New York Regulation | Proposed Ban on PoW Mining, Development Team to Sell 10% of Tokens within Five Years, NFTs Subject to Rug Pull Standards

The New York State Assembly is set to vote on a bill that would ban PoW mining. If passed, mining will be completely prohibited unless it is powered by 100% renewable energy sources. Additionally, another bill aims to reduce Rug Pull incidents by prohibiting token issuers from selling more than 10% of team assets within five years.

Updated as of 4/27 at the end of the article.

Prohibition of PoW Mining

According to the A.7389C / S.6486D bill, legislators from the Energy Committee are pushing for a three-year moratorium to suspend permits for mining facilities using fossil fuel power plants. Mining operations must be conducted with 100% green energy and submit a complete Environmental Impact Review.

The bill is currently awaiting a vote in the legislature and will then be reviewed by the State Senate. The Blockchain Association has urged blockchain technology supporters to voice their opinions to members of the legislature to prevent the stifling of innovative technologies.

The Blockchain Association emphasizes that if passed, New York will become the first region in the U.S. to ban mining, potentially setting a misguided example for future regulatory frameworks in other states.

🚨 1/ The NYS legislature is preparing to ban PoW mining…we’re calling on all pro-tech, pro-innovation, pro-crypto NYS residents to make their voices heard. 🚨

Tweet and email your assembly member via the link below 👇https://t.co/N50iLJO3To

— Blockchain Association (@BlockchainAssn) April 22, 2022

Jake Chervinsky, former Legal Counsel for Compound and Policy Director at the Blockchain Association, also stated:

The ban on PoW mining is a senseless form of self-harm that has no impact on energy consumption. Miners will simply move to other regions, potentially to areas with higher carbon emissions intensity. The bill, under the guise of energy, will actually stifle job opportunities, government tax revenue, and is a bad policy.

Establishing Cryptocurrency Fraud

According to another proposal in New York, S8839 / A8820, it aims to amend the penal law to establish the following crimes in the field of cryptocurrency:

1. Virtual currency fraud.
2. Illegal Rug Pull.
3. Fraudulent private key access.
4. Undisclosed interest in virtual currency fraud.

This appears to be a measure to curb cryptocurrency fraud and protect investors. The definition of Rug Pull is as follows:

Rug Pull refers to a development team issuing virtual tokens, holding over 10% of the total supply, and after selling more than 10% of the circulating tokens in the last sale, selling more than 10% of the circulating tokens again within five years.

Venture Capital Partner Adam Cochran explained in a more simplified manner here:

Let's define "Rug Pull." A development team holds 30% of the tokens, in a funding round sells 10% of the tokens to venture capitalists, starting a five-year timer. If they later sell another 10% of the tokens to the venture capitalists due to funding shortage within the five years, they legally commit a Rug Pull. Congratulations to every project with VC involvement, New York considers you Rug Pullers committing fraud.

The above Rug Pull definition also applies to NFT projects, with one exception mentioned in the bill:

The Rug Pull definition does not apply to projects within the same NFT series with a total issuance below 100 or projects where the value of the same NFT series is below $20,000.

Adam Cochran believes that the reason for such a disconnect between the bill and reality is that the SEC has failed to clearly define the relationship between crypto assets and securities laws, leading states to attempt self-regulation in the absence of clear regulations, resulting in the vague definitions described in the bill.

Cochran emphasizes that the bill essentially treats any token as a security, meaning that operators of already issued tokens would commit Rug Pull, regardless of the stage they are in, making it a highly detrimental bill.

4/27 Update: New York State Assembly Passes 95-52

The New York State Assembly passed a two-year ban on PoW mining with a vote of 95-52 in the lower house, which will undergo a second review in the Senate committee.

The review process in the lower house involved nearly three hours of debate, with Republican member Robert Smullen criticizing the bill as a "pseudo-environmental law" disguised as anti-tech legislation.

He believes the bill will send the wrong message to New York's financial sector, with miners simply shifting to other states to continue mining, emphasizing that society is moving towards a more cashless economy, and efforts should focus on finding ways to reduce carbon emissions.

Sponsor of the bill, Anna Kelles, insists that the bill will not hinder New York's progress in the crypto space, such as buying, selling, and trading crypto assets.

As Anna Kelles celebrates the passage of the bill on Twitter, the Blockchain Association is actively preparing for the second review in the Senate committee, continuing to urge users to voice their opinions to legislators via email.

Jake Chervinsky, former Legal Counsel for Compound and Policy Director at the Blockchain Association, stated:

The recent infrastructure bill in Washington regarding crypto caused quite a stir for many reasons, but the main issue was that Congress did not truly understand cryptocurrencies before voting. Now looking at the New York legislature, it's clear the same thing is happening again. It will soon be your state's turn.