The Legislature just approved a bill imposing a partial moratorium on the dominant form of “mining” used by cryptocurrencies including Bitcoin, which now heads to the governor’s desk. The reason? Carbon emissions. The challenge? State leaders, like most people, have more to learn about this fledgling industry.
Mining refers to how computers unearth new crypto coins from networks by hacking away at difficult cryptography puzzles. Crypto assets like Bitcoin are made rare and valuable by mining’s difficulty. Intensive “proof-of-work” mining, the legislation’s target, keeps out fly-by-night activity that would undermine network trust.
Here’s where carbon enters the picture. Intensive computing requires intensive energy, which often means intensive carbon emissions.
In recent years, New York State has become a mining hub. The cool upstate climate and cheap energy defrays the refrigeration and electricity costs needed to keep processors humming. This has attracted vast and numerous “crypto farms.”
While mining’s exact carbon toll remains unclear, it’s a valid concern. Many see cutting crypto mining as a marginal price for carbon reduction, especially as the state drives to slash 40% of emissions by 2030. But a proof-of-work moratorium is a blunt, half-baked solution. It will cap regulators’ ability to engage with the crypto community and create incentives that may even drive-up net emissions.
In recent years, New York has already tried, and failed, to use a moratorium to clean up its climate act. In 2014, Gov. Cuomo signed a ban on hydrofracking. An NPR investigation found, however, this did not reduce the practice — it merely shifted it to neighboring Pennsylvania.
So while the ban may have sounded nice to voters, it failed to move the climate needle. The New York market continued to demand natural gas and Pennsylvania was happy to provide.
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The relocation costs of crypto mining are much lower than fracking, meaning this same scenario is likely to repeat. Additionally, if New York mining goes offline, mining becomes more profitable for everyone else in the short run. Anyone with a decent computer can help fill this gulf.
Eventually, new crypto farms will replace New York’s — likely in more environmentally permissive jurisdictions. One alternative, Kazakhstan, has been attracting considerable crypto mining; like New York, it has cheap energy and a cool climate. Kazakhstan’s energy mix, however, depends on coal whereas New York has no remaining coal plants.
So, if a moratorium isn’t the solution, what is?
Regulators must first face facts: The current crash notwithstanding, crypto is likely here to stay, and it runs on international decentralized networks not bound by one state’s rules. Regulation, therefore, means negotiation. Bitcoin and other networks can be updated, and low-carbon mining alternatives already exist. Ethereum, the number two cryptocurrency, is updating its software to use a different method which purportedly increases its energy efficiency by 99%.
The very miners New York is targeting can help convince other networks to make a similar switch. Miners are pivotal industry players who hold immense sway over potential updates. Therefore, New York should choose collaboration with its powerful mining community. Only by keeping miners in-state can the state retain its seat at the table. This not only allows for regulation of local mining operations but could help the push for broader crypto network change.
Climate change no doubt requires hard decisions. But while pushing miners out of New York may help achieve local benchmarks, it will not solve a global problem. It’s incumbent to work with, not against, miners. Who knows what a little collaboration may bring?
Mittelsteadt is a research fellow with the Mercatus Center at George Mason University and a former research fellow and guest lecturer at Syracuse University.