Pros and Cons of Cryptocurrency Mining in New York State

Last month, the New York State Assembly voted to pass Democratic Member of Parliament Anna Kelles’ two-year moratorium on new cryptocurrency mining. The idea behind the bill is to give the New York State Department of Environmental Protection time to conduct an environmental impact study of the practice.

The bill would prevent new permits from being issued for a very specific type of cryptocurrency operation known as carbon-based proof-of-work mining operations that use energy behind the meter.

The law still needs to be passed by the Senate and signed by Gov. Kathy Hochul before it can go into effect.

The appeal of cryptocurrency is that by using blockchain technology, financial transactions are instant, secure and very difficult to trace. But there’s a downside to proof-of-work mining: it takes massive amounts of energy to power the thousands of computers used to “mine” coins.

That’s why Rep. Kelles said her bill was so narrowly focused.

“This particular way of validating cryptocurrencies is called proof-of-work, which is synonymous with cryptocurrency mining. There is no other method called mining. It’s been found around the world to consume phenomenal amounts of energy compared to other forms of validation, such as proof-of-stake,” Kelles said capital tonight.

“Mining” cryptocurrencies is not mining in the usual sense of the word. It’s millions of computers competing with each other to validate transactions. The more computers a miner has, the greater the advantage – and the more energy is consumed.

Upstate New York is attractive to cryptocurrency miners for a variety of reasons, including plentiful clean air and water, relatively cool temperatures, and cheap hydroelectric power to run computers.

Upstate New York also has several legacy power plants poised to house these mining operations, some of which are being purchased by public companies. These companies convert the power plants to produce their own energy “behind the meter”, meaning it is produced and consumed on-site.

“We’re a prime target,” Kelles said of the state.

One of the largest cryptocurrency mining companies in upstate New York is Greenidge Generation, located on the shores of Seneca Lake in the Finger Lakes region. Critics, including Kelles, argue that crypto mining in Greenidge is hurting the agritourism and wine industries that are already established there.

The Greenidge Generation bitcoin mining facility is located in a former coal-fired power plant on Seneca Lake in Dresden. (AP photo)

The assembly member also argues that cryptocurrency mining is not a big source of work.

“Mining itself is not a big job engine because the computers do all the work in the first place. But secondly, what’s really important is that the algorithm they run is very simple. It’s not like the algorithm for the Skype app… and so it doesn’t require a huge amount of engineering… for maintenance,” Kelles said.

“[Cryptocurrency mining] is a very small fraction of jobs compared to [agritourism]’ Kelles said.

But cryptocurrency advocates, including Republican Rep. Robert Smullen, argue that New York is the world leader in financial services, so why shouldn’t the state also be a cryptocurrency leader?

Smullen also questions Kelle’s characterization of the jobs created by such operations.

“These are good jobs because they’re essentially electrical jobs, that’s what they are, and they run all these facilities,” Smullen explained. “This is a new form of advanced manufacturing.”

In fact, the IBEW union is a proponent of cryptocurrency mining.

As for Greenidge Generation in particular and its expansion plan from its current 17,000 computers, Smullen isn’t concerned.

“[Greenidge] is probably a factory in a small part of a town, so I don’t think it bothers an agritourism brand for the beautiful Finger Lakes area,” Smullen said capital tonight.

What the MP is very concerned about is the possibility of a two-year moratorium on new cryptocurrency operations.

“In this industry, two years is literally the speed of light in the blink of an eye,” Smullen said. “This industry, financial things, they can go anywhere.”

The key, according to the MP, is getting miners to come to New York and then keeping them here.

“This is trade that is very important for the future of the financial services industry. During the pandemic, we’ve seen that many jobs in New York City can be done from anywhere. My concern at the time and my concern is that we created a regulatory environment in this state that provides positive incentives for the financial services industry, which will evolve over time with technology, to stay in New York State,” Smullen said.

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