New York State Bill Stifles Bitcoin Mining
A bill prohibiting fossil fuel-powered cryptocurrency mining companies from operating has passed in the New York State Assembly. The bill “establishes a moratorium on cryptocurrency mining operations that use proof-of-work authentication methods to validate blockchain transactions.” Bitcoin, the world’s most popular cryptocurrency, uses proof-of-work (PoW), a process that can be energy-intensive. The bill is centered on the belief that PoW has a negative impact on the environment.
What Is Proof-of-Work?
PoW is a process (called a consensus mechanism) by which cryptocurrency transactions can be verified as legitimate. Traditional (centralized) finance uses banks or other trusted third parties to verify a transfer of money. By contrast, cryptocurrencies are considered decentralized finance (DeFi), a “trustless” system that does not depend on third parties to verify transactions. Records of transactions are added to a blockchain and are transparent to any user.
DeFi transactions are verified by solving complex mathematical problems before a transaction can be verified. The solving of the math problem is the “work” that “proves” a given transaction is valid. Special high-powered computers, called “miners,” are used to solve these math problems; the first miner to solve the math problem adds the transaction data as a new “block” to the blockchain and all other miners update their blockchains to reflect the newly verified transaction. Miners consume energy as they run 24/7 in order to validate transactions worldwide.
Environmental Impact
New York State produces electricity from 334 power plants. Of those, the top three include Hydro (187) Natural gas-fired (87) and Petroleum-fired (51); twenty-four plants produce renewables. The Cambridge Center for Alternative Finance has concluded that Bitcoin mining constitutes 0.55% of all global energy consumption––equivalent to the yearly consumption of Sweden or Malaysia. A full 60% of that consumption is from renewable energy.
Globally speaking, Bitcoin does not use a majority of fossil fuel power for mining. If every PoW miner in the world were turned off, the improvement of its negative environmental impact would be negligible at best. Nevertheless, New York State is honing in on restricting a nascent, innovative industry that is a fraction of a fraction of fossil fuel consumption, to the disregard of other companies that use the same power source.
John Olsen, head of the Blockchain Association of New York, told CoinDesk, “I don’t believe any kind of moratorium is good policy, especially in an emerging industry and one that’s trying to find funding in the state.” When asked why policymakers are not going after Amazon and Google, both of which run servers 24/7, he stated that the duplicity is due to the inroads those corporations have made with lawmakers over the years and a lack of knowledge of Bitcoin.
Economic Concerns
The Assembly bill is seen as just another nail in the coffin for innovation in New York. Blockchain Association’s Head of Policy, Jake Chervinsky, tweeted that proponents of the bill “make a pedantic argument”.
Democrat Assemblywoman, Anna Kelles, who introduced the bill, reiterated the scope of the legislation, tweeting, “would not restrict the ability to buy, sell, invest or use crypto in New York State.”
While the bill itself may only focus on fossil-fuel power for mining, the New York State Department of Financial Services, meanwhile, requires the so-called BitLicense, a business license required for companies who engage in any and all digital currency enterprise. Thus, Kelles’ bill continues to paint a picture of New York being acrimonious toward crypto innovation.
Foundry CEO Mike Colyer replied to Kelles, tweeting, “thanks for killing high-tech business.”
The abeyance of fossil fuel crypto mining would last two years while the state researches the environmental impacts of these PoW operations. While there are other ways to verify crypto transactions, the market has chosen PoW, and Bitcoin specifically, above all other methods and cryptocurrencies because it is the most decentralized, most transparent and most secure form of transaction verification.
The current and ongoing research into using more renewables, achieving faster transactions and improving the Bitcoin network are happening in other states like Texas and Florida as New York is seen to be unwilling to work with cryptocurrency companies.
Two years is a long time to stay out of technological innovation.
