New York state wants to severely restrict mining of cryptocurrencies using a proof of work protocol. The state is one of the major bitcoin manufacturing 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 affect 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 crypto mining, using a proof of work protocol. And especially the crypto industry is concerned.
A moratorium to regulate mining companies
The text signed by the senators is quite strict. It would prohibit the installation of new companies or the expansion of the established ones for at least two years, if the latter work with cryptocurrencies using a proof-of-work protocol, and if the mining companies do not work with 100% renewable energy sources.
Now that the senators have signed the text, there is one last step before it goes into effect: it must be signed by the state’s governor, Kathy Hochul. For now, the Democrat has not indicated what she plans to do: Kathy Hochul is strongly committed to protecting the environment, but she is also said to have received a $40,000 donation from a chef. York Times. His decision could be influenced by these two factors.
Upon approval by the Governor, the text would enter into force immediately. The scope of such a text would be extremely broad: New York State is one of the largest producers of cryptocurrencies in the United States. A study from the University of Cambridge found that the state alone provides 9.8% of the US’s hashrate for bitcoin, placing 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 top bitcoin mining hubs in the country, The Verge says.
The proof of work protocol criticized
If New York State bans some of the mining companies from settling on its territory for at least two years, the consequences for 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, particularly by cracking down on mines that don’t 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 move to a different type of protocol called proof of stake by the end of 2022, Bitcoin will not. Cryptocurrency is very difficult to produce and so far only Norway uses 100% renewable energy to power its mining companies – barely 1% of the global hashrate.
But the arguments used by the senators to justify the imposition of the moratorium are not convincing industry experts. The energy mix used by bitcoin miners around the world today consists of 60% renewable energy, while those in New York are said to use 80%.
† New York regulation will stop high carbon footprint bitcoin mining companies, but it will also discourage 100% renewable farms from targeting », says John Warren, the manager of a mining company, interviewed by the American newspaper. Above all, the legislation could inspire other US states to do the same — and that’s what worries us most.