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Crypto Faces More Bad News, Government Crackdown

A cryptocurrency analyst says watch out for a domino effect as New York's governor signs a crypto-mining-moratorium bill into law.
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The term "domino effect" has been around for quite a while.

The expression, which describes how one event causes a series of related events, has been used by presidents, scientists and people who just like to knock those little suckers down.

Now the term is being used by at least one cryptocurrency analyst regarding increased government regulation.

In what has been described as a first in the nation, New York Gov, Kathy Hochul on Nov. 22 signed a bill that imposes a two-year ban on new cryptocurrency-mining permits for fossil-fuel power plants used for so-called proof-of-work  cryptocurrency mining. 

A proof-of-work system, such as bitcoin, the most popular cryptocurrency, requires fast computers that use large amounts of energy. In contrast, a proof-of-stake system requires less energy.

The ethereum blockchain recently shifted to a proof-of-stake consensus mechanism.

Hochul, who was recently elected to a full term, called the bill "a key step for New York as we work to address the global climate crisis," according to The New York Times.

The New York State Assembly voted for the bill in April and the State Senate voted to pass the two-year moratorium on crypto mining in June.

Domino Effect

Now that bill has been signed in to law, Winston Ma, managing partner of CloudTree Ventures said, "it’s paramount to watch whether it will lead to a domino effect across the country, which accounts for around 40% of the world’s miners."

Last year, Ma said, China’s crypto crackdown, which was also driven partly by clean-energy policies, resulted in China relinquishing the title of “world’s largest crypto mining country” to the U.S.

"Now, broad mining regulation in the U.S. may similarly bring down the hash rate here," said Ma, author of "Blockchain and Web3: Building the Cryptocurrency, Privacy, and Security Foundations of the Metaverse." The hash rate refers to how much computing power a network uses to process transactions.

He added that the October merge of ethereum is timely because cryptocurrencies are often criticized for the energy-intensive mining process. 

"Apparently, after the ethereum merge, ETH is moving from [proof of work to proof of stake], which may potentially reduce the usage of energy," Ma said. "It remains to be seen whether the New York State law and its domino effect will led more interests into ETH, away from bitcoin."

Cryptocurrency's environmental impact has been a longstanding issue.

A White House report issued in September said that "electricity usage from digital assets is contributing to greenhouse gas emissions, additional pollution noise and other local impacts depending on markets policies and local electricity sources."

The Blockchain Association criticized the bill, tweeting that "it will push crypto out of the state to jurisdictions with less stringent environmental and emissions standards. This is the lose-lose scenario which would likely occur if the anti-proof of work bill is signed into law."

'The Prudent Path'

"The prudent path is the practical path," the group said. "Study the industry and lead on responsible financial regs. Don’t push it to other states/countries. Keep jobs in an area of the state that is on the cusp of a tech boom. Crypto is here for good + sees itself as a part of NY’s future."

Cryptocurrency has dominated the headlines in light of the FTX cryptocurrency exchange collapse

FTX Founder Sam Bankman-Fried said in June that he had applied for a trust charter to operate in New York.

Bankman-Fried, co-CEO Ryan Salame and Director of Engineering Nishad Singh put $70.1 million into the 2022 midterm election, making FTX the third largest contributor in the entire political giving landscape, according Open Secrets, a research and government transparency group that tracks money in politics.

In addition, Bankman-Fried was the second biggest Democratic-leaning megadonor this election cycle, according to OpenSecrets data. Only about $235,000 of his total political giving went to Republican candidates.

He also backed a super PAC that spent $1 million to boost Hochul’s running mate, Antonio Delgado, in his primary race earlier this year, The New York Times said.

"New York State passes two-year moratorium on some crypto mining facilities," one person tweeted on Nov. 23. "Ban it all. It's a Ponzi scheme."

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