Regulation
Crypto regulation bills advance out of House committee
SEN. JOSHUA BRYANT (file)
“This is almost an embarrassing situation. I’m not sure we knew what we we were doing when we passed the bill originally. … But I know we’re trying to do something. … We have the ability to come back, and we’re just trying to correct. I’m not sure whether we’re helping or hurting but I’m going to support it because I know we need to do something.”
So said Rep. Mike Holcomb (R-Pine Bluff) during the debate over two bills aiming to regulate crypto mines — Senate Bill 78 and Senate Bill 79 — each of which passed out of the House City, County, and Local Affairs committee Tuesday.
That really says it all. Almost a zen koan for the last year of misadventure and tomfoolery at the Capitol as the Legislature bobbles its way through the question of how to regulate noisy, thirsty, electricity-sucking crypto mines, and whether cities and counties should be allowed to come up with their own local measures to deal with the nuisance.
Members of the public were in attendance to speak in the House committee, but members voted on each bill without hearing any of their testimony.
Crypto “mining” is the process by which bitcoin confirms transactions and creates new bitcoin, using a network of high-powered computers. Unfortunately, this big-money industry is noisy and terrible for the environment. Crypto mines have often proven to be a major problem for the rural communities where they’ve popped up.
SB78 and SB79 aim to regulate crypto mining and address some of the problems created by Act 851 of 2023, which sharply curtailed the ability of Arkansas cities and counties to regulate the industry.
The co-sponsors of Act 851, Sen. Joshua Bryant (R-Rogers) and Rep. Rick McClure (R-Malvern), are also co-sponsors of these new bills, which has some observers concerned. “I don’t let the same man take me snipe hunting twice,” Rep. Josh Miller (R-Heber Springs) recently commented during a committee hearing. Miller co-sponsored a more aggressive slate of proposals to regulate crypto mines along with Sen. Bryan King (R-Green Forest). Those proposals were blocked from even being considered a couple weeks ago when they failed to get the needed approval in the House.
In his opening remarks, Bryant looked back to 2013, when he assisted the crypto mine industry with Act 851. That original bill was reportedly written by the Satoshi Group, a dark-money crypto advocacy group. Bryant has claimed that he wrote most of it, but said he may have erred in copy and pasting significant sections from a bill from another state that the Satoshi Group sent him.
My view is that while SB78 and SB79 have holes and limitations, they are better than the status quo under Act 851 and will take at least some needed steps to alleviate the trouble. But every time Bryant opens his mouth, I have to admit I start worrying that this is yet another scam.
“The ask of an industry to have preemptive protections is not an unusual ask,” Bryant began.
I’m quite sure that much is true. But to turn such asks into full-fledged crony capitalism depends on lawmakers agreeing to be their lackeys. In Bryant, the crypto mine industry found their man.
Later, asked whether he had consulted with the crypto mine industry while working on his new bill, he said, “I did make sure that the language was not not going to crush them … they did assist to make sure I knew what industry standards were.”
SB78 restores local control to municipal and county governments to regulate crypto mine businesses (though not home mining operations); requires noise mitigation techniques, with specific examples noted but not mandated — and has no decibel limit; requires that if they do not use such mitigation techniques, the crypto mining facilities must be at least 2,000 feet from the nearest residential or commercial use structure (or located in an area zoned for industrial use); and prohibits the crypto mines from being owned by people or governments from certain countries, including China.
A great deal of attention in the committee hearing focused on the fact that the bill bans local governments from enacting prohibitions or certain regulations on home crypto mining.
Throughout the session, Bryant has insisted that his bills “restore local control.” And the fact that they really do so when it comes to crypto mine business operations is probably the best part of the bill! But why this insistence that local governments aren’t allowed to choose for themselves how to regulate crypto mining that happens at home? It sure sounds like a loophole.
Bryant had no good answer.
“I felt it was important because we do have local governments that just might decide — especially in Northwest Arkansas — might just decide they want to tackle this, and this is a preemptive approach to say [that] what’s inside my home…is a permittable activity,” Bryant said.
In other words, he’s for local control unless a local government makes a choice he doesn’t like. No idea what he’s talking about regarding Northwest Arkansas, but my guess is that he’s still bitter about the fight over LGBT protections passed in Fayetteville.
In practice, it’s pretty unlikely that home crypto mining will become a nuisance. And it seems like it would be pretty convoluted and not worth the trouble to try to run a scam where you were actually running a big crypto mine business but doing it from what you claimed was a home residence, in order to dodge regulation. But after everything that’s happened, it’s reasonable to be a little paranoid.
Here’s the bill sponsors’ story about why home crypto mining is harmless: People can do a kind of small-scale version of crypto mining on their computer at home. They can purchase additional equipment to up their skill, but it’s generally not noisy. There’s nothing like the power drain from a football field-sized networked of computers or the water usage from the cooling system needed to keep those computers from overheating. It’s just a hobby, and maybe you can make a little money, though it sounds like it’s pretty hard to realistically compete with the big corporations. It wouldn’t be financially feasible or logistically possible to rig up something like a crypto mine business in a place that was zoned residential, they say. The various scenarios you’re imagining in your head — like setting up a shed in your backyard to run a crypto mine — wouldn’t work in practice for various technical reasons and because of how the power company interacts with such entities. An Entergy official backed all this, for what it’s worth.
And on top of all that, it would be kind of tough to regulate what people do in the privacy of their own homes. So regulating home crypto is unnecessary and infeasible, they say.
Be that as it may: Why include this restriction on local governments at all? If local governments don’t want to regulate home crypto operations because it doesn’t make sense to do so, they won’t. Why prohibit them from doing that via a state law?
Multiple legislators were quite strident in telling Bryant they thought this was a bad idea. There’s some dispute about whether or not the definition of “home” versus a crypto mine business is too vague, though Bryant claimed that the language in the original Act 851 would suffice. But after everything that’s happened, it just smells a little funny. We know that some crypto mines have exhibited bad behavior and an aggressive posture toward making use of state law to get their way. Why risk it? But Bryant wouldn’t budge.
A few lawmakers expressed concern that the bills didn’t have an explicit mechanism to directly remunerate victims of crypto mine nuisance or protect them if they take legal action with guarantees of covering attorneys’ fees. If companies fail to comply with requirements, they could be fined, but that money would wind up going back to various state agencies.
“We always seem to give the money back to the state,” complained Rep. Frances Cavenaugh (R-Walnut Ridge). “We don’t seem to think about the local governments and citizens that are damaged by these things.”
Bryant said that his hope was that after these new laws passed, crypto mines would start behaving themselves, so there wouldn’t be the kind of nuisance and harm to communities that Cavenaugh mentioned.
“In talking about victim restitution, it seems like there’s a place for that somewhere,” Rep. Tippi McCullough (D-Little Rock). “This has been very constituency driven and most folks would be hard pressed to go up against companies that have tons of lawyers and money to redress the ways that they have been harmed.”
The bill states that if plaintiffs pursue a complaint in district court against a crypto mine, they “may be awarded reasonable attorney’s fees and costs.” Rep. Lanny Fite (R-Benton) asked why the bill didn’t mandate this (“shall”) rather than leaving it open (“may”).
Bryant said the judiciary doesn’t like to be told what to do.
But won’t that mean that the crypto industry’s high-powered law firms will intimidate plaintiffs with more limited funds, who might simply not have the resources to take them on?
“They’ll have to make sure they have a strong case,” Bryant said.
A few legislators fretted that the ban on foreign ownership cast too wide a net (it relies on various federal government lists of nations viewed as potentially troublesome or adversarial). A couple lawmakers offered examples of people who they argued would be unfairly shut out, such as someone who relocated to the U.S. from Venezuela but did not yet have citizenship, or an American living in Lebanon. The list of countries that would be banned include countries like Zimbabwe that hardly seem like a threat to U.S. national security. Truly bad actors, meantime, may be hard to catch if they use shell companies to obscure their ownership.
“Is it the best way to handle it?” mused McClure. “I’m not sure. We just don’t know. But this is a step to try to control that.”
Asked whether the provisions on foreign ownership would create a Constitutional issue under the Equal Protection Clause, Bryant said, “It may. In effectuating the language with the attorney general’s office, I think that’s a fight they’re willing to weigh in.” Oh, joy.
Another concern raised was the lack of explicit water regulation in the statutory language. This was an area that one of King’s proposals addressed — watching the questions, it was hard not to notice that the debate would have been more robust, with more options on the table, if his measures had at least been included in the discussion.
Bryant clarified that there was no noise ordinance, or specified noise limit, included in either bill. Such ordinances were too hard to measure or enforce, he said. Instead, Bryant settled on non-specific language that regulates noise as “reasonably calculated by industry standards.”
“The industry knows what they do to regulate the output of noise,” he said. “We’re going to let the industry…and the judgments of the courts, decide what is a reasonable nuisance.”
Part of the idea behind the lack of an explicit noise ordinance, based on prior testimony, is that the listed noise mitigation techniques were supposed to be so powerful that noise wouldn’t wind up being an issue.
But McCullough pointed out that these mitigation techniques seemed to be open-ended. She asked whether the language meant that the requirement could be satisfied by “putting some cotton balls outside the walls and saying, ‘we tried to reduce the noise.’”
Collins made the important point that the bill’s language truly was so open-ended as to be almost useless, offering examples of mitigation techniques but no specific requirement. “All this stuff about cooling and ‘closing the envelope,” he said, is “meaningless” — nothing more than possible suggestions. “You really could put cotton balls up. That’s a noise reduction technique and that’s permitted.”
Bryant nevertheless expressed confidence that “we can curtail the nuisance without becoming a burden on industry.” He said “the language as a whole” meant that it came down to what a “reasonable person” would conclude about how much noise was a nuisance.
“I think I’m pretty reasonable and it looks like it just says apply noise reduction techniques,” Collins responded.
Asked why Act 851 wasn’t simply repealed. Bryant said that wouldn’t have solved the problems (though in fact the law caused at least certain aspects of the fiasco). Asked whether SB78 and SB79 were “stopgap bills” requiring further action in the 2025 session, Bryant said they were: “There’s going to be a lot more discussion, not only in 2025, but between now and then.”
After about an hour and a half of debate, Rep. Carol Dalby (R-Texarkana) moved for immediate consideration. This effectively blocked the members of the public who showed up to testify from speaking. A few Nos were heard from the section where Democrats were seated, but her motion passed on a voice vote. The bill itself likewise passed on a voice vote.
Collins voted no. “I think it does some helpful things,” he said. “In a lot of ways it’s positive. In some ways it falls short.”
This was a little painful to hear, because most Democrats in the House declined to vote for the King proposals, which might have opened up the debate to consider more aggressive regulation methods. These Democrats wound up representing a decisive block that stopped King’s proposals from being considered, helping to hand a victory to Rep. David Ray (R-Maumelle) — who vehemently argued against King’s measures in the House with a litany of crypto-lobbyist talking points. Collins was among those who declined to vote for King’s proposals at the time, stating that he disapproved of non-budget bills in the fiscal session regardless of the merit of such proposals.
But the shortcomings of the bill’s regulatory plan were not the reason for Collins’ no vote. Rather, he said, he believed that the ban on certain foreign nationals was dangerously too broad. “We’re casting a net that is too wide and too narrow,” he said, catching innocent people and missing true threats. “We can’t put that back in the bottle if we pass this,” he said.
After SB78 passed, the weary legislators heard Rep. Jeremiah Moore (R-Clarendon) and Sen. Missy Irvin (R-Mountain View) present SB79. The two bills are complimentary, with the sponsors on each bill collaborating and signing on as co-sponsors on the other.
SB79 creates a state-level regulatory system to work in tandem with SB78, including a process for the attorney general to investigate potential violations of rules against foreign ownership by prohibited nations such as China, and a state licensing system that requires a permit from the Oil and Gas Commission, including compliance with all aspects of SB78 and SB79.
“The status quo is untenable,” Moore said.
A smaller group of lawmakers asked questions on SB79. Moore was asked about the removal of a permit fee for crypto mines that was in an earlier version of the bill. Could that return via the rules process? Moore said he didn’t expect that to happen.
McCullough worried that the Oil and Gas Commission’s duties were too open-ended without sufficiently clear mandates. Irvin said she didn’t want to be too prescriptive. She said she trusted the commission to be good partners with the Legislature in developing rules and regulations.
Collins again raised concerns about the restrictions on certain foreign nationals and governments. “Both of y’all mentioned the word enemies,” he said. He read out the names of some of the 28 nations on the banned list, drawn from certain federal regulations: Nicaragua, Lebanon, Haiti, Ethiopia, Turkmenistan, Zimbabwe and Venezuela.
“Do you all think that all of these countries are enemies of the United States?” Collins asked.
“There’s a reason why they’re on that list, according to the United States of America,” Irvin said. “I trust that list.”
Asked whether there were any examples of crypto mining benefiting local communities or creating jobs, Moore and Irvin did not provide any. Later, mentioning potential tax revenues, Irvin said, “I think there is an economic benefit, for sure. But I don’t know that we can define that.”
After a little less than forty minutes of discussion, Dalby once again made a motion for immediate consideration, and the committee once again passed the bill on a voice vote without hearing a word from the public.