Digital Currency Mining

Cryptocurrency “Mining” and the Environment

Kentucky’s history with digital currency is fairly recent, yet the process of ‘mining’ cryptocurrency has quickly become a significant industry, at least as far as impacts to the climate. As of 2022, Kentucky has become home to nearly 20% of all of the country’s proof-of-work cryptocurrency mining operations, and at this moment, Kentucky produces more carbon dioxide pollution from cryptocurrency mining than any other U.S. state, with a carbon footprint from cryptocurrency mining is estimated at 3.3 megatons of carbon dioxide per year.

The Bulletin of the Atomic Scientists outlined some of the environmental impacts in a recent article: “It is now well understood that bitcoin mining uses vast amounts of energy. Alex de Vries, one of the leading experts on bitcoin and energy, estimates that the network uses 204.50 terawatt hours annually, about as much as Thailand. A more conservative estimate by the Cambridge Center for Alternative Finance puts it closer to 115.4 terawatt hours, or more than the Netherlands.”

The interest in this industry from a legislative interest began in 2019, when The Blockchain Working Group was formed after the passage of H.R. 171 , urging a comprehensive study of and subsequent plan to deal with the growing blockchain technology. The workgroup was a collaborative panel of subject matter experts defined later in S.B.55 (from the 2020 legislative session), and subsequently codified in Kentucky Revised Statute Chapter 42.747, with the mission to evaluate the feasibility and efficacy of using blockchain technology to enhance the security of and increase protection for the state's critical infrastructure, including but not limited to the electric utility grid, natural gas pipelines, drinking water supply and delivery, wastewater, telecommunications, and emergency services. 

 From the Blockchain Working Group report:

“While it is difficult to predict the impact of Blockchain technology on utilities at this early stage there are some potential implications for financial transactions, energy generation and distribution, renewable energy, infrastructure management, enhanced customer service, and service delivery….Tokens referred to as “Renewable Energy Credits” or RECs are a method of monetizing renewable energy. Currently these tokens are thoroughly audited to ensure the token is only used once. Blockchain enabled RECs would be more efficient and eliminate the need for audits. As carbon emission tracking becomes more common, Blockchain could usher in an acceptable mechanism to track these emissions. The tracking system could be a unified platform offering a single solution for calculations.”

Where exactly are these ‘mines’ located?

Since some of these operations are not tied to the electrical grid, and the “digital mining” industry is not well regulated, it is hard to determine exactly where some of these businesses are operating. Operations tied to the grid are somewhat easier to track, but may be hard to identify as cryptomining operations. Some are referred to as “data centers” for example. But some operations have been disclosed in public media or regulatory filings.

Legislative History

The Blockchain Working Group was formed followong the passage of H.R.171 (C. McCoy, 2019 session), and S.B.55 (B. Smith, 2020 session) to create the Blockchain Technology Working Group. More bills would follow that would support the growing interest in cryptocurrency.

Business interest in cryptocurrency was driven in part by Core Scientific to utilize an abandoned steel mill in Calvert City for a blockchain facility, and then a proposal from Blockware Mining to open a cryptocurrency operation in Paducah. This is a highly energy-intensive industry, offering huge tax incentives for a relatively modest number of jobs.The two bills of note that passed into law in the 2021 session were S.B.255 (B. Smith) and H.B.230 (Rudy) which provided sales and use tax exemption from equipment and energy used for commercial mining of cryptocurrency using blockchain technology. (See article: https://www.coindesk.com/kentucky-bill-seeks-to-lure-crypto-miners-with-tax-breaks) Senator Smith’s bill stated that it wants Kentucky to "become a national leader in emerging industries which use substantial amounts of energy" by including cryptocurrency facilities with a minimum capital investment of one million dollars in Kentucky's energy-related business incentives program. Senator Rudy’s bill provided the tax credit on equipment and energy used.

The tax breaks from this legislation was reported to impact Kentucky taxpayers about $9 million a year in lost tax revenue, despite the few local jobs and the profits flowing out-of-state to increasingly centralized mining operations owners.

These tax incentives include “tax exemptions totaling 9 percent on electricity consumed at larger cryptocurrency mining operations, . . . sales-tax refunds on mining equipment, as well as potential incentives on income taxes and wage assessments.”

These were only two of several initiatives the 2021 session to attract energy-intensive data operations (such as H.B.372, which was vetoed).

During the 2022 session, more proposed bills followed , but did not pass. Those included:

  • S.B.16 (Smith) Creates new Kentucky financial institutions to allow entities/people that deal with blockchain to be able to access bank-like institutions to deal with funds, money, and blockchain funds. Currently, most banks will not provide these services for cryptocurrency because of its volatility and unreliability, and the lack of federal oversight.

  • S.B.17 (Smith)  Attempts to legitimize digital assets (like virtual currency) and allow those digital assets to be considered legitimate property and financial assets for purposes of security interests under the UCC. Also allows for a process to facilitate open digital currency tokens.

  • S.B.67 (Smith) Creates "controllable electroinc records" section of the UCC in Kentucky to help settle disputes among claimants to electronic records and their related rights and other benefits. Helps to reduce these risks by providing the legal rules governing the transfer of interests in controllable electronic records. The idea is that the controllable electronic records would be "negotiable." The goal is that a good faith purchaser for value would take a controllable electronic record free of third-party claims of a property interest in the controllable electronic record.

  • HB379 (proposed tax breaks for data centers). Create a new section of KRS Chapter 139 to provide a sales and use tax exemption for data centers; establish reporting requirements for the exemption; define terms; amend KRS 131.190 to conform; EFFECTIVE, in part, August 1, 2022

  • HB387 Defines "computing system node" and exempts it from sales and use tax. Applies to transactions occurring on or after July 1, 2021 (retroactive).

More on digital currency laws in 2022 from other states, courtesy of the National Conference of State Legislators here.

Environmental Implications

There are many ways that digital currency can be validated, and some of those methods are far more energy intensive than others. Our primary concern is with “Proof of Work” validation, which is used by Bitcoin and many other digital currencies.

The environmental implications of “Proof of Work” validation can include:

  • High energy use/Carbon impact

  • Noise Pollution

  • Air Pollution

  • Water Pollution

As mentioned above, Kentucky is currently home to nearly 20% of all of the country’s proof-of-work cryptocurrency mining operations, and Kentucky produces more carbon dioxide pollution from crypto mining than any other U.S. state, primarily due to energy from coal-fired power. 

The State's carbon footprint from cryptocurrency mining is estimated at 3.3 megatons of carbon dioxide per year, according to an estimate by economist Alex de Vries, published in the journal Joule in Feb. of 2022.

Media on Cryptocurrency





Regulatory Concerns

To date, there is very little transparency in this developing industry and many operations can operate as of right under existing laws, regulations, and permits with no additional oversight. 

Because existing laws, regulations, and/or permits mostly do not require that mining operations make this information available to any government agency or the public, it is notoriously difficult to discover how much a particular entity is mining at a location, how many miners it has running, how much energy it is using, or even an operation’s fuel source. 

Without accurate information, it is nearly impossible for communities, local groups and interested residents to understand the operations and how it will impact our communities. 

What little we do know seems troubling in terms air pollution, energy use and rate impacts of local residents.

More Resources:


Tracking the Mines