New York State strongly wants to limit the mining of cryptocurrencies using a proof of work protocol. The state is one of the main bitcoin production hubs in the country.
On the night of Thursday June 2 to Friday June 3, 2022, New York State senators signed a piece of legislation that could well impact the entire mining industry in the United States. This is a moratorium that frames and regulates the installation in the State of companies specializing in the mining of crypto-currencies, using a proof of work protocol. And the crypto industry is particularly worried.
A moratorium to regulate mining farms
The text signed by the senators is quite severe. It would prohibit for at least two years the installation of new companies or the expansion of those established, if the latter work on crypto-currencies using a protocol of proof of work, and if the mining farms do not work with 100% of renewable energies.
Now that the senators have signed the text, there is one last step before it goes into action: it must be signed by the governor of the state, Kathy Hochul. For the moment, the Democrat has not indicated what she intends to do: Kathy Hochul is strongly committed to the protection of the environment, but she would also have received a donation of 40,000 dollars from a chef. company specializing in bitcoin, revealed the New York Times. His decision could be influenced by these two factors.
Once approved by the Governor, the text would immediately come into effect. The scope of such a text would be extremely broad: the State of New York is one of the largest producers of crypto-currencies in the United States. A study by the University of Cambridge shows that the state alone provides 9.8% of the hashrate (computing power) of the US for bitcoin, which places it in 4th position, behind Georgia, Texas and Kentucky.
Since the complete ban on mining in China in June 2021, the United States has established itself as the country of fallback for companies looking to relocate. And New York State, a major producer of hydroelectric power, has quickly become one of the nation’s top bitcoin mining hubs, says The Verge.
The proof of work protocol criticized
If the State of New York prohibits part of the mining companies from setting up in its territory for at least two years, the repercussions on the crypto ecosystem in the United States could be significant. The senators told CNBC that the moratorium was motivated by a desire to limit the state’s greenhouse gas emissions, in particular by cracking down on mines that do not use enough renewable energy.
The proof of work protocol, which is covered by the law, is a process used in the production of certain cryptocurrencies, including bitcoin and Ethereum, the two most popular in the world. This mechanism, which requires a large number of computers to solve an equation in order to validate transactions, is extremely energy-intensive – and often criticized for it.
If Ethereum plans to switch by the end of 2022 to another type of protocol, called proof of stake, this is not the case for bitcoin. Cryptocurrency is very difficult to produce, and so far only Norway uses 100% renewable energy to power its mining farms — barely 1% of global hashrate.
But the arguments used by the senators to justify the establishment of the moratorium do not convince the experts of the sector. The energy mix used by bitcoin miners around the world today is made up of 60% renewable energy, according to CNBC, while those based in New York would use 80%.
” Regulation in New York will stop bitcoin mining farms that have a high carbon footprint, but it will also discourage 100% renewable farms from setting up », Considers John Warren, the manager of a mining company interviewed by the American newspaper. Above all, the legislation could inspire other American states to do the same – and that is what worries us above all.