The General Assembly is poised to introduce bills to regulate crypto mining, a rapidly expanding industry in Arkansas that some say is creating problems for many rural communities. Proposed legislation would also amend parts of a 2023 bill that barred local government from regulating it.
That bill, Act 851, was passed by wide margins during the regular session last year but has since seen widespread criticism and a groundswell of calls to roll back many of its provisions.
In order to introduce non-budget bills during the fiscal session, the House and Senate must first pass resolutions allowing for it. Eight of these resolutions have been introduced in the House and the Senate and most of them have easily cleared procedural hurdles so far.
If these resolutions pass a few more up or down votes, that would open the way to introduce legislation in the House as soon as this week.
The debate around crypto mining legislation is a complicated one that’s been simmering in the legislature for more than a year. Here’s what to know about it for a better understanding of what’s going on.
What is crypto mining?
Cryptocurrency is a digital commodity that can be used as payment like money and traded like stocks.
Crypto is stored in an online log or ledger called the blockchain, where all crypto transactions are permanently recorded.
Crypto transactions need to be verified and recorded by powerful computers in a process that involves solving complex equations, which also creates new units of cryptocurrency.
Computers can compete to solve these equations and the owner of whichever computer solves the problem first earns the currency that’s produced in the process of making that transaction.
Where is crypto mining happening and why?
The biggest overhead costs for crypto mining are electricity to run the computers and land to keep them on. Crypto mining is a virtually automatic process that doesn’t require much human intervention besides maintenance, so once they’re underway, operations don’t need to be near a workforce.
This means that rural areas where land and electricity are cheap are ideal for running crypto mining operations.
Arkansas, with its low cost of electricity and abundance of rural land, is a hot spot for new mining facilities owned by companies in the U.S. as well as those based in countries including China.
Some say crypto mining is noisy, puts strain on energy grid
Computers in a crypto mining center produce a lot of heat. Some facilities run large, high-powered cooling fans while others sink wells for water-cooling systems.
The fans can be extremely loud, some neighbors say, and might run during any hours of the day and night.
Detractors say that the centers are raising demand for electricity and rates along with it, as well as putting a strain on the energy grid and groundwater.
Tami Hornbeck is the chair of the Committee to Protect Arkansas County and a small business owner in De Witt, Arkansas.
“We’re located in the prairie part of Arkansas,” she said. “There’s no trees to block [the sound] so it travels a long ways.” She said she’s heard of the noise traveling up to 8 miles under certain conditions.
“We’re in a critical groundwater designation in our area,” she said, adding that a crypto mine will use the same amount of water per month as a farm, but uses that amount year-round.
Hornbeck said there’s been suspicion of the industry in her community. “They’re not coming forward to provide a good faith effort to talk to us to relieve our concerns and fears.”
Rick Smith is the pastor of a church in rural northwest Arkansas outside Russellville. His church is across the street from an electrical substation, which was recently expanded.
Smith found out recently that two new crypto mining facilities are set to be built on two sides of his church, which is also near several houses.
His community is “out in the county. There’s no restrictions. There’s no building codes. There’s no ordinances that have to come into play to regulate [crypto mining’s] presence and operation,” he said.
Smith has gone out of his way to try and establish a cordial relationship with the companies, to head off any conflict. He’s spoken with representatives from the American company set to build directly across the street but has had trouble getting in touch with the Chinese company that owns the plot next door, which has an ownership structure that’s more opaque and harder to pin down.
He worries that doesn’t bode well for his prospects of being able to communicate and work things out with them if there are any issues down the road.
Smith and Hornbeck both expressed discomfort with Chinese ownership of crypto mines, pointing to concerns over cybersecurity.
The county enacted noise ordinances last fall, Smith said, months after the passage of Act 851, but he has cautious doubts about whether this will be enough.
“The question becomes, ‘How is it regulated and how is it monitored?’”
What to know about Arkansas’ Act 851
Act 851 of 2023 created the Arkansas Data Centers Act, which restricts local government power to regulate cryptocurrency mining.
Under the law, local governments cannot set noise levels specifically for crypto mining facilities or change zoning usage to exclude crypto mining centers.
The act passed with large majorities last year but has since come under fire for several controversial points as well as the manner in which it was passed.
Sen. Bryan King, R-Green Forrest, is one of the bill’s leading detractors.
He feels that the law was rushed through the General Assembly without all members knowing enough about it.
Act 851, he said, “made crypto mining a protected class, with more protections than any other industry in Arkansas.”
“No one knew anything about crypto mining,” he said.
He said the bill “passed within hours after it was amended. It should have taken days.”
Crypto miners, he said, are “taking advantage of our cheap electricity and our good nature.”
What do crypto mining proponents say?
Ben Smith, from the Arkansas Blockchain Council, said concerns about cybersecurity are baseless. He said that the integrated circuits used for crypto mining are hard-wired to “only do one very specific thing, and that thing is to crunch numbers, essentially, and process payment transactions just like Visa or MasterCard does.”
In response to concerns about excessive water and electricity usage, he said that a state-of-the-art mining setup will use air cooling, not water, with measures to reduce sound. He said crypto mining operations benefit the system and lower costs by using excess power in the grid that would go to waste otherwise. No other industry, he said, can shut down and power back up on demand, to respond to spikes in demand, as is required of crypto outfits by energy providers.
Crypto miners, he said, “are almost begging for regulation” of the industry for the sake of stability and predictability. “I want to know that I’m operating within the rules.”
What’s next for Arkansas crypto mining bills?
Rep. Josh Miller, R-Heber Springs, introduced six resolutions in the House which mirrored those introduced by King in the Senate. Rep. Rick McClure, R-Malvern, introduced a resolution mirroring Sen. Bryant’s, and Rep. Jeremiah Moore, R-Clarendon, introduced one mirroring Sen. Missy Irvin’s.
Those resolutions would amend Act 851, stripping certain provisions like the ban on local governments “discriminating” against the crypto industry by setting special noise ordinances, and adding others including regulating the industry under the Department of Energy and Environment and barring companies from certain countries from owning facilities.
If the resolutions pass the House, they’ll go to Senate committees and then the full Senate for a vote as soon as this week.
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