Yet, Nebraska’s LB526 — now law — was billed as protecting our electrical grid. Governor Pillen talks about “responsibility” and “guardrails.” Is it really that simple? Are we creating the conditions for strangling a nascent industry in the crib? In fact, it hasn’t even had a chance to fully flower yet in the Cornhusker State! Come along with us as we explore the unintended consequences that might radiate outward from this apparently simple piece of legislation.

Protecting the Grid or Killing Jobs?

The stated aim of LB526 is noble: protecting electrical service for Nebraskans. None of us want anything less than the most reliable, high-quality power to our homes and businesses. The influx of crypto mining operations, drawn to Nebraska's cheap electricity and renewable energy sources, understandably raises concerns about surging energy demand. It’s not hard to picture this translating into endless rows of humming servers sucking up power, running everyone else dry.

Instead, let’s focus on the real-world dangers of excessive regulation. The bill would require mining operations to pay their fair share to upgrade the grid and provide a higher level of transparency on energy consumption. Fair enough. What if these requirements are so onerous that they actually dissuade the investment we seek? What if crypto miners just load their servers into moving trucks and relocate to states with regulations more hospitable to them? The result? Nebraska loses out on all those jobs and that economic growth and most disappointing, the chance to become a hub for blockchain innovation in the process. If we are not careful, we risk throwing the baby out with the bathwater.

It’s a bit reminiscent of the early days of the internet. And do you recall when the doomsayers who claimed that it was a perilous, lawless Wild West? Just picture the world today if we had over-regulated the internet from the start. It would have permanently transformed the way we travel, work, shop, study, and interact with one another. Have we been letting the same thing happen with crypto mining?

Is Energy Consumption Really the Enemy?

Even if this paradox weren’t unavoidable, the bill is driven, in some significant regard, by environmental concerns about the impact of crypto mining. The Cambridge Bitcoin Electricity Consumption Index paints a stark picture: Bitcoin mining consumes more energy than many countries. That's a scary statistic. It conjures up visions of environmental injustice and climate crisis.

Focusing solely on energy consumption misses a crucial point: the source of that energy. The other story referenced in the news is that many crypto mining operations are moving to cleaner energy sources, such as hydropower. What if instead, Nebraska led the charge in incentivizing the use of renewable energy for crypto mining? Instead, we can transform a potential environmental nuisance into an opportunity to demonstrate our bona fides and leadership on the sustainable energy solutions of choice.

Consider this: data centers, which power everything from your social media feeds to your online banking, consume significant amounts of energy. Or are we just going to regulate them out of existence? Of course not. And yet we can’t overstate their importance to our economy. Reclaiming the same logic to crypto mining is a no-brainer, particularly if we can begin to point that energy towards more sustainable sources.

Innovation's Unseen Handcuffs?

Beyond energy consumption, there's a deeper, more insidious risk: stifling innovation. The blockchain technology that underpins cryptocurrencies has the potential to revolutionize industries and government far beyond finance. Consider the implications for supply chain logistics, the healthcare system, our voting infrastructure, and innumerable other use cases.

By putting excessively burdensome regulations on crypto mining, we may be missing out on substantial economic benefits and the creation of these technologies. In fact, we could be stopping the next Google, Amazon or Apple from coming to Nebraska. The long-term ramifications of such a decision would be infinitely more pernicious than any immediate anxiety over energy use.

Ethereum’s recent move to proof of stake, which cut its energy use by about 99.9%—now that’s the kind of innovation we need. Going beyond just focusing on enforcement, Nebraska should be leading the charge to promote innovation in the crypto industry. We help create the demand for more energy-efficient mining technologies. We can do this through incentives. Further, we’ll promote research into promising new blockchain applications and create a regulatory environment that encourages innovation and is responsible at the same time.

Finding the Right Balance

So, what's the solution? This isn’t about jumping on the crypto mining bandwagon or throwing the industry under the bus. It’s a matter of striking the right balance between protecting our critical electrical grid and encouraging the next great tech innovation.

Here are a few practical recommendations for policymakers and industry stakeholders:

  • Incentivize Renewable Energy: Offer tax breaks or other incentives to crypto miners who use renewable energy sources.
  • Invest in Grid Modernization: Use revenue generated from crypto mining to invest in upgrading our electrical grid. This will benefit all Nebraskans, not just crypto miners.
  • Create a Regulatory Sandbox: Establish a regulatory sandbox where companies can test new blockchain applications in a controlled environment.
  • Engage in Dialogue: Foster open communication between policymakers, industry stakeholders, and community members.

Ultimately, the success of LB526 will hinge on its ability to achieve the proper balance between regulation and innovation. Let’s be careful not to fall into the comfort of knee-jerk reactions and a return to the status quo, but rather take on a #smartlongterm approach. Let's make sure that Nebraska doesn't become known as the state that killed crypto innovation before it even had a chance to thrive. Let’s try to be the state that steered it down a path to a more sustainable and prosperous future. After all, our future economic prosperity may very well hinge on it.