallen from 20% to 10% in a few months as miners have begun to move to other more cryptocurrency-friendly jurisdictions in the United States.

Kevin Zhang, senior vice president of mining strategy at Foundry , said : "Our customers are scared away from investing in New York State. Even though Foundry invested $500 million in mining equipment, less than 5% of the funds went to New York due to the unfriendly political environment."

Domino effect

If the governor signs a law moratorium on crypto mining, it could have many follow-up effects.

In addition to potentially stifling investment in more sustainable energy sources, industry advocates told CNBC that each of these facilities has a significant economic impact on many local suppliers, including electricians, engineers and construction workers. According to experts, the exodus of crypto miners could translate into jobs and tax dollars moving out of state.

Boring told CNBC: "There are many unions that oppose this bill because it could have terrible economic consequences, and bitcoin mining operations are providing good, high-paying, high-quality jobs to local communities. Our member companies, the average annual salary of their employees is $80,000."

As Boring points out, New York is leading the way in state legislation, so there's the potential for copycats across the country, too.

“Other blue states often follow New York, and this will provide them with an easy template to copy,” predicted Kevin Zhang. “Sure, the mining network is still going strong — it survived a ban in China last summer — but the implications for the scale and direction of the technology in the future are huge.”

However, many others in the industry believe that concerns about the consequences of a mining moratorium in New York are overblown.

Core Scientific co-founder Darin Feinstein and other professionals said the industry already knows that New York is hostile to crypto mining operations.

Darin Feinstein said in an interview: “There is no reason to enter a region that does not welcome you. Bitcoin mining companies are actually data center businesses. Data centers need to be located in jurisdictions that want to have data centers within their borders... If you ignore this, then you have to deal with the consequences of operating in a region that is averse to such business.”

Feinstein noted that the U.S. has many friendlier jurisdictions: Georgia, North Carolina, North Dakota, Texas and Wyoming have all become major mining destinations.

Texas, for example, has crypto-friendly legislators, a power grid with real-time spot pricing, a large surplus of renewable energy, and stranded natural gas. Alex Brammer, vice president of business development at Luxor Mining, said the state’s regulatory friendliness toward crypto mining also greatly enhances industry certainty.

“It’s a very attractive environment for miners to deploy a lot of capital, with a large number of land deals and power purchase agreements at various stages of negotiation,” he said.

Mining policy at the federal level

Meanwhile, the Biden administration is developing federal-level Bitcoin mining policies - aimed at reducing energy consumption and carbon emissions.

The White House Office of Science and Technology Policy is studying the links between distributed ledger technologies and the energy transition, their potential to hinder or advance efforts to combat climate change at home and abroad, and their environmental impacts, work that was one of the deliverables spelled out in Biden’s executive order in March.

Costa Samaras, principal assistant director at the U.S. Department of Energy, told CNBC that the White House is specifically looking at the role these technologies could play in accounting for greenhouse gas emissions and supporting the construction of a clean electric grid, and they are also "looking at the implications for energy policy, including how cryptocurrencies could impact grid management and reliability."

It’s unclear when federal law regarding proof-of-work mining will come into effect, but states are already taking action.