Does Mining Bitcoin Really Merit Protections?

The Arkansas General Assembly has recently passed House Bill 1799—and Governor Sarah Huckabee Sanders is expected to sign into law—a subchapter to "The Arkansas Data Center Act of 2023" that will group small-scale blockchain and cybercurrency mining operations with larger and more established data center environments.

Data Center Act Lacks Citizen Protections

This is being hailed by advocates of Digital Asset Mining as a first in the US. However, reading through this legislation intended to 'protect' Arkansans from 'fraudulent business practices' shows that there are actually no protections spelled out for citizens at all.

In fact, the only reference to 'protection' lies in the bill's intent "to clarify the guidelines needed to protect data asset miners from discriminatory industry specific regulations and taxes." OK … so not you, just those with the money to invest in mining hardware and a place to put it.

Small Mining Operations vs. Large Data Centers

Perhaps even more ironic is their claim to "recognize that data centers create jobs, pay taxes, and provide general economic value to local communities and this state," while at the same time lowering the bar of admittance to include any site that "consumes more than one megawatt (1 MW) on an average annual basis."

Related:Bitcoin Miners Thwarted by Data Center Crunch

First, this could theoretically include anyone in the state, given that the average home in the southern US consumes between 8-10 MWh per year. It's also unrealistic to equate a small, 1 – 2-person, home-based mining operation with a large data center that can cover tens of thousands of square feet and employ dozens to hundreds of managerial, technical, and security staff.

On the other hand, the proposed subchapter appears to require data asset companies to conform to many of the same business regulations of their larger counterparts. According to the bill, a digital asset mining business may operate in Arkansas if it complies with:

In addition, a digital asset miner must also "pay applicable taxes and government fees in acceptable forms of currency; and operate in a manner that causes no stress on an electric public utility's generation capabilities or transmission network." Well, that seems fair … though it could possibly lead to more legal red tape than it eliminates.

New Fines and Penalties

Related:Crypto Miners Threaten Frail Energy Grid at the End of the World

Unfortunately, there is one facet of the bill that could potentially be problematic: "A person that is engaged in home digital asset mining or that has a digital asset mining business shall not be considered a money transmitter under the Uniform Money Services Act, 23-55-101 et seq."

While this specifically refers to the Arkansas Uniform Money Services Act of 2020, at the federal level, virtual currency mining is regulated by the Financial Crimes Enforcement Network (FinCEN). According to FinCEN's most recent update, the term 'money transmission services' means: "The acceptance of currency, funds, or other value that substitutes for currency from one person and the transmission of currency, funds, or other value that substitutes for currency to another location or person by any means."

While it seems likely that systems purely supporting the blockchain and generating proof of work for coins may not fall under that definition, it's any conversion to and from legal currency that could hold some risk; and the very real fines and penalties for violations make it well worth investing in a bit of professional legal advice.

'A Fundamental Misunderstanding'

Ultimately, this relatively harmless bill appears to be the result of a combination of lobbying by special interest groups and the desire to be first at something, while circumventing any local considerations. But given the current environment of state-level politics in the US, it barely moves the needle on the governmental Bad Choice-o-Meter.

This bill illustrates a fundamental misunderstanding that most legislatures have about the tech industry. Running a cobbled-together mess of video cards, game systems, and generic computers for the express purpose of personal gain does not a data center make.

Rather, modern data centers are the results of decades of evolution, research, and development that continually strive for best practices in efficiency, security, and ecological sustainability. In addition, a growing number of data center operators are also focusing on non-technical environmental, social, and corporate governance (ESG) issues; considerations that are designed to target actual protections for citizens, rather than benefiting a very small number of bitcoin miners.

It's a mistake to lump small-scale miners and data centers into the same category, and it does a disservice to data center operators who face far more legal, economic, and technological challenges than their hobbyist counterparts.