Tiny Towns, Small States Bet on Bitcoin Even as Some Shun Its Miners
Tiny Towns, Small States Bet on Bitcoin Even as Some Shun
Its Miners
April 06, 2018 By Jen Fifield
Things have been kind of crazy in Massena, New York,
since the bitcoin miners came to town. So crazy that Steve O’Shaughnessy, the
new town supervisor, says he hasn’t unpacked his office since he started his
job in January.
O’Shaughnessy says it’s a good thing, though. In the past
decade, his town of about 13,000 on the St. Lawrence River has lost much of its
main industry — as a powertrain plant closed and an aluminum manufacturing
plant downsized. But now, one and possibly two bitcoin mining companies are
moving in, and they have promised to create dozens of jobs.
Across the United States, bitcoin miners — who set up
computers to solve complex math programs and unlock new bitcoin — are rushing
to small towns and wide-open states with cheap rent, land or electricity. Many
places are shunning the bitcoin mining companies, saying they suck up too much
electricity without producing jobs. But places such as Massena are putting out
the welcome mat — not just for bitcoin miners, but for any and all “cryptocurrency”
industries.
The idea is to attract entrepreneurs who are developing
new uses for blockchain technology, which records agreements and transactions
on an open, online ledger. Bitcoin was the original blockchain technology, but
enthusiasts envision a world in which the entire economy runs on the
technology, allowing people to buy their homes, write their wills and even vote
without the involvement of a third party.
While bitcoin mining may not create many jobs, state
officials and cryptocurrency advocates believe in the economic potential of the
industries created through blockchain technology.
To signal that they’re open for business, states —
especially those with small or shrinking populations — are enacting laws that,
for example, exempt certain cryptocurrency transactions from the licensing laws
that apply to others who transmit money, like banks. At least six states —
Kansas, Illinois, New Hampshire, Tennessee, Texas and Wyoming — have enacted
laws or issued guidance in the past four years that exempt some digital
currencies from money transmitter licenses.
“There is a bit of a battle going on between states to be
the next Silicon Valley for open blockchain networks,” said Peter Van
Valkenburgh, research director at Coin Center, a nonprofit research and
advocacy center based in Washington, D.C., that focuses on issues pertaining to
cryptocurrency and related technology.
Enthusiasts in small towns are advertising their cheap
electricity, organizing meetups, and trying to get businesses to accept
cryptocurrencies — even as the value of bitcoin has declined over the past four
months, and despite warnings that the largely unregulated industry is
vulnerable to fraudsters, hackers and money launderers.
“We’re seeing a little mini-gold rush of blockchain
companies right now,” said Wyoming state Rep. Tyler Lindholm, a Republican.
“And I want them all.”
Appearing ‘Crypto-Woke’
Blockchain technology enables people to make agreements
and transfer value without a centralized system. Each transaction is secured
and recorded through cryptographic functions, or high-tech math, and verified
through a network of users. By design, it is meant to regulate itself. Examples
include bitcoin, but also applications that allow people to come to contractual
agreements without involving banks, courts or lawyers.
Despite the system’s built-in protections, agreements and
transactions made with blockchain technology are still susceptible to fraud,
hacking and theft. That’s why some states have enacted regulations. New York,
for example, in 2015 created a regulatory system, BitLicense, in which anyone
doing "virtual currency business activity" must first get a license
from the state.
Justin Wales, chairman of the blockchain technology and
digital currency practice at Carlton Fields, a law firm, said New York’s law is
flawed because it forces nearly everyone in the “tokenized economy” to follow
the same financial rules as banks, even though there are many different types
of tokens and transactions.
On the other hand, Wales and Van Valkenburgh say, the
cryptocurrency-friendly laws that some states are rushing to enact don’t always
make sense, either.
Regulators “want to do something just to be seen as doing
something,” Wales said. This is a risky approach, he said, because poorly
written laws could restrict the technology and stifle innovation.
Wales cites laws enacted by Arizona, Nevada, Tennessee
and Vermont in the past two years as examples. The laws clarify that contracts
secured on the blockchain are legally binding. The problem, Wales said, is that
most states already have laws that verify that digital signatures are legally
binding. Enacting new laws that make this technology-specific could have
unintended consequences, he said.
“That’s an example of states wanting to appear
‘crypto-woke,’” Wales said.
Defining Cryptocurrency
Van Valkenburgh and Wales say states need to clarify when
a license is needed to exchange tokens for dollars or tokens for other tokens.
“It could be good to get rid of the ambiguities,” Van
Valkenburgh said, “a positive signal to the industry.”
Wyoming is trying to lead the way in defining the new
market as it tries to diversify its economy with new technology innovation,
said Lindholm. Wyoming lawmakers last month approved five
cryptocurrency-friendly bills cosponsored by Lindholm, including one that makes
it clear that the state distinguishes digital tokens from typical currencies
and securities. Another exempts cryptocurrencies from state securities
regulations.
“I don’t think hard regulations ever produced something
that changed the world,” Lindholm said. “That’s what we are looking for and
what everyone is looking for across the world.”
But it may be too late for U.S. states to compete with
other countries that have far fewer regulations, said New Hampshire state Rep.
Keith Ammon, a Republican who cosponsored a money transmitter bill last year.
Ammon thinks blockchain technology will transform human
interactions.
“It’s akin to Christopher Columbus discovering a new
continent,” he said.
Mining Moratoriums
In Massena, there’s an advocacy group working to attract
blockchain technology entrepreneurs, said Nancy Smith-Weller, a member of this
group and a cryptocurrency enthusiast. But not everything is in the hands of
local advocates.
The Massena Electric Department recently put a hold on
new mining projects until it can figure out how to meet the demand for power.
The town has a limited capacity of cheap electricity, and according to one
estimate, each bitcoin transaction consumes as much electricity as a U.S.
homeowner uses in a month, about 900 kilowatt-hours.
Also, in March, the New York Power Authority, which
provides some of the town’s electricity, adopted a moratorium on approving
cheap power rates for cryptocurrency businesses. After the announcement,
Blockchain Industries, a large company that was considering locating in
Massena, scrapped its plan, according to Smith-Weller. She says the company
hired her to act as a liaison with the town.
Not everyone in Massena is so sure that the benefits of
having the cryptocurrency industry in town will outweigh the costs.
Timmy Currier, the mayor of the village of Massena, which
is located within the town, said he is worried that the increased demand for
power will raise electric rates and make the power less reliable.
Bitcoin companies promise jobs, he said, but there is no
guarantee.
"They just expect us to believe them," he said.
Despite the moratoriums, O’Shaughnessy wants the
companies to come. He said there is plenty of power available from other
sources, and the town has no qualms about attracting an industry that may not
pan out.
Smith-Weller said the businesses will help the town
reinvent itself.
“I do believe this technology will save Massena.”
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