NY State Bills to Regulate Cryptocurrency Mining Have Uncertain Future

SUMMARY

Cryptocurrency mining might just make it impossible for New York State to meet it’s climate goals, outlined in the New Your State Climate Leadership and Community Protection Act.

There’s a bill in the New York State Legislature calling for a moratorium on cryptocurrency mining, but with the end of this Legislative Session coming up on June 10th, this bill might not even make it to the floor.

Peter Mantius joins us to talk about the closing window of opportunity lawmakers have.

Mantius authors a news blog called Water Front. He reports on environmental politics in the Finger Lakes.

Our conversation today stems from his recent investigative article for New York Focus, Anticipating Pushback From Finance, Enviros Move to Regulate Energy-Intensive Crypto Mining.

TRANSCRIPT

Jimmy Jordan
So Peter, thanks for joining me. Last we talked about cryptocurrency, the issue we were discussing was the conflict that cryptocurrency mining would have with New York's climate goals. To say the least, cryptocurrency mining can be very energy intensive and as a result can end up putting a lot of carbon into the atmosphere. So I would say the question that framed our last conversation was his carbon intensive Bitcoin mining going to happen unchecked in New York State. But now we are at a pretty different moment. There are several bills in the state legislature addressing cryptocurrency money's collision course with New York's climate leadership and community Protection Act. In your most recent article for New York Focus, you outline the financial investments that have been made in cryptocurrency, and you kind of raised the question: could this way or even derail the regulations being considered in New York? So this is all to say that your piece goes into a lot of different areas. All that brought up all that said, I think the best place for us to start would be sort of at the beginning with Greenidge. Greenidge generation is for some a cryptocurrency darling. And for others, the canary in the coal mine then has kicked off this cryptocurrency question. Can we start with Greenwich, its history, and its current Bitcoin mining operation?

Peter Mantius
Sure, sure. Well, Greenidge was a old coal plant that was built decades ago, and it was what they call mothballed in 2011, because it was no no longer economic, the company that owned it at the time filed for bankruptcy protection. And it was basically just sitting there on the shore of Seneca Lake for several years, it was acquired by a private equity company called Atlas Holdings in Connecticut, in 2014. They didn't immediately restart it, but they worked to get permits from the state. They needed a permit from the DC Department of Environmental Conservation and the Public Service Commission to restart it. They also wanted to convert it from being powered by coal to be being powered by natural gas. So they made that conversion, they put in about a four mile pipeline connecting connecting to a larger gas pipeline. So they had ready access to natural gas as a source of fuel, and they restarted in 2017. Now, with the Public Service Commission, they told the Public Service Commission that the purpose for restarting was to provide energy for the New York State grid. That was the entire purpose. On that basis, the Public Service Commission granted the permit to allow them to start. Well it did turn out that there was very light demand for that grid electricity. And I think that Atlas, the private equity company in Connecticut, wasn't doing very well with its investment. They were looking for other ways to make it more profitable. And Bitcoin mining was one option for them. So in 2018, they started experimenting with a with a few, what they call rigs that confirm Bitcoin transactions. They tried a few of them. And then in the spring of 2019, they announced to the world that "Hey, we're now a Bitcoin mining operation where we authenticate Bitcoin transactions and for our trouble, we earned Bitcoin" and that went along for several months and they gradually were expanding it but nothing, nothing very startling. But then Bitcoin, the price of bitcoin absolutely took off in between 2019 and really, this spring, it doubled and doubled and doubled. It just, it went way up.

Jimmy Jordan
We're talking about like, in April, it was around $60,000 a coin.

Peter Mantius
It got almost the 60,000 when they first started when Greenidge first started doing the Bitcoin processing. They were I think the Bitcoin was somewhere certainly below $10,000, maybe below 5000, between five and ten thousand in that in that range, when they, when they were looking at expanding into bitcoin, and it was costing them close to $3,000 to process. The processing costs to get one bitcoin was about 3000 and the price of the Bitcoin was maybe five to ten thousand. Well, obviously the profit margin absolutely exploded when Bitcoin went to 60,000 because remember, there were they're paying only 3000 in costs to acquire one bitcoin, you know, for 3000 in costs, they get 50 or 60 thousand dollars. It's enormously profitable. And because of that, they elected to go public, which means they want to become a public company traded on the NASDAQ stock market. And they so they they decided they were going to do this through a reverse merger with a little tech support company called support.com. It's a fairly, you know, fairly small company with very small market capital. It's basically a technique that's used on Wall Street to allow a company to go public and Greenidge will when they do the merger, Greenidge will be totally dominant. They were Atlas who owns Greenidge will be totally dominant, they'll they'll control 92% of the shares, and support.com will only be 8% of the shares. But this is all to take advantage of the market excitement about this bitcoin price explosion. So they they announced in March, they were going to go public,

Jimmy Jordan
Considering all this where Greenidge's Generation started. It's like a Cinderella story, you could say, underpinning all this business success is a pretty heavy carbon output. So how much carbon is Greenidge putting into the atmosphere? And what,

Peter Mantius
Right! Well, when Greenidge got the state permits, they were able to obtain very lenient state permits: they did a lot of lobbying, they paid a lot, they paid a lot of money to lobbyists, contributed a lot of money to Governor Cuomo, and they worked really hard on getting lenient permits, and among those permits that they obtained was an air permit. And that permit allows them to emit a substantial amount of trying to I don't want to get the number wrong.

Jimmy Jordan
I've got your article in front of me.

Peter Mantius
Yeah, I think it's 600,000 tons. More than 600,000 tons a year. I believe and double check that I think,

Jimmy Jordan
I'm reading here 645,000 tonnes.

Peter Mantius
Yes now, because they have not been operating anywhere near at the full capacity of the plant, because there hasn't been any demand, and the Bitcoin has not really been ramped up yet, because they've been operating at, you know, only a partial capacity, they haven't approached that number yet. But as they started beefing up their Bitcoin operation, the greenhouse gas emissions rose dramatically. And they in fact, they rose about tenfold when you compare month by month 12 month totals. In other words, for each month, look back 12 months, when you look at that graph, it's really a startling increase. Well they're talking about increasing the amount of megawatt generation at the plant from the current 19 megawatts to 85 megawatts next year. Now, if you if you just look at the patterns, it looks like we're going to see, you know, quite a bit more greenhouse gas emissions due to that that large increase in generation and now Earthjustice, which which is a green nonprofit law group, they have projected that Greenidge will generate a million tons a year of greenhouse gases if they go too close to near capacity. And at 85 megawatts they are approaching full capacity that the plant is capable of, I think 106 or 107 megawatts. So Earthjustice is saying that if they go near that full capacity, they're going to approach a million tons a year.

Jimmy Jordan
Yeah, this is pretty much incompatible with New York's climate goals, like you were writing in your article. So can you bring me to the legislation that has been proposed?

Peter Mantius
Because there have been some environmental groups that are upset about this plan to very rapidly increase Bitcoin mining and energy consumption and emissions; Because of that, a Ithaca lawmaker, Assembly Member Anna Kelles, who was a first term assembly person, she has introduced a bill that would impose a three year moratorium on high energy use cryptocurrency. Now this this bill has some support from some important people in the General Assembly, including Steve Englebright, who is the chair of the Assembly Committee on Environmental Conservation, and several other pretty senior assembly members. But it has to be taken up on the floor and the question there will be do more senior people above Englebright, including the speaker, including the governor, do they want to see this bill come up for a vote? Maybe they don't even want to bother with the with having a formal vote on this because it could step on the toes of certain people that have invested heavily in Bitcoin. If you've invested millions and millions on Bitcoin, you're probably not excited about seeing a three year moratorium on Bitcoin mining in New York State.

Jimmy Jordan
And I just want to go back and correct myself. You did not say that this possibility of a bunch of power plants in New York State, turning into bitcoin mining operations would be incompatible with New York State's climate goals. It was Robert Howarth, a Cornell ecology professor and a member of the state's decarbonization committee that sent that to you.

Peter Mantius
Well, that's true. And he was and he was basing his statement on a letter that Earthjustice wrote to the governor and to regulatory officials in New York saying Greenidge could be the first of many. They're very concerned about a future trend where there are up to 30 old fossil fuel plants that are either either mothballed or about to retire. And what you could see is Bitcoin operators could come in, snatch them up for pennies, and then convert them to Bitcoin mining, just like Greenidge did. And they're concerned that if there's not a moratorium, then it will be open season on going after these old fossil fuel plants, converting them to data centers, and then just reaping the profits but also greatly increasing generation, which means greatly increasing greenhouse gases, which means real problems for the state trying to achieve the emissions reductions that are called for under the 2019 Climate Act.

Jimmy Jordan
And, you know, there is one important nuance that I understand in the bill that's in the state legislature right now. It is not meant to stop Bitcoin mining or cryptocurrency mining completely. The moratorium is meant to give the DEC and lawmakers time to study and understand cryptocurrency mining, and see what would make sense for this emerging industry to potentially look like in the state because after all, there's more than one cryptocurrency. Bitcoin is a cryptocurrency and it operates on a blockchain that uses proof of work, and that is more energy intensive than a proof of stake. Do you want to go into that dynamic a little bit?

Peter Mantius
Sure. And I think that this is something that Anna Kelles has has really zeroed in on and I you know, I think it's a really important distinction that she's drawing. She's trying to say that she's not against cryptocurrency, but she does feel like there needs to be a halt or a pause in developing a cryptocurrency that is very energy intensive and is going to blow through our you know, lower the states emissions reductions plans. So she's saying let's just go after proof of work, which is a type of cryptocurrency authentication that requires a ton of energy. There are several other cryptocurrencies besides Bitcoin that are working very very hard right now to drastically reduce the amount of energy to use to basically confirm or authenticate cryptocurrency transactions. And they're the second largest and the biggest rival of Bitcoin is Ethereum. And Ethereum is right now, they claim that they are only a couple of months away from completely transitioning away from proof of work, which uses a ton of energy to another form of authentication. I won't try to go into great detail about how it works but let's just say it uses, according to Ethereum, less than 1% of the energy. In fact, they they have said recently that it will, when they make the transition, it will cut their energy consumption by 99.95%. Ethereum right now, like Bitcoin is also proof of work. They're saying we want to do a complete transition away from proof of work to this much less energy intense form of authentication. But that wasn't the details on how to how to actually pull off that conversion. And that's not a done deal. It's not for certain that that's going to happen, let alone in two months. It does seem that the industry, that the cryptocurrency industry, is really really looking at all the negative press they've gotten about using so much energy, and they're really working hard and trying to figure out well, is there a workaround here? Is there some way we can do cryptocurrency without gobbling up all this energy?

Jimmy Jordan
Recently, Elon Musk's tweet is probably the biggest emblem, I can think of cryptocurrencies, you know, negative environmental associations catching up with it

Peter Mantius
Right. In his tweet, which he did in the middle of last month, first of all he immediately not $10,000 off the price of bitcoin. It went from 55 or 56,000, down to 46,000 in a matter of hours after he said we are no longer going to accept Bitcoin, in payment for Tesla automobiles, electric cars. And he had been a big Bitcoin booster, but he said we're no longer going to do that because I'm concerned that it it's wasting too much fossil fuel energy, particularly coal. And he mentioned coal because right now a lot of Bitcoin authentication is done at Bitcoin mining operations in China, where they draw heavily on coal. And China is now kind of freaking out about that and cracking down on that and even banning it in certain areas. But but they're not the only ones that use coal fossil fuel to process Bitcoin. There's a there's an operation in in Montana, that is coal power that is processing Bitcoin.

Jimmy Jordan
And this negative press has resulted in our local cryptocurrency mining, Operation Greenidge Generation to pledge to become carbon neutral. Can you tell me what the takes on that had been like?

Peter Mantius
Well, for the environmentalist they're, you know, highly skeptical of it, they point out that, you know, that announcement that Greenidge is going to become carbon neutral on June 1, well that announcement came almost in response to the Elon Musk tweet that, you know, he's really concerned about the fossil fuel impact and the carbon footprint impact of this use of enormous amounts of energy for Bitcoin mining. So there's been a lot of skepticism among environmental people who who don't like the carbon offsets anyway, they feel like they're very poor substitute for just cutting emissions. You know, you can plant a tree in California, but does that really help the people here in the Finger Lakes who are going to have to put up with this, you know, with the air pollution and everything that comes out of that plant. So they're very skeptical about it, plus the 2019 New York State law on reduced that requires these reductions in greenhouse gas emissions, it does not allow for offsets for the electric generation industry. And that would presumably include Greenidge because that's what they do. So it doesn't even allow for it. And also, New York State has has not yet written the rules for what carbon offsets will be allowed. Even if you're not in the electric generation industry, they still aren't any rules yet on what will be considered okay. For example, there's a lot of emphasis on if you're going to do an offset, it needs to be right in the same community that you are emitting. You don't say, well, we're emitting like crazy here in the Finger Lakes, but we're going to we're going to take care of that by planting trees in California, that doesn't work. And so that is not expected to be allowed under the rules that have not yet been written in New York, but it's not expected to be allowed. So for at least two reasons, you have to raise questions about what what Greenidge is saying is going to do.

Jimmy Jordan
So they have this reaction. And, you know, like you were saying before, there are a lot of other groups of people that want to have cryptocurrency mining operations perceived favorably. You wrote about finance firms and their deepening ties to cryptocurrency and the already existing ties between those firms and lawmakers. In your article, you're talking about BlackRock Renaissance technologies. Can you give listeners a sense of how big these players are in the finance world?

Peter Mantius
Well, they're really big and and now, well first of all, BlackRock is the largest asset manager in the world with with several trillion under management. It's the largest, but they have recently been investing in a company that has more than several billion dollars of Bitcoin on its balance sheet. So it's betting on Bitcoin. So BlackRock is betting on Bitcoin. So that's just one example. Now, Renaissance Technologies also they buy tons and tons of different stocks, and they are a program trader. They're not trying to decide, well, who do we buy today? They they they buy stocks based on computer programs and things like that. So this is not necessarily an intentional move into bitcoin. However, that said, they have made their biggest move into bitcoin mining investments in the first quarter of this year, and that that includes some some really large 50 to $70 million investments in in companies that are really Bitcoin miners and a smaller investment but I think a very significant one is that they bought almost 5% of the company that Greenidge plans to merge with. And that's significant because when that merger occurs, the merger again is is in order to allow Greenidge to go public and to become a publicly traded company. When that merger occurs later in the year what's going to happen is Greenidge will it'll merge with support.com and that means that Renaissance Technology will then own a portion of you know, the the surviving Greenidge company, they will they will be investors in this plant that has sort of touched off this whole backlash against Bitcoin's carbon footprint.

Jimmy Jordan
So that's their growing stake in cryptocurrency in Greenidge and Renaissance also has like he wrote this connection to New York state lawmakers. Jim Simons, he is the founder of Renaissance, and you wrote that Simon's his family has contributed $3.4 million to the state Democratic Party. And, you know, you wrote that a sort of raises the question, could this sway the way lawmakers think about this issue? And you were referring to that earlier. Can you go into that speculation?

Peter Mantius
Yeah, underscore the word speculation. I'm not saying that you know that this is a direct line that oh, you know, Jim Simons is on the phone to Andrew Cuomo saying kill the bill. I'm not saying that. But he can work in a lot of ways. How does lobbying work? How did campaign contributions work? They don't necessarily work like a direct arrow, he can work very indirectly. How about if you're a you're a democratic assembly member? And you're thinking, well, I don't know much about this bill. I'm just trying to understand it. But I see that some one of the one of the people that could be affected by it you know is practically the biggest benefactor of all, to the state Democratic Party. I don't really understand it, maybe I don't need to be a big supporter of this. So it can work in very, very indirect, soft ways like that. I in fact, I seriously doubt that Jim Simons is on the phone trying to stop this bill. I really doubt that that isn't how it works. But it can work indirectly. That tends to be often the purpose of campaign contributions. They have a, you know, there's almost a penumbra effect of how they work on the legislative process.

Jimmy Jordan
So we can't say for sure that this donor relationship would influence the way lawmakers would do? Absolutely not.

Peter Mantius
Oh, no, not not at all. Not at all. But how do bills, how do bills get killed and how do bills not survive. It's, first of all, it's very difficult for a bill, a bill that is just sort of starting out of nowhere, to get passed. It's hard to get through the system. And when there are reasons to be against it, that increases the chances that it's, you know, it's going to be it's going to be hard to pass. But on the other hand, I would say there are real reasons to pass this bill. If people care about the 2019 Climate, you know, Act, that that Cuomo has taken a lot of, you know, positive publicity from, if we want to actually do that act and actually enforce those limits, this is a really important bill. And legislators sit up and pay attention and educate themselves on it, because it really is going to matter. Because if they don't pass it, then what's going to happen is you, you have the possibility, and this is what Anna Kelles is, I think concerned about that you're going to have a gold rush of cryptocurrency, basically opportunists who are going to try to jump into the New York market. And they can do it a couple of ways. They can buy power plants, that's probably not the main way that will happen although he could have that could also happen. But the other way is to work on state government to obtain allocations of cheap energy, hydro and nuclear, mainly hydro that allows you to just set up a cryptocurrency operation. It doesn't need to be a power plant, it can be a warehouse somewhere with a lot of computers. And then if the state grants you the right to take a big allocation of cheap hydro electricity, you can go at it, start Bitcoin mining. And I think that's where you're going to see it in the next few months, is build on the past, they're going to be a lot of people that say, "We want those enormous returns from Bitcoin mining that are possible right now. And all we have to do is buy a warehouse and convince the governor to give us an allocation of Hydro and we can go,"

Jimmy Jordan
Now that's exactly what's happening near Buffalo with the company Digihost right?

Peter Mantius
Well Digihost apparently obtained big hydro and nuclear allocations earlier. By the way, they are a British Columbia company. They come in and they told the public service commission that they want to buy this power plant. So in addition to already having a Bitcoin operation that is not producing power, he just has power allocations,of mainly hydro, and then secondarily nuclear. So they've already got that, but now they want to buy a 55 megawatt power plant that would be run, that is run on natural gas. So they would be expanding that way.

Jimmy Jordan
So why don't we turn to what we're hearing from the DEC about Greenidge and other cryptocurrency mining concerns? Are they saying anything that could guide a lawmakers judgment?

Peter Mantius
They normally don't say much about pending legislation. They're not going to say to a lawmaker, oh, you need to be for this moratorium on Bitcoin mining or you need to be against it. That's not how they operate. I think right now the DEC is mainly focused on what the heck are they going to do about this renewal application that Greenidge has filed for their air permit. Their current air permit expires in September. So what are they going to do? Are they going to let them have a really high limit on greenhouse gases? Or are they going to crack down? It's pretty politically sensitive, because in the past, the DEC has been, I would say extremely lenient on the permits that they have granted, Greenidge. So are they now going to reverse course and be tough? Given they're, they're in a tough spot, because if they don't crack down, and they're not tough, that's going to put that's going to put enormous pressure on the ability to meet the greenhouse gas reduction requirements under the 2019 climate law. They really have to choose. And that's what their focus is right now is what are we going to do about this permit? And, and I frankly, I don't think they're going to do anything before September. I don't think they're going to act quickly. There are state rules that allow them to let the permit lapse, and let things just sort of drag along. The rule is that if the applicant has made a legitimate application for renewal, they are allowed under, you know, say, procedural law, to not do anything right away while they consider. And this could take months, this could this could go way beyond September, this can go on to the next year, where they where Greenidge is actually operating under an expired air permit, and meanwhile, expanding their Bitcoin operation and their emissions like crazy. So it all remains to be seen how to what extent is the DEC going to step up on this?

Jimmy Jordan
So the other thing to look forward to is the final language for the bill that KElles has in the assembly, and that Senator Kevin Parker has in the Senate. So that legislative session is ending June 10. And, you know, I'm wondering what you think is important to look for in that final language?

Peter Mantius
Well, I think the final language is just going to make it clear that Kelles does not want to slam the door shut on crypto mining. She wants to put a pause on the rapid expansion of high carbon footprint proof of work cryptocurrency. In other words, she's drawing a real distinction there. She's saying, you know, if you're a theory, and you've cracked the code, and you figured out how to how to authenticate cryptocurrency transactions, without using much energy, go for it. It's not the moratorium is not trying to block that.

Jimmy Jordan
Peter Mantius, is there anything that you want to go back to and re emphasize sharpen a certain point?

Peter Mantius
Well, I would sharpen the point that, you know, legislators have a lot going on to very hard in the closing days of a session to focus on what's really important. But this bill is really, really important. They need to study up and read and realize why it was in 2019, they passed a really important climate bill. Well, if they if they want that to work, if they want there to be any chance for the state to actually achieve the greenhouse gas emissions reductions that are required under that act, they need to pay attention to this issue. They can't just blow it off. They need to actually do the work of understanding why this in in you know, preventing a rush of people in a Bitcoin mining in the next few months. If it doesn't pass, prevent that the moratorium is really it's a safety measure, and they really ought to pass it. In my opinion, I think it's a really important bill. I'm not sure it's getting the attention that it needs to get I you know, I don't see a lot of buzz in, in the media about it. But you know, for a long time there wasn't much buzz in the media about fracking either. So it can be a super important issue and you know, people in New York City and and Albany can be they'll be slow to the the game. Not the first time

Jimmy Jordan
And it might not be the last.

Peter Mantius
Probably not

Jimmy Jordan
Peter, thank you so much for joining me and having this conversation and talking about your reporting with me.

Peter Mantius
Okay, great to be on again.