New York became the first state to enact a temporary ban on new cryptocurrency mining permits at fossil-fuel power plants, a move aimed at addressing environmental concerns about the energy-intensive activity.
The law, signed into law by Gov. Kathy Hochul on Tuesday, was the latest setback in a bloody month for the cryptocurrency industry, which had fiercely opposed the law but failed to overcome a successful push by a coalition of left-leaning lawmakers and environmental activists.
The law imposes a two-year moratorium on crypto mining companies seeking new permits to convert some of the state’s oldest and dirtiest fossil-fuel power plants into digital mining operations. New York also needs to examine industry’s impact on the state’s efforts to reduce its greenhouse gas emissions.
The move to New York comes months after some other states adopted friendlier policies towards the industry, offering tax incentives in hopes of attracting crypto mining operations after China cracked down on activity last year.
But it also comes at a moment of intense turmoil and a possible crossroads for the cryptocurrency sector.
Earlier this month, the crypto exchange known as FTX suffered a rapid and public meltdown, leading to its declaration of bankruptcy. The fall of a once-trusted player in the new market has sparked broader questions about the future of the exchange, as well as possible criminal charges for its principal, Sam Bankman-Fried.
Mr. Bankman-Fried was in the process of lobbying the New York regulators to allow his exchange to operate in the state. He is also a major Democrat donor, having supported a Super PAC that spent $1 million earlier this year to support Ms. Hochul’s running mate Antonio Delgado in his feature race.
The spending has been slammed by Ms Hochul’s political opponents, who argued it was a signal the industry was trying to use its influence to pressure the governor to end the mining moratorium.
The Democrat-controlled state legislature passed the law in the closing hours of this year’s legislative session, which ended in June, after successful lobbying efforts that also included winemakers and other concerned business owners in the upstate, where many of the existing mining operations are based on.
Ms Hochul had remained non-binding for months on whether she backed the law, saying her office was reviewing the legislation and that she was weighing concerns that a moratorium could hamper economic activity in the region. The temporary ban was fiercely opposed by national cryptocurrency industry groups lobbying the governor’s office, fearing other states might follow New York’s lead in imposing moratoriums or other restrictions.
By distancing herself from the bill during the general election, Ms. Hochul avoided raising a divisive issue while facing a vigorous challenge from Rep. Lee Zeldin, a Republican who opposed the bill, calling it anti-business.
Ms. Hochul, a Buffalo Democrat, narrowly beat Mr. Zeldin two weeks ago. Since then, she has turned her attention to the hundreds of bills she must decide whether to sign or reject before the end of the year, including the moratorium.
In a memo on Tuesday declaring her support for the law, Ms Hochul said she was the first upstate governor in nearly a century to recognize “the importance of creating economic opportunity in communities left behind.”
But she said the law was “an important step for New York as it works to address the global climate crisis.”
Bitcoin mining – the process by which powerful computers solve complex mathematical equations to validate transactions – is a crucial part of the cryptocurrency economy. And while amateurs used to be able to mine coins at home, the complexity of equations and the energy required to solve them has increased as bitcoin’s growing popularity and value has increased.
But climate advocates have long said that the value of crypto mining operations is not worth the environmental cost. The process requires an immense amount of electricity — so much that China banned the practice last year to meet its climate goals.
In a statement, the Chamber of Digital Commerce, a crypto advocacy group, denounced the bill as unfairly targeting the cryptocurrency industry, saying, “Until now, no other industry in the state has been so marginalized because of its energy consumption. This sets a dangerous precedent for determining who may and may not exercise power.”
Proponents of the bill have stressed that the legislation will not affect existing mining facilities or halt all crypto-mining activity in the state, but only those applying for a permit to repower fossil-fuel power plants, leaving behind those who directly connected to the grid or using renewable energy sources unaffected.
Supporters of the law celebrated its signing Tuesday, tossing it as a hopeful sign that New York’s move will set the tone for other states that may be considering regulations.
“This legislation will provide the pause we need in the current trend of buying old New York power plants for corporate profits and allow us to properly assess this industry’s impact on our climate goals before it’s too late,” said Rep. Anna Kelles. a Democrat who sponsored the bill in the lower chamber said in a statement Tuesday. “Reactivating old, decommissioned power plants that use fossil fuels as their energy source is a step in the wrong direction and we cannot afford to go backwards.”