Cryptocurrency has become a big business in our world even though many people still struggle to understand what cryptocurrency is or how can something that is not a physical good or resource have a value assigned to it. Regardless of the general population’s competency around the answers to those questions, the cryptocurrency industry has forged a multi-trillion-dollar business model around the mining of this precious digital resource. Now the State of New York has banned the mining of cryptocurrency, which is the first piece of legislation to restrict any part of the crypto industry.
New York Governor Kathy Hochul signed the bill which was passed by the New York State Senate back in June of this year and it was a hot-button topic in Governor Hochul’s bid for re-election this election season. During the campaign, her position as to whether she intended on signing the bill or not into law was noncommittal, and only said that they needed to look at the bill closely to ensure that it would be beneficial to the state of New York. Her opposition in the governor’s race Lee Zeldin emphatically stated that he would not sign it if he was elected governor.
Many people are likely scratching their heads about what mining for cryptocurrency even means and how can you ban mining for something that doesn’t even physically exist. To understand how cryptocurrency is mined you need to have a basic understanding of what cryptocurrency is. Most of us understand the structure of the banking system regarding the Federal Reserve’s role in that process as an intermediary in moving money from bank to bank.
If there was no Federal Reserve which is the centralized point of the American dollar which is our national currency then you would have a decentralized system. The crypto transaction system uses cryptography to verify and maintain transaction records instead of a centralized authority like the role the Federal Reserve plays in the United States currency system. Look at the most popular crypto Bitcoin and how you would mine for cryptocurrency, the computers that are processing the digital transactions on the decentralized network create what is referred to as a bitcoin, and the people who allow their computers to do the processing of those transactions earn bitcoin for the computer doing that work for the decentralized transaction network.
Those bitcoins then start to have a value since it was paid to someone for labor that they contributed to a company’s benefit. In the previous example allowing their computers to process the accounting transactions on that network was the work that was done. Sounds easy right, well to have a computer that can quickly process enough transactions to make it fiscally feasible to earn profit over the expense of running the computer you need what is called a mining rig which is basically a computer that processes codes and is extremely powerful with a high-end graphics card and the mining process is the only thing it is used for.
The reason the New York State Senate has decided to ban crypto mining is because of the energy that is used by these mining rigs. It makes it more difficult on the state’s energy resources which affects New York’s commitments to meet the state’s climate goals. According to The Hill, “the New York law instead takes aim at the technology’s environmental impact, establishing a two-year moratorium on permits for fossil fuel plants used for cryptocurrency mining that utilizes “proof-of-work authentication.”
The law also mandates that the Department of Environmental Conservation Agency study the impacts of these mining operations that use an authentication method. There are a lot of crypto industry leaders that are in opposition to this law being signed. The bill was a trigger that led to a $1.5 million in spending by state lobbyists to fight against its passing.
The Digital Chamber of Commerce, which is a trade association made a statement encapsulating their foundation’s disappointment in Governor Hochul’s decision to sign the bill. In a quote from The Hill the statement reads, “To date, no other industry in the state has been sidelined like this for its energy usage,” the group wrote on Twitter. “This is a dangerous precedent to set in determining who may or may not use power.” This is a concerning piece of this legislation, a business has never been restricted because of the amount of energy that they require to operate the revenue-generating operation of their business.
In the coming months, we will see what types of impacts and unintended consequences may arise from the passing of this New York State law. Already the PoW mining industry which has had a role in job creation and economic growth in the state of New York is urging crypto business leaders to leave the state and set up headquarters in a more crypto-friendly jurisdiction in the United States.