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ALBANY, NY – Across the country, some states are trying to persuade cryptocurrency mining companies to open shops by offering tax incentives in hopes of creating jobs and expanding their foothold in the tech industry.

In New York, lawmakers have taken a different direction: In the waning hours of the 2022 session, the State Legislature unexpectedly passed a bill last week that would impose a two-year ban on new cryptocurrency mining permits, specifically on fossil fuel burning. facilities that some businesses have redesigned to power energy-intensive operation.

The groundbreaking legislation that would make New York the first state to enact such a moratorium has the potential to impact regulation in other states or at the federal level.

The bill’s passage marked a significant defeat for a deep-pocketed industry burgeoning at the hands of a grassroots coalition of left-leaning lawmakers, climate activists and even winemakers who argued it would have environmental costs to the future. cryptocurrency mining.

“Other blue states could potentially pass such laws based on efforts by the environmental lobby,” said John Olsen, chief representative in New York for the Blockchain Association, an industry group that opposes the moratorium. “It’s definitely a concern.”

However, it is unclear whether Government Kathy Hochul will sign the bill. The cryptocurrency industry is expected to invest heavily in efforts to persuade him to reject the measure and influence other industry-friendly regulations in Albany.

Ms. Hochul’s campaign has already received $40,000 from Ashton Soniat, CEO of Coinmint, who runs a crypto mining operation on the grounds of a former aluminum factory in Massena, NY, a small town northeast of Niagara Falls.

An even bigger political gift went to vice-governor Antonio Delgado, who faced Ms. Hochul’s two main rivals this month. A super PAC powered by the founder of FTX, a major cryptocurrency exchangeAccording to state filings, he has spent nearly $1 million on digital ads over the past few weeks to support his campaign.

Super PAC spokesman Michael Levine said he is focused solely on supporting candidates he believes will support pandemic preparedness measures. But the five ads that aired across the state also highlight Mr. Delgado’s work on climate change, infrastructure, abortion and schools.

The firm also pays $12,000 a month to a consulting firm, Hinman Straub, to lobby the state government on cryptocurrency regulations, according to state records. Sam Bankman-Fried, founder of FTX, said in a statement that the company applied for a trust agreement He has been in talks with regulators about operating and implementing in New York.

The governor, a moderate Democrat facing a June 28 primary, was hesitant to sign the bill, a priority for environmental activists and the party’s left wing. Ms. Hochul probably won’t have to make a decision until December 31st.

“We’re going to take a very, very close look at all the bills,” Ms. Hochul said at a press conference in Manhattan on Tuesday. We have a lot of work to do in the next six months,” she said.

Ms. Hochul previously said she was “open-minded” about the moratorium, but was also careful not to pass laws that could hinder job creation in the rural communities where most mining operations are based.

Bitcoin mining is a necessary verification process for the Bitcoin economy. Powerful computers connect to the Bitcoin network and perform quintillions of numerical predictions per second, performing complex mathematical tasks to verify the legitimacy of transactions. As a reward for this service, digital miners receive new Bitcoins, which provide a financial incentive to keep computers running.

In Bitcoin’s early years, a crypto enthusiast could mine coins by running software at home, but as digital assets became more popular, The amount of power required to produce bitcoin has increased.

As the value of cryptocurrencies has increased, Bitcoin mining has become a major industry. There are hundreds of millions of dollars worth of public crypto mining companies like Riot Blockchain and Marathon Digital Holdings. According to Democratic Congresswoman Anna Kelles, who backs the bill in the lower house, there appears to be 19 mining operations in New York that are either fully operational or may be by the end of the year, although estimates vary.

The measure, passed by the Democratic-controlled State Legislature, aims to narrowly target crypto mining companies that want to reuse some of the oldest, dirtiest fossil fuel facilities in New York when they are out of service.

Over the next two years, the bill will place a moratorium on new projects that use fossil-fired power plants to generate electricity “behind the counter” for crypto mining, and will require the government to examine the impact of the industry.

“Any delay in signing the bill puts our state at serious risk of buying many old, inefficient, retired power plants and re-running them for consolidated crypto mining operations for private profit,” Kelles said.

The proposed ban has seen intense opposition from national cryptocurrency industry groups, who are concerned that the moratorium could be a precursor to similar regulations across the country, and from some lawmakers who say it unfairly targets the startup industry.

The industry was more warmly received in other states, leading some opponents of the ban to argue that those interested in mining in New York could simply be relocated. Last year, Kentucky was a pair of invoices that create tax incentives for crypto mining companies. Legislation suggested In January, Illinois would amend a state law to expand incentives to mining companies that set up shops there. And Texas and Georgia have adopted friendly stances towards the industry.

“It is a shame that the Legislature voted to impose a moratorium on Bitcoin miners in New York,” Perianne Boring, chair of the Digital Chamber of Commerce, an industry advocacy group, said in a statement. “This is a significant setback for government and will suffocate its future as a leader in technology and global financial services.”

The bill passed the House in April, but lingered in the Senate for weeks, until it was unexpectedly revived and passed just before the Senate walked out of session early Friday morning after frenzied lobbying and late-night debate.

Democratic Senator Kevin Parker of Brooklyn, who sponsored the bill, said it was not designed to discourage the industry. “If people want to mine cryptocurrencies in New York state, which I’m very open to, then we have to do it sustainably,” he said.

The law in New York comes after China crashed on crypto mining last year, it forced some operations to relocate to the United States. Some miners are now reviving deteriorated coal power plantsor using low-cost natural gas to power their computers.

In New York, areas available for such businesses are former power plants scattered throughout the state, which are among the state’s most polluting and inefficient plants. Restarting them will reverse the reductions in greenhouse gas emissions these shutdowns have achieved. This will slow the government’s progress towards climate targets that it is legally required to meet, and there are growing concerns that it is already behind schedule.

The bill will not affect crypto mining projects that draw electricity from the grid. But some supporters say they should also be banned, as they will collect valuable electricity as the state tries to electrify homes, buildings and cars to meet climate targets.

Nor does the moratorium affect Existing projects such as the much discussed project on GreenidgeIn Seneca Lake, although residents and tourism businesses in the surrounding Finger Lakes region support the bill to prevent similar projects from taking root.

According to Ms. Kelles, boutique crypto miners are unaffected, as are individuals working from their homes.

The Senate passed a broader version of the cryptocurrency moratorium bill last year, but it failed to gain sufficient traction in the House. The moratorium proposal quickly became a hot topic when it resurfaced in 2022, an election year for state legislators, as environmental groups renewed their pressure and the cryptocurrency industry began to organize their own lobbying forces.

Faced with potential primaries from the left, some Democrats have come under pressure to support this and other environmental laws, while others vehemently opposed it, arguing that it would kill jobs and unfairly target one industry while keeping other energy-intensive industries off the hook.

“I think the majority of members still don’t understand the industry and technology,” said State Senator Jeremy Cooney, a Democrat from Rochester who opposes the moratorium. “This is bigger than cryptocurrency. It’s about whether New York will be an open and welcoming place to do business and engage with emerging technologies.”

Lobbyists from two national groups (Blockchain Association and Digital Currency Group) also included themselves in the debate in New York, deeming it necessary to defeat the law to prevent similar laws from spreading across the country.

Even so, environmental groups continued to make a fuss, and so did Ms. Kelles, who called her Senate colleagues and texted them to lobby directly.

Senator Liz Krueger, a senior Democrat from Upper Manhattan, said she called and texted her colleagues to persuade them to change their vote, and lobbied in person with others in the State Capitol on Thursday night.

“Smart entrepreneurs entering the cryptocurrency space will realize that if they are not destroying our environment, they can build a better mousetrap and get us to buy it,” he said.

Anne Barnard contributed to the reporting.