If you’re a New York-based cryptocurrency miner, it may be time to pack up shop. The New York Senate has passed a bill that bans cryptocurrency mining in the state when it relies on carbon-based energy sources to power its operation. Here’s a closer look at what’s going on and what the cryptocurrency community needs to know.
- The state of New York is considering a law that would ban cryptocurrency mining in the state if it is not powered by a renewable energy source.
- The bill, already passed in the New York Senate, could significantly affect cryptocurrency mining capacity, prices, and fees.
- Crypto mining can be very energy consuming and has been banned in other jurisdictions for various reasons.
What is cryptocurrency mining?
Cryptocurrency mining is a digital process of tracking and processing new cryptocurrency transactions. Bitcoin and similar currencies are often based on proof of work (PoW), where computers known as miners compete with each other to process the next set of transactions, known as a block.
This competition requires intensive computer calculations that consume a lot of electricity. For comparison, Bitcoin alone uses more energy than many countries.
Other cryptocurrencies do not necessarily rely on the same power-hungry blockchain software. Avalanche, Solana, and Polkadot are competing cryptocurrency networks that rely on proof-of-stake (PoS) methods that require much less electricity.
Coins that rely on PoW are bad for the environment when connected to coal, natural gas, and other power plants that rely on burning carbon fuels. This is where New York State seeks to step in and demand change for miners in their jurisdiction.
A New Crypto Mining Moratorium in New York
Cryptocurrency mining can occur on a home personal computer, a traditional computer data center, or a purpose-built facility. Due to the potential profitability of bitcoin mining, some miners have gone so far as to purchase and reactivate old power plants to power their bitcoin mining without paying standard electricity rates.
What happens to crypto miners in New York?
New York is not the first place to discuss a ban on crypto mining. In fact, the entire country of China effectively banned cryptocurrency mining in a wide-ranging referendum that had a major impact on the cryptocurrency markets. Over time, markets stabilized as miners elsewhere took over.
The same is likely to happen in New York if this bill becomes law. Cryptocurrency mining will not become completely illegal like it did in China under this law. But large mining operations may look to move outside New York’s borders to a more favorable location.
People who run cryptocurrency mining rigs at home are less likely to fall into the crosshairs of law enforcement, but continuing to mine using traditional power sources may put some miners on the wrong side of the law. . To avoid prosecution, miners must find a way to comply with the law if mining in the state is approved or ceased.
How does cryptocurrency mining work?
Cryptocurrency mining is a distributed process where computers work to process new transactions and keep a copy of all previous transactions for verification. The distributed ledger enables a trusted source of information for all global users. When a miner successfully processes a transaction, its owner receives a fee, sometimes called gas, and can also earn newly minted currency.
What is the difference between PoW and PoS?
In proof of work (PoW), the probability of mining a block is determined by the amount of computational work done by the miner. Whereas in proof of stake (PoS), the validation of a new block is determined by the number of coins a person has.
Can governments ban cryptocurrencies?
While it is unlikely that any state or federal government body will completely ban cryptocurrencies, there is a risk of future legislation that could further limit cryptocurrency mining or put other security measures in place in the cryptocurrency industry. Like banking and investment brokers on Wall Street, regulations can change and evolve. While New York is often a leader in financial regulations, crypto enthusiasts should not be surprised to see new crypto laws in the future.
The bottom line
While cryptocurrency mining restrictions are not ideal for the crypto community, this regulation is a victory for environmental advocates in New York. If the law passes, it is highly likely that some miners will switch to sustainable energy sources, some will move out of state, and some will close for good.
Due to the distributed nature of cryptocurrency, the entire ecosystem is not in jeopardy and should only see mild impacts if the law passes. But overall, it shouldn’t derail the cryptocurrency industry beyond a temporary blip on the radar.