In the past couple of years, multiple states across the nation have made various attempts to attract cryptocurrency mining centers at which the virtual currency is “mined” on a colossal scale — a process requiring a significant amount of energy — through legislation and business and tax incentives (covered extensively by ELM, including here and here).
After what seemed like increasing setbacks for the cryptocurrency industry, major U.S. banks are now boasting cryptocurrency trading desks. Therefore, regardless of some states’ earlier challenges in building local crypto industries resulting from excessive energy demands (such as New York, whose crypto-moratorium legislation ELM regularly tracked), it should be no surprise that states are trying to figure out how to ride the current crypto wave while maximizing profitability and attracting businesses.
But will the experience of states that were early adopters of crypto-friendly policies now facing challenges give current enthusiastic state adopters pause?
Michigan does not seem to think so. Just yesterday, a bipartisan group of legislators introduced a flurry of crypto legislation in the Wolverine State. Not only does the package of bills address investment, but they also promote the retrofitting of existing infrastructure to support the mining industry. Specifically, Michigan House Bill 4512 permits miners to tap abandoned oil and natural gas wells owned by the Michigan Department of Environment, Great Lakes, and Energy for electricity generation. In exchange for access to this energy source, miners must cap the methane-leaking wells that contribute to accumulation of greenhouse gases, posing an environmental hazard.
While Michigan has been figuring out ways of attracting crypto miners, Kentucky is assessing how to bounce back from a failed attempt to build a local mining industry. At one point, Kentucky accounted for 20% of all crypto mining in the United States. The state passed various tax incentives to attract mining centers, waiving various sales taxes on items such as hardware and electricity, for companies investing more than $1 million, and as recently as just this past March, Kentucky legislators passed a bill, “An Act Relating to Blockchain Digital Assets” – that Gov. Andy Beshear’s administration has called a “Bitcoin Bill of Rights.” That same day, the Oklahoma State House of Representatives passed Oklahoma’s Strategic Bitcoin Reserve Act, which provides protections for the currency’s use as an asset.
According to residents in a couple of Kentucky towns in which crypto companies set up shop, however, the boom has already become a bust. Indeed, there have been instances in which mining companies ghost facility host companies after using the site’s power for several months to mine currency, and other instances in which promised profits simply never materialized and facilities shutter. And the drain on the local power grid is costly, resulting in locals wary of mining centers. One Kentucky resident said, of the mining centers, “…if they’re putting it here, then that means it’s bad. We’ve lived here long enough to see that that is how it works. You put those things that you don’t want in your neighborhood in a place like this.”
These concerns are only increasing with the rise of another energy-guzzling technology, artificial intelligence, an industry that has set its sights on Kentucky and its relative lack of energy regulation.
It does not look like Michigan has the same concerns as the Kentucky residents who ran out into the surf to ride their crypto wave several years ago. Whether this will result in a wipeout for Michigan remains to be seen.