How Climate Activists Are Exploiting FTX’s Collapse

On Nov. 22, New York state Gov. Kathy Hochul signed Assembly Bill 7389-C, officially placing a two-year moratorium on new fossil-fuel powered proof-of-work cryptocurrency mines in the state. For environmentalists and community groups that lived in close proximity to existing mines, this represented a hard-earned victory after two years of advocacy.

There was no guarantee Hochul would sign the bill into law. The General Assembly passed it in June, just weeks before Hochul’s primary campaign, funded in part by crypto interests, would take her to victory. Signing the bill could have meant alienating a fraction of voters who believed in the power of Bitcoin. It also could have upset the PAC that reportedly spent $1 million to boost her running mate, Antonio Delgado—a PAC that was financially supported by the once-respected founder of imploding crypto exchange FTX, Sam Bankman-Fried.

Hochul wound up winning the general election. FTX crashed after the revelation that Bankman-Fried’s trading firm was highly reliant on a coin he’d invented for users to use on the exchange. As traders rushed to pull out of FTX, the company faced a liquidity crisis, then declared bankruptcy in the public sphere, sending shockwaves through the industry and sending the value of many cryptocurrencies plummeting. Politicians around the country, meanwhile, began to distance themselves from Bankman-Fried, vowing to give away his campaign donations to charitable causes.

Amid a public reckoning over the safety of cryptocurrencies broadly, Hochul proudly passed legislation into law that she’d once remained mum on and that was once fervently opposed by industry groups like the Blockchain Association.

“The effort that went into getting this thing [signed into law] was just Herculean,” said Yvonne Taylor, founder of Seneca Lake Guardian, a grassroots advocacy group dedicated to environmental protection in New York’s Finger Lakes region and a key voice in the passage of the moratorium. “We're extremely excited that this may lead, as New York has done in the past, other states to follow our models.”

The move comes as a perfect storm of conditions brew for environmental groups to make their case against proof-of-work mining. The cryptocurrency industry was responsible for producing 27.4 million tons of excess carbon dioxide between mid-2021 and 2022—three times the emissions of the largest coal plant in the country—per a September 2022 white paper by the Sierra Club and Earthjustice. With proof-of-work mining, this energy waste is a feature, not a bug: The algorithm requires that miners attack a guess-the-number style formula simultaneously, each upping their odds by putting as many highly specialized supercomputers on the task at the same time as possible, thus earning the right to mint a coin. This task could once be done from a laptop, but to compete today, most live in large facilities that run 24/7, often connected to the grid, sometimes plugged straight into power plants.

Regulators are growing increasingly wary of the energy waste this process requires. In September, the White House Office of Science and Technology Policy released a report urging regulators to step in, warning that the sector’s energy use, “a range that exceeds the total annual electricity usage of many individual countries,” could interfere with the nationa’s climate goals.

But a set of ideals was once used to justify Bitcoin’s enormous energy use—the power of a decentralized currency, fortified by its users and unlikely to succumb to the actions of a few single bad actors. Following the FTX crash, these values have been called into question.

“It's certainly a wake-up call for the industry,” said Rolf Skar, the special projects manager at Greenpeace who’s helped oversee the group’s involvement in the Change the Code, Not the Climate campaign, an initiative to urge Bitcoin to ditch the proof-of-work model. “I think we're seeing both politicians and folks in the industry agree that more regulation is needed.

“Now, most of that is focused on consumer protection,” he said. “The thing that might be getting missed in the mix is the impact on communities and the climate.”

Eric Weltman, senior organizer with Food and Water Watch, a nonprofit environmental advocacy group, hopes to make sure that message isn’t missed in this opportune moment. Instead, he hopes to see grassroots coalitions leverage shifting political sentiment to garner support for similar legislation in other states. “The environmental movement is not necessarily anti-crypto per se,” he said. “But we'll take advantage of the conditions that the crash created.”

Organizers in New York state are already at work to replicate New York’s bill elsewhere. Taylor has partnered with a coalition of activists in other states around similar fights—notably in states with lax regulations, like Texas and Kentucky.

“Now we can lead by example,” she said. “We do have a few lawmakers that have been giving this a seriously discerning look.”

Leading by example just got a little easier. Taylor said she’s often had to counter talking points about Bitcoin’s job offerings, with arguments over how crypto’s environmental damage is poised to devastate existing jobs in bigger industries like wine and agriculture. Notably, she says a controversial fossil fuel-powered Bitcoin operation in her community, powered by the once-defunct Greenidge Power Plant, was once promised to bring jobs to her region. Those have not panned out. “It’s only natural now for our lawmakers to take the side of the real businesses that sustain us,” she said, “versus this sketchy industry that looks to be harming people more than it's helping.”

The FTX crash gives environmentalists “a very good argument,” Gerald Epstein, professor and co-director of the Political Economy Research Institute at the University of Massachusetts Amherst, said. “In both states and locales where there's already a willingness and a push for policies to fight climate change, [the fallout of the FTX crash] gives them a really good opening to also regulate crypto mining.”

Epstein, a political economist whose bona fides include researching Bitcoin’s environmental impact, questions whether this work is worth it at all, if the result is a currency that’s highly volatile and, per his recent working paper, “power-hungry by nature.”

“I’m used to all kinds of financial hocus pocus that leads to financial instability,” Epstein told The Daily Beast. “But very few of them have a profoundly negative impact on society, on the real economy, on the environment.”

Advocates like Taylor have long felt similarly, but garnering political support has taken time. Sen. Elizabeth Warren (D-MA) has warned both of the environmental and economic risks: In July, she called on regulators to require crypto operations to disclose their emissions and recently urged financial services corporation Fidelity to remove Bitcoin from its suite of retirement savings offerings given the risk its volatility poses to everyday investors who lack the savvy to understand what they’re getting into. The collapse of FTX, she tweeted on Nov. 9, “shows how much of the industry appears to be smoke and mirrors.”

Today, policymakers appear to echo similar sentiment—even if they are still stumbling to figure out how to act. Congress plans to hold a series of hearings to discuss appropriate responses in the wake of crypto’s descent. During one held Dec. 1, Rostin Behnam, chairman of the Commodities Futures Trading Commission, called on Congress to give his agency more regulatory authority. (It’s worth noting, though, that one bipartisan bill that would do so was supported by and included input from Sam Bankman-Fried himself. He later told Vox this was “just PR.” “Fuck regulators,” he said. “They make everything worse.”)

“The FTX meltdown is a Lehman Brothers moment,” said Scott Faber, senior vice president of government affairs at the Environmental Working Group, a Greenpeace partner in the Change the Code campaign. “Until the FTX meltdown, I think it was unlikely that Congress would step in and regulate cryptocurrencies.

“Governor Hochul took an important first step, and I think state and regional energy regulators are looking hard at these sorts of non essential inherently wasteful uses of electricity,” he added. “The real debate now is not whether or not crypto will be subject to regulation, but by which agency.”

Groups arguing for stricter environmental regulations must now decide where to focus their attention: on the federal government, which could pass broader regulations, or on a cluster of states and municipalities affected by crypto mining up close. While some environmental advocates are hedging their bets one or another, others like Faber argue it’s not an either/or scenario; it’s both/and. .

But Mandy DeRoche, deputy managing attorney in the Clean Energy program at environmental law firm Earthjustice, pointed out all of these approaches are beset by a more complicated political map at the local level. As New York is passing stricter regulations on the industry, potentially signaling to miners and financial services companies within it that they should look to relocate, lawmakers in states like Georgia, North Carolina, and Illinois have introduced laws to welcome miners with open arms.

Finding a state with both the political will for a ban on the most energy intensive kinds of crypto mining and sizable enough a sector to have that effort make meaningful difference is tricky, DeRoche said.

New York’s crypto moratorium was passed in service of its Climate Leadership and Community Protection ACT (CLCPA), an emissions reduction law passed in 2019 designed to get the state’s grid to 70 per cent renewables by 2030. Other states with strong emissions reduction commitments, like California, don’t have quite the industry New York does (the state was once estimated to be responsible for 20 percent of all Bitcoins mined). States that do have strong crypto presence are likely to want to keep it that way, DeRoche said. “We sort of have to think really creatively about what to do in places like that,” she says, pointing to Kentucky, which offers both low energy rates and tax breaks for crypto miners.

New York’s bill, DeRoche noted, was also quite narrow and covered only “behind-the-meter” mining operations, which run themselves via connection to a power plant and are not plugged into the grid. Tackling proof-of-work centers that suck up fossil fuel power from the grid could be a next step in jurisdictions that lack rampant behind-the-meter mining, she suggested. States could also issue their own environmental impact studies on crypto mining, like New York’s bill mandated be completed during the two-year moratorium.

Sklar agrees that the power in New York’s bill is the time it buys his campaign to push for an overhaul of the algorithm that requires the most energy. He’s not sold that crypto is going anywhere after FTX’s crash. Neither is Epstein, who noted: “These things are zombies. They come back.”

But Sklar is hopeful that a moratorium will give regulators the opportunity to get their ducks in a row, and for the industry to give itself a hard look.

“We’re not trying to say this whole thing should go away or collapse. I’m not so sure it will on its own,” he said. “What I’m hoping is that the more legitimate it becomes, the more it needs to embrace the standards of other businesses and industries.”

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