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WHAT STATELEGISLATORSNEED TO KNOWLegislative Resource

The digital asset sector is a quicklygrowing sector, full of innovation andpotential. This new industry ischanging the monetary systemworldwide. Bitcoin, the first and mostwell-known digital asset, has a marketcap of hundreds of billions of dollarsand is used worldwide as a store ofvalue and payment method. America is part of Bitcoin’s rapidgrowth, with companies on thefinancial side of cryptocurrency aswell as Bitcoin mining. Theseindustries have created thousands ofjobs and billions of dollars’ worth ofvalue. Even those not working in theBitcoin industry have benefited, asapproximately 20 percent ofAmericans have bought or tradeddigital assets. As traditional financialinstitutions continue to adopt Bitcoinand other distributed ledgertechnologies, this number only looksto increase. The federal government has yet topass a framework for regulating digitalassets, leaving states to play animportant role in promotinginnovation through policies that offerregulatory clarity and promoteinnovation. These have includeddefining digital assets, reformingmoney transmission licenses, andsupporting Bitcoin mining.This document explains to state lawmakers the basics of how Bitcoinand Bitcoin mining work. It alsoprovides policy recommendations forlawmakers and offers both simple andmore complex policies for promotingBitcoin and Bitcoin mining in a state. With these policies, even states whohave not been at the forefront of thecryptocurrency space can attract jobsand economic opportunity in theseindustries. www.satoshiaction.io | 2Introduction

Bitcoin was the first and remains the mostpopular form of cryptocurrency in the world.Bitcoin is a private (non-state) digital peer-to-peer currency that was created by apseudonymous programmer (or group ofprogrammers) known as Satoshi Nakamotoin 2009. Bitcoin was the first digital currency toimplement a number of innovations thatmade it far more valuable than others atthe time. The most important innovation ishow transactions - sending Bitcoin fromone person to another - are managed andverified. Bitcoin is run on a distributednetwork of computers rather than througha central entity like a bank, paymentprocessor, or credit card company. Thesetransactions are then stored in data calledblocks and linked together, creating ablockchain.These properties provide a number ofadvantages. For example, transactionscannot be stopped by a third party, such asa payment processor like PayPal, and itprevents an individual or group ofindividuals from stealing funds from acentral location. All transactions takingplace on the Bitcoin blockchain are fullypublic for all time and immutable, making itdifficult to obscure transactions. To make a transaction with Bitcoin, a usermay simply sign their private key (whichserves like a password) to broadcast thechange to the network and record thechange on the digital ledger orblockchain. The network then verifies thatthis is a legitimate transaction requestbefore moving the money to thebroadcasted recipient.This lack of centralized control has alsoprovided another advantage. Unlikegovernment backed currency, or evenother cryptocurrencies, the Bitcoin codeonly allows for 21 million individualBitcoins to be created on a designatedschedule. As concerns about inflationcontinue to increase, those transactingwith Bitcoin know exactly how many arecurrently in circulation and how many willever be in circulation. This has becomeespecially important in developingcountries which often don’t have currencyas strong as the U.S. dollar. Bitcoin adoption continues to increaseacross the globe, and the countries thatprovide the services to allow the purchaseof Bitcoin, as well as the creation throughmining, stand to reap the rewards. www.satoshiaction.io | 3A Bit About Bitcoin

This ranges from miners who use energy,such as flared natural gas, or miners whouse excess energy from solar and windfarms that otherwise would never make itto the electricity grid. It has also led tocutting edge developments in immersioncooling technology which uses liquid tocool the mining hardware and increase itsefficiency. Mining has increased dramatically in theUnited States, accounting forapproximately 30 percent of all mining.This increase was primarily due to Chinabanning individuals and businesses frommining Bitcoin. The communist state waspreviously a hotbed of cryptocurrencyactivity, with upwards of 50 percent of allBitcoin mining activity taking place in thecountry. Bitcoin Mining Makes It Work If Bitcoin isn’t controlled by acentralized network, who is loggingall the transactions and allowingpeople to send Bitcoin to eachother? The answer is Bitcoin miners. Credit: Riot Blockchain Bitcoin miners use specializedcomputers, called Application-SpecificIntegrated Circuits (ASICs), to run theBitcoin network. These computers“compete” with other computersrunning the network to solve anequation and enter the information oftransactions which creates the next“block” on the blockchain. Runningthese Bitcoin miners requires a largeamount of electricity, meaning theprice of energy dramatically affects theprofitability of mining. Miners haveused a variety of innovative methods tobe profitable.www.satoshiaction.io | 4

Ultimately, due to the inability of Beijing tocontrol the currency and a desire toimplement its own digital currency, Chinabanned Bitcoin from being used or minedin the country. However, the currencycontinues to be used to this day. Not all states have the right energy mix tohost large-scale Bitcoin miners. But thosestates that do, like Texas, Kentucky, andGeorgia, have benefited immensely. Thereare hundreds of Bitcoin mining relatedbusinesses in the United States employingthousands of individuals. The pay forworking at these Bitcoin mining facilities isalmost always above median wage, withmany individuals earning into the sixfigures. These jobs and the economic impact theybring are also often created in rural parts ofthe country. This is due to the sizerequirements of the mining facilities andthe common nature of stranded energybeing located in areas where limitedcustomers will buy that energy. This means that areas that are oftenstruggling the most with jobs andeconomic opportunity are benefiting themost from Bitcoin mining. Not all stateshave been positively disposed to Bitcoinmining. Concerns about the amount ofenergy usage and noise which mininggenerates have caused backlash at thestate and local level. Most notably, theNew York Assembly and Senate recentlypassed legislation that would create atwo-year moratorium on all “behind themeter'' fossil fuel Bitcoin miningoperations. This legislation has yet to besigned into law, but the potential banhas many miners unsure about Bitcoinmining’s future in New York. Bitcoinminers also worry this policy could leadto more aggressive anti-bitcoin policiesin New York or around the country. States that are willing to embraceBitcoin mining, however, will find theopportunity for economic growth andenvironmental benefits. www.satoshiaction.io | 5

As the federal government has yet todevelop a comprehensive frameworkfor the regulation of cryptocurrency,states have taken it on themselves tocreate the rules of the road.Examples include: howcryptocurrency is defined in statelaw, and, regulations around thebusinesses that deal withcryptocurrency. As with many topicsleft up to the states, there have beendifferent approaches taken towardaddressing this industry. New York was one of the first statesto implement comprehensivecryptocurrency regulations, known asa BitLicense, in 2015. New York wasahead of its time in seeing both thepotential upsides and dangers withcryptocurrency, but the regulationshave been criticized for being costlyto comply with and overly restrictive.Only twenty companies have beengranted a BitLicense as recently as2021. New York’s reputation with thecryptocurrency community hasbecome even more fraught with theAssembly’s attempt to ban Bitcoinmining. What States Can Do to Lead inBitcoin and Bitcoin Mining www.satoshiaction.io | 6 Wyoming, on the other hand, doesn’t havenearly the population nor traditionalfinancial sector of New York, yet, hasestablished itself as a leader in thecryptocurrency space. In 2020, Wyominglawmakers created the select committeeon blockchain, financial technology, anddigital innovation technology which hascontinued to study the issue of blockchaintechnology. The committee’srecommendations, which are oftenadopted into law, have increasedWyoming's competitiveness in the space.Additionally, the state's abundance ofnatural gas has made Wyoming a player inthe Bitcoin mining space.

Many states fall somewhere in between these two different models, with somehaving basic definitions of virtual currency and others staying silent on the matter. Even if states are not planning to have cryptocurrency and Bitcoin mining play a large role in their economy, there are still steps they shouldtake to provide legal certainty for any business or individual residing there. www.satoshiaction.io | 7 State lawmakers, regardless of wherethey serve, should look to establishbaseline definitions and regulatoryclarity for these industries. States thathave an energy mix where Bitcoinmining can be profitable should,likewise, look to pass policies thatprotect the industry and allow forinnovative arrangements to usestranded energy assets to protect theenvironment and create economicvalue.

Before the creation of Bitcoin, statesdidn’t need definitions of virtualcurrency. Other attempts to create auseful virtual currency were mostlyunsuccessful or were limited to in-game currencies for popular videogames. Since the creation of Bitcoin and othercryptocurrencies, along with theirsubsequent adoption, states haveneeded to create such definitions. Arevirtual currencies personal property?Given the current volatility in price, docryptocurrencies count as investmentslike stocks and bonds? If so, they arelikely subject to capital gains taxes. Or,are cryptocurrencies just like othercurrencies when purchasing goodsand services? These questions affect not onlybusinesses in the space, but, alsoeveryday individuals who maypurchase cryptocurrency through avariety of services. Given each state’s unique role in ourfederalist system, it's also importantthat they work together to definevirtual currencies in similar ways. Itbecomes increasingly difficult to run a cross-state cryptocurrency business if statedefinitions vary too widely. This canlead to certain services not beingoffered to consumers. Policy 1: Define Virtual Currency Takeaways ForState LawmakersThere are many different types ofvirtual currency, includingcryptocurrencies, with differentproperties. States should havedefinitions that capture theseproperties without being overlyprescriptive.Having definitions of virtual currencywhich vary too much from state tostate can cause problems forindividuals, businesses, and Bitcoinminers. States should look to havesimilar definitions to one another,borrowing from states which haveprovided clear guidance. States should make sure thesedefinitions don’t place extra burdenson individuals and businesses. Forexample, accepting cryptocurrency aspayment shouldn’t require a moneytransmission license or paying capitalgains taxes on every transaction. www.satoshiaction.io | 8

Many of the states that are leaders in theblockchain and Bitcoin mining space werenot natural candidates. Yet, throughthoughtful policies, private sector input,and research, many of these states havegrown their economies through blockchainand Bitcoin mining. An effective way to bring these factorstogether are through government orprivately created blockchain or Bitcoinmining councils.As many legislators are still learning aboutcryptocurrency and Bitcoin mining, thereports and recommendations provided bythese groups have been instrumental inencouraging innovation, leading to jobs andopportunity in these states. With states that have yet to tackle many ofthe new issues surrounding cryptocurrencyand Bitcoin mining, the government settingup a council can be the first step to addressthese issues. A council should includepolicy leaders and experts from the privatesector who can provide the backgroundneeded for a state to tackle this evolvingarea of lawmaking head on. Policy 2: Create A Blockchainor Bitcoin Mining Council Takeaways ForState LawmakersIf a state legislature doesn’t knowwhere to start to addresscryptocurrency and Bitcoinmining, a council that producesreports and recommendations isa good place to start.Blockchain or Bitcoin miningcouncils should strike a balancebetween government actors andprivate sector experts. Not onlydoes the private sector haveexperience that the governmentdoesn’t, but many individuals whoare involved in this space getinvolved in the political processfor the first time. Set tangible goals for thesecouncils, including requiring acertain number of meetings andwhat the final report shouldcovers. www.satoshiaction.io | 9

One of the primary reasons America is aleader in Bitcoin mining is due to Chinabanning Bitcoin and Bitcoin mining from thecountry. Overnight, millions of dollars ofmining equipment went up for sale or weremoved to the United States. China onceaccounted for nearly 50% of mining, butnow, the United States accounts for roughly30% of all mining. Bitcoin mining has created tens of millions ofdollars of economic value in the UnitedStates, especially for rural areas where mostBitcoin mining occurs. But like China, Bitcoin mining is under threatfrom state and local governments who wantto ban the practice due to either amisunderstanding around its energy usageor noise pollution. A mining protection act would make clear toindividuals and businesses where they couldand could not mine Bitcoin. In residential areas, Bitcoin mining would beallowed as long as undue strain wasn’t puton the power grid and noise pollution didn’texceed local limits. In industrial areas, Bitcoinmining would be treated like any otherindustrial business and would Policy 3: Pass The BitcoinMining Protection Act Takeaways ForState LawmakersAmerica is a leader in Bitcoin miningbecause China banned its use. Americanstates shouldn’t make the same mistake,and instead, welcome miners with openarms.The intensity of Bitcoin mining shoulddepend on the zoning of an area. This willallow people to mine Bitcoin at homewithout bothering their neighbors and willlet large-scale Bitcoin mining operationsknow what zoning is required for them tooperate without issues. A Bitcoin Mining Protection Act doesn’tremove power from local governments.They can still set noise pollution regulationsand decide which areas are zoned forindustrial use. This act would only preventlocal governments from singling out Bitcoinminers for more scrutiny.This policy reaffirms that localities havecontrol over their zoning policy, but signalssupport for a new job-creating industry. be legal. These protections will signal toBitcoin miners that states are open forbusiness. www.satoshiaction.io | 10

Many states around the nation deal withissues caused by oil wells that have beenpreviously abandoned by their owners, alsoknown as orphaned wells. When orphanedwells are discovered, states must then take theresponsibility for the cleanup of these wellswhich can cost as much as $100,000, or muchmore in unique circumstances. Furthermore,these orphaned wells often leak methane,which the EPA estimates is 84 times worsethan Co2, and causes as much global warmingin America as 2 to 5 million cars per year. Bitcoin miners can make use of this methaneto create Bitcoin. It also turns methane intocarbon dioxide which is a much less potentgreenhouse gas. Orphaned wells that cannotbe used for Bitcoin mining can still be properlyclosed by the state. To fund this program, states can use moneyappropriated to them by the bipartisaninfrastructure legislation passed by Congress.There is up to $1.15 billion available to thestates to address the issue of orphaned wells,and partnering with Bitcoin miners can ensurethat the money stretches further. An outline of the program has the statecreating a Bitcoin mining fund which allocatessome money provided from the federalgovernment. These funds are used as anincentive for Bitcoin miners to start mining onorphaned wells in return for taking thefinancial responsibility for shutting them down Policy 4: Pass an Orphaned Oil Well Bill Takeaways ForState LawmakersOrphaned oil wells are a problem for manystates. They emit methane and contaminategroundwater. Closing these wells will costmany states tens of millions of dollars. Bitcoin miners can turn the methane fromthese orphaned wells from a liability to anasset by using it to generate energy andcreate Bitcoin Orphaned oil wells that are not suitable forBitcoin mining can still be closed with otherfunds.States can qualify for additional federalfunding for orphaned wells by meetingcertain metrics. Creating a Bitcoin partnership program willrequire buy-in from the legislature, Bitcoinminers and the department that runs thecurrent orphaned well program. after a period of time. States can alsoqualify for additional federal grant fundingby meeting certain metrics that areincluded in the mining partnershiplegislation. www.satoshiaction.io | 11

One feature of Bitcoin mining is that itcreates a reliable customer for newelectricity generation and can provideenergy back to the main power grid intimes of high demand or emergencies. Ata time when high demand has put strainon the electricity grid due to lack ofgeneration, Bitcoin can make building outsuch generation economical while furtherdriving down costs to local ratepayers.One of the legal hurdles that makesbuilding new electricity generation difficultare laws surrounding microgrids. Thesemicrogrids produce energy, often greenenergy, that is generated off of the mainpower grid. Microgrids come with a variety of benefitsoutside of being natural partners withBitcoin miners. For example, they canoften deliver cheaper energy to thoseliving in rural areas, where it's difficult toconnect to the main power grid. Thisexcess energy generation can also provecrucial in times of emergencies whenthere is not enough capacity on the grid,such as heat waves, winter storms, orhurricanes - times where sustainingpower can be a matter of life or death. Clarifying laws about microgrids will make astate’s power generation more resilient aswell as provide new jobs and economicinvestment. Policy 5: Make Microgrids a Reality Takeaways ForState LawmakersMicrogrids are small areas that cangenerate power to serve ruralcustomers or industrial areas thatneed more power generation. Bitcoin miners are a natural ally ofmicrogrids, as they provide acustomer for the microgrids thesecond they come online.Microgrids provide importantresiliency during times of higherdemand, such as heat waves, as wellas both natural disasters andcyberattacks. Microgrids need clarity in the lawsallowing them to operate. Questionsabout power generation,interconnections and regulation fromthe Public Service Commission allneed to be addressed in legislation. www.satoshiaction.io | 12