Turning electrons into money can be a dirty business. Just ask the people who live near the Greenidge Generation power plant on scenic Seneca Lake in Dresden, New York. The decommissioned coal-burning plant, which was purchased by a Connecticut private equity firm in 2014, has been converted to run on natural gas. Since 2020, though, it has provided power not to local customers, but to nearly 20,000 crypto-mining computers running 24/7. It produced Bitcoin worth more than $100 million last year. Greenidge Generation LLC touts being “carbon neutral” through its purchase of carbon offsets. But tell that to the neighbors tired of the plant’s smoking chimneys, its cooling-water-runoff warming the lake and ruining the swimming and fishing. With the plant’s state air permits up for renewal, the 4,000 or so public comments received by the New York State Department of Environmental Conservation (NYSDEC) are roughly 98.8% “strongly opposed.” The two dozen local jobs that the plant produces just aren’t worth it.
State lawmakers and New York’s Governor Kathy Hochul are on the cusp of a decision that could not only put Greenidge out of business, but according to alarmed voices in the blockchain industry, also kill the state’s booming crypto economy—and put a pause on the industry’s largely successful efforts to instill state and federal policy makers with a pro-crypto mindset. That is, unless the Blockchain Association—a polished industry lobbying group based in Washington, D.C.—can do something about it.
In the past few years, cryptocurrencies and other “digital assets” have seen explosive growth, surpassing a $3 trillion market cap worldwide last November, up from $14 billion five years earlier. According to Pitchbook, VCs have invested nearly $12.5 billion in cryptocurrency and blockchain companies globally in 2022 so far, outpacing last year’s total investment of $30.7 billion. And a Pew Research survey last November found that 16% of adult Americans (and about 30% of those between ages 18 and 29) have invested in, traded, or used cryptocurrencies. Meanwhile, the rules that govern these companies are being written on the fly—usually by lawmakers with the barest understanding of Bitcoin and blockchains, relying heavily on crypto executives and lobbyists to help guide them.
According to an analysis of federal disclosures conducted by progressive consumer-rights advocacy group Public Citizen, since 2018, industry spending on crypto-related lobbying has quadrupled, and the number of crypto lobbyists has more than doubled, from 115 to 320. In 2021, members of Congress introduced 35 bills focused on cryptocurrency and blockchain policy—and the industry spent more than $9 million attempting to influence them, according to Public Citizen. (For comparison, Apple, Amazon, Google, and Facebook’s Meta together spent more than $55 million on federal lobbying last year.) The industry is also increasingly focused on state-level policy making. There are currently more than 150 pieces of cryptocurrency-related legislation pending in 37 states and Puerto Rico, according to the National Conference of State Legislatures, including proposals to exempt cryptocurrency from securities laws intended to protect investors from fraud; to exclude certain cryptocurrency transactions from anti-money-laundering laws; to offer tax incentives for crypto miners; and, in Arizona, to make Bitcoin legal tender for payment of debts.
Nationwide, there’s probably no state bill as closely watched as New York Assembly Bill A7389C, which would impose a moratorium on some kinds of crypto-mining in the state. It’s just one of 16 blockchain-related bills introduced in the state legislature last year; but many in the industry, both in New York State, and beyond, view it as an existential threat. The recent arrival of the Blockchain Association in Albany, the state capital, signals the high stakes.
Founded in 2018, the Blockchain Association represents more than 80 member companies, including blockchain networks, trading platforms, and investor groups. According to the Public Citizen analysis, it was the third largest crypto-related lobbyist last year—after Coinbase, the large U.S. cryptocurrency exchange, and Ripple Labs, the developer of the open-source protocol and remittance system Ripple—spending $900,000 on lobbying efforts. (Ripple is in the midst of a $1.4 billion lawsuit brought against it by the Securities and Exchange Commission.) “Our goal is to be a thought leader and advocate for better public policies in place to benefit the growth of the ecosystem,” says Kristin Smith, Blockchain Association’s executive director. “We think that we’ll get better policy if policy makers first understand what the ecosystem is, how these networks work, and what the component pieces are—and we feel a responsibility to generate some of the solutions and come to the table with ideas.”
Until now, the group has just worked at the federal level, says Smith, who has served as a staffer in the offices of former U.S. Senators Olympia Snowe of Maine and Conrad Burns of Montana; as deputy chief of staff to former U.S. Rep. Denny Rehberg of Montana; and as a private sector lobbyist for companies in telecommunications and other tech-focused industries while working for the Alpine Group and others. Blockchain Association has “been a resource,” she says, for members of Congress and the Treasury Department on an array of issues, from “stablecoin” policy to tax reporting to illicit money concerns. (They are fighting two bills designed to prevent Russian oligarchs from using cryptocurrencies to evade sanctions.) “The biggest issue with the least clear path” on the federal level right now, says Smith, is whether tokens should be regulated like securities, by the SEC; like commodities, by the Commodity Futures Trading Commission (CFTC); or some combination of both.
On March 17, Blockchain Association announced the opening of its first state office, in Albany, paying lobbyist John Olsen, former senior vice president of state government affairs for the Internet Association (a Big Tech lobbying group that folded in 2021) $25,000 per month to engage with the New York lawmakers on the subject of A7389C and its senate version, S6486D, according to disclosures filed with the state.
According to the Blockchain Association website, Olsen will also work on reform of New York’s BitLicense, which regulates crypto companies that reside in or have customers in the state—and, critics complain, keeps many smaller crypto companies from operating here and restricts the cryptocurrencies that state residents can trade. “New York’s BitLicense [is] the most comprehensive crypto license regime in the U.S.,” says Nikhilesh De, managing editor for global policy and regulation at cryptocurrency news site CoinDesk.
According to state filings reported by Bloomberg, crypto-related companies are spending more than $100,000 on lobbying in New York State, with the immediate focus on halting the moratorium. “It really sends the wrong message,” Smith says. “If we’re not able to stop it at this level, we worry that it may end up getting picked up by other states.” Even worse for crypto advocates, it might inspire Congress to take action. “Bitcoin mining has been less of an issue on the federal level,” says Smith, “but there is an open request for information from the Office of Science and Technology Policy.” Worst-case (but highly unlikely) scenario for the industry: The U.S. follows the lead of China, which last summer enacted a nationwide ban on crypto mining—and helped push more mining to places like Kazakhstan and the U.S.
Smith and other critics like to characterize the New York State bill as a “moratorium on crypto mining” projects. In fact, the bill focuses on a specific type of mining, in which fossil-fuel-burning power plants, like Greenidge, are fired up solely, or mostly, to run computers that mine “proof of work”-based cryptocurrencies, such as Bitcoin. Proof of work relies on armies of “miners” competing to solve energy-intensive computing “puzzles” to validate “blocks” of transactions and earn a fee paid in cryptocurrency. Everyone uses similar equipment, so the edge goes to whomever can run the most computers for the cheapest. It’s been an environmental nightmare: According to Cambridge University’s Bitcoin Electricity Consumption Index, in 2020, worldwide crypto mining used more energy than the whole country of Sweden (population: 10.2 million). Crypto enthusiasts counter that mining often uses non-carbon-based power sources—anywhere from 40% to 75% of Bitcoin mining uses renewable sources of power—that mining rigs are getting more efficient, and that companies may purchase carbon offsets. New York State’s moratorium wouldn’t target mining operations that rely on hydroelectric, wind, or nuclear, and it wouldn’t impact mining of tokens, such as Solana’s SOL, based on more energy-efficient proof-of-stake protocols.
Still, in a recent op-ed, Smith argued that A7389C “will drive the nascent industry out of the state and potentially worsen current carbon emissions. . . . Entrepreneurs and investors are not likely to wait two years [hoping] that lawmakers will come to their senses and embrace crypto down the road. As more states open their doors to the crypto industry, New York seems determined to erect as many barriers to entry as it can.”
If New York State shuts down crypto mining, it will just go elsewhere, as it did after China’s ban. Why not someplace like Wyoming, which, since 2018, has established more than 20 laws that make it easier for the crypto industry to operate and aims to have 5% of the U.S. hash rate (minting of new Bitcoin tokens) by May 2024. Crypto miners who leave New York State, Smith writes, “will operate under less stringent environmental standards.”
Despite these arguments, A7389C has been making steady progress. On April 26, it cleared a vote in the state assembly; the state senate must vote on it now before sending it to Governor Hochul for signing. That won’t likely happen until after New York State’s gubernatorial elections in November. Sensing the wind direction, even famously pro-crypto New York City Mayor Eric Adams in February told state lawmakers that “I support cryptocurrency, not crypto mining.”
Can a vibrant blockchain and crypto economy have one without the other? Can New York City, currently beating out San Francisco for VC investment in crypto startups, maintain its momentum if mining is off the table? Will the best minds in DeFi and Web3 really abandon Manhattan for Cheyenne, Wyoming?
“Mining, in and of itself, is distinct from DeFi and Web3, which are focused on new services, new ways of doing existing things,” says CoinDesk’s De. “That said, mining is the lifeblood of major currencies, including Bitcoin. It’s hard to imagine a state or region with a strong crypto sector but not crypto mining. What New York [State] is doing right now is going to have an impact on where people are putting their money.”