An unusually swiftly adopted pro-cryptocurrency mining law in Arkansas had the potential to become a flagship example for other states.
However, in just a few months, it faced the threat of setting a precedent as the state’s first repealed crypto-friendly law.
This DailyCoin article explores how a single law gained such disruptive power.
Law in Favor of Crypto Miners Infuriated Arkansas Locals
In early April 2023, a new law in favor of cryptocurrency miners passed in the southern state of Arkansas. A few months later, it faced the threat of being repealed, potentially setting a historical precedent for the American cryptocurrency industry.
The trails of this ambiguous story lead back to the first weeks of April when the Arkansas legislature approved the Arkansas Data Centers Act, providing cryptocurrency miners with the same rights as data centers.
The new law, registered as Act 851, ensured that the activities of local cryptocurrency miners would be subject to state-level laws and granted them immunity from municipal-level enacted restrictions like noise ordinances or zoning regulations.
It further emphasized that the new industry would benefit the state as “data centers create jobs, pay taxes, and provide a general economic value to local communities.”
Although the new law was set to take effect from August 1st, new cryptocurrency mining sites emerged before it. One of them, Green Digital LLC, opened its doors the month after the Data Centers Act was passed.
But even before legislation favoring digital assets, Arkansas was an attractive destination for cryptocurrency miners, mostly because of relatively cheap land and electricity. Within less than two years, ten separate mining facilities opened up in various locations across the state.
However, the emergence of Green Digital LLC’s mining facility next to the residential properties threatened the stability of the entire cryptocurrency mining industry in the states.
With mining and cooling hardware running continuously, crypto-mining sites generate significant noise. While most implement soundproof solutions such as sound walls to reduce external noise, Green Digital LLC did not.
Local residents began to hear a loud hum 24/7, with the company unwilling to address noise pollution complaints.
This situation, where residents would lose legal leverage against cryptocurrency miners with the Data Centers Act in place, sparked a massive wave of resistance. By August 1st, nearly 50 counties in Arkansas rushed to pass emergency noise ordinances restricting decibel levels.
Residents even started to question the Data Centers Act itself as the circumstances of its enactment raised more and more questions.
A Bill Passed Unusually Quickly
Newly enacted laws significantly differ from each other in terms of their complexity and urgency and consequently require different amounts of time for their adoption. However, their passage is generally a matter of weeks or months rather than days.
The reason is that legislative proposals, or bills, must undergo a strict legal process before becoming laws.
First, the bill must be officially presented by a primary sponsor, who can be a member of the Senate or House of Representatives.
When filled or introduced to the other lawmakers, the bill has to be debated, reviewed in dedicated committees, and voted for or against before passing it to another chamber of the legislative system, typically from the House of Representatives to the Senate.
The process repeats, and if the second chamber approves it, the bill returns to the House, where it is voted on once again. Once the bill passes this stage, it is sent to the state’s governor to either sign or veto it. When signed, the bill becomes law and comes into effect at the agreed-upon time.
A similar legislative procedure is applied in Arkansas: once a bill is drafted, a primary sponsor introduces it, and the bill goes through an initial reading in the first chamber. After that, it is assigned to the appropriate committee, which schedules a public meeting where legislators and interested parties can voice their support or opposition. Amendments can also be made at this stage. Only then does the bill proceed to a voting stage and, subsequently, to the other chamber.
Because of extensive debates and the incorporation of amendments, the law adoption process frequently extends in time. But it took only eleven working days for the Arkansas legislature to pass House Bill 1799, which became the Data Centers Act or Act 851, on April 13, 2023.
This is faster than other law approval processes during the same legislative session.
DailyCoin examined historical data for numerous bills passed during the same legislative session. To avoid comparing incomparable processes, we only looked at the bills to create regulations for certain activities.
For example, it took more than two months for both chambers to pass a law regulating occupational therapy licensing. Acting the law aimed at social media safety took four and a half weeks. Even deliberations on the state’s time regulation law lasted at least three weeks before the proposal was withdrawn.
However, eleven working days or two calendar weeks were enough to pass the Data Centers Act. As it turned out, the bill, filed in the last days of the 2023 legislative session, lacked the stage of public discussion and was amended and voted out within 30 minutes instead of the several-day-lasting procedure.
Lawmakers even admitted that some politicians hadn’t even read the data center bill during the voting. Nevertheless, 93 out of 100 representatives voted in favor of the new law, with only one being against it.
The Trails of Lobbying
The unusual circumstances surrounding the Data Centers Act only heightened residents’ opposition to crypto-mining businesses. They prompted local lawmakers to organize intensive meetings with the communities before the law took effect on August 1.
During one such meeting, crypto industry members appeared to have participated in the initial stages of House Bill 1799 preparation. Cameron Baker, the managing member of Cryptic Farms, acknowledged the involvement:
“It originated as an anti-discrimination bill. What we were trying to do was say, 'Hey, look, we're pretty much a data center. As long as you treat us like a data center, you know, we're not restricting your ability to manage your commercial policy.”
Crypto Farms aids incoming crypto miners with property acquisitions and helps them start their businesses running. It also runs cryptocurrency mining operations, having established mining sites in at least four locations across the state.
Its official website states that Cryptic Farms has been “helping to form and shape the regulatory and incentive structures to attract crypto mining and high energy use data centers” in Arkansas since 2022.
The firm is a founding member of Arkansas Blockchain Council (ABC), a nonprofit association for crypto and blockchain industry members, which lists lobbying as one of its responsibilities.
Lobbying, or an attempt to influence government officials and policymakers to adopt a specific law that favors the interests of a specific organization or industry, is a legal and regulated activity in the United States.
In the past year alone, crypto lobbying has surged nationwide, with companies doubling their spending on federal influence from $8.3 million in 2021 to $21.6 million in 2022. Likewise, the number of crypto industry lobbyists has jumped from about 105 to over 270 in just one year.
As Phil Harvey, the CEO of cryptocurrency mining company Sabre56, earlier told DailyCoin, his company has frequently participated in processes shaping the legal environment around cryptocurrency mining businesses.
“Only a handful of jurisdictions have bylaws in place – a lack which has prompted Sabre56 in the past to support counties in writing these very bylaws, protecting constituents where bitcoin mining is prevalent,” Harvey said, referring to the local noise ordinance issues, that crypto miners are often dealing with.
DailyCoin reached out to Arkansas legislators, including representative Rick McClure, the primary sponsor of House Bill 1799, to clarify the influence of crypto lobbyists on the legislative process; however, we haven’t received any response.
Threat of Repeal on the Horizon
At the beginning of the new legislative session, Arkansas Senator Bryan King, who had previously voted in favor of the Data Centers Act, initiated legal actions to repeal the law.
During hearings on September 14, King explained his proposal as a necessary step to correct the mistake made in the spring session when lawmakers rushed to pass a bill and had made a badly informed decision.
Furthermore, King asserted that they were misled by the fact that cryptocurrency mining facilities were equated to data centers.
Highlighting that he has nothing against the cryptocurrency mining business, the politician urged the cancellation of the enacted law, as it acts against residents suffering from incessant noise caused by crypto mining facilities.
If he succeeds in repealing the law, it would be an unprecedented move for the cryptocurrency mining industry in the United States.
Arkansas’s Data Centers Act was the first legislation of its kind passed in the country, while federal regulators are increasing scrutiny over the industry due to crypto mining power consumption.
In April 2023, the Presidential Administration released the Digital Asset Mining Energy (DAME) proposal, offering a 30 percent energy tax on cryptocurrency mining activities. The additional tax on high-intensity energy consumption is expected to result in adverse environmental effects and increased energy prices for communities that share power grids with cryptocurrency miners.
For the Arkansas Data Centers Act to be canceled, the state’s governor must call a special session to revisit it. Additionally, a two-thirds majority vote in the House of Representatives and the Senate is required to repeal it.
Read more about the crypto mining industry in Arkansas:
Can Noise Pollution Halt Crypto Mining in the US?
Find out the history of crypto miners in Arkansas
Digging Deeper: What’s Behind Arkansas Crypto Miners?