Sarah Holder is a staff writer at CityLab covering local policy, affordable housing, labor, and technology.
As cryptocurrency miners suck up cheap energy in parts of Washington and New York states, local leaders are scrambling to regulate the industry.
By the time Tim Currier, the mayor of Massena, New York, found out that Bitcoin miners had set up shop in his small town, it was too late to stop them.
Massena is a border town of about 10,000 along the St. Lawrence River, which provides residents of the area with a wealth of affordable and reliable hydroelectric power. That cheap juice also lured the cloud mining service Coinmint, which illegally moved into a vacant building in an industrial park in January and plugged in a fleet of computers. They needed Massena’s energy grid—with rates in the lowest ten percent of the country—to power the enormously electricity-intensive computational process involved with creating the popular cryptocurrency Bitcoin.
By some estimates, just one Bitcoin transaction devours 215 kilowatt-hours of electricity, enough to power a home for a week. To run their number-crunching hardware, Bitcoin miners have flocked to sites around the world that boast cheap energy—places like Iceland, a low-population nation with vast geothermal power reserves. In North America, the cryptocurrency industry has taken root in eastern Washington State and the far northern reaches of New York State, both of which have low electricity rates because of nearby hydroelectric plants.
When Currier learned of Coinmint’s local presence, he sent inspectors to ensure the operation complied with basic occupancy codes, and set them up with a paid lease. But that was about all he could do: The town’s regulatory environment has not evolved to address the peculiar demands of Bitcoin miners.
It’s a similar story over in the city of Plattsburgh, New York, which recently became the first in the U.S. to slap a moratorium on Bitcoin mining—at least for 18 months—as the city develops more stringent and informed regulations. Plattsburgh’s pause on new mining was passed unanimously, Motherboard reported, after electricity rates for city customers spiked this winter. The New York Power Authority estimated that monthly bills for the average residential customer in Plattsburgh increased nearly $10 in January; some of the most affected customers paid between $100 and $200 more. Between January and February alone, miners used roughly 10 percent of the city’s total power budget of 104 megawatts per month.
Fearing similar power sucks, other cities targeted by crypto enthusiasts are swiftly drafting their own makeshift regulations. After East Wenatchee, Washington, was profiled in Politico Magazine as a “Bitcoin boomtown,” the city’s community development director, Lori Barnett, proposed interim zoning controls on cryptocurrency mining. In that town, small-time mining companies have been causing power-line fires and electricity shortages with their home-based mining rigs.
To combat this (and, for now, to leave the door open for more institutionalized operations), the proposal calls for cryptocurrency mining to be banned in residential units, but not commercially zoned spaces. Barnett is also proposing “a complete ban on the use of cargo containers, railroad cars, and semi- truck trailers,” for aesthetic reasons. The East Wenatchee city council will vote on next steps on Tuesday. In nearby Chelan County, the Public Utility District (PUD)’s board of commissioners has already voted to stop reviewing applications for new bitcoin mining operations.
States have started stepping in to support city efforts. On March 15, the New York Public Service Commission ruled that “upstate municipal power authorities could charge higher electricity rates to cryptocurrency companies that require huge amounts of electricity to conduct business.” Without the authority to ban mining outright, the NYPSC aims to at least mitigate the worst economic effects of the power drain on communities.
But crypto-miners keep calling. To draft their own regulatory plan, Currier set up a meeting with Massena’s municipally owned electric department, the county and city’s economic development arms, New York Power Authority officials, and the town and village government. “We want to make sure we can use it to create jobs and to spur growth here, and we want to make sure it’s not being used in a manner that doesn’t do that,” he said.
As preemptive (and offensive) regulations are discussed, these small cities are tasked with balancing the resource drain with the just-as-real hope that a Bitcoin boom could lift the local economy. Massena has been shedding jobs and population for many years: It’s only 80 miles away from Plattsburgh, but “in a different place” than the larger city, said Currier. The town’s General Motors plant shuttered in 2011, and the nearby Alcoa aluminum smelter has announced that it, too, would be leaving by March 2019. “Really, [Plattsburgh’s] economy is booming,” he said. “We’re facing some challenges here.”
So, while what Coinmint miners did initially (squatting—and harvesting electricity—in a vacant property, without a certificate of occupancy) was technically illegal, Currier wasn’t eager to take them to court. “We’re not just trying to shut business down,” he said.
After a negotiation, Massena agreed to lease Coinmint the space and operate 16,000 Blockchain computers. They’ll whir 24/7, processing Bitcoin, Dash, and Ethereum cryptocurrency transactions on servers spread across six buildings.
On January 30, Coinmint asked for approval by the New York Power Authority Board of Trustees and New York State Canal Corporation Board of Directors to receive 15,000 kilowatts of the 490 megawatts of power NYPA gives to New York’s Franklin, Jefferson, and St. Lawrence counties for the next seven years. In exchange, they would invest at minimum $165 million and bring 150 jobs to the area, including security personnel, IT technicians, electricians, installers and operational staff. But that approval was not granted—instead, the NYPA deferred action until March, at which point the moratorium on offering cheap power for jobs kicked in.*
For the sake of Massena’s future, Currier doesn’t want to discourage the Bitcoin industry completely. Already, stricter crypto regulations have been blamed with impeding local economic growth: After NYPA’s state-wide moratorium took effect, Blockchain Industries, a Bitcoin mining operation, pulled out of investing in a plant in Massena. Blockchain Industries claimed that their project would have delivered an estimated $600 million and 500 jobs.
But the notion that Bitcoin mining generates this kind of economic activity in the host community is a disputed one: The computers can kind of do their thing without much prodding from operators. Plattsburgh’s Coinmint operation currently employs six people, and will only grow to employ an expected 15. (“They hire a security guard,” Plattsburgh Mayor Read told the New York Times, “And a guy who comes when something breaks.”) Coinmint’s bid to Massena promises 75 jobs created in 2018 and 75 more added in 2019. That’s “below the historic average” of 30.5 new jobs per megawatt used, says the proposal. But in a stagnating local economy, officials say it’s better than nothing.
In the meantime, the mayor plans to keep a close eye on the real-world benefits this strange new industry brings to town, and ensure Massena’s affordable power remains that way for local users.
“My concern is the number of jobs that cryptocurrency creates and the resources it takes to have them here,” Currier said. “And if those things don’t add up, so to speak, then we have to put measures in place to protect our assets.”
*CORRECTION: An earlier version of this article incorrectly summarized this agreement between NYPA and Coinmint.