Sen. Stephanie Flowers (file photo)

Two bills aiming to regulate crypto mines — Senate Bill 78 and Senate Bill 79 — passed out of the Senate on Wednesday. The bills will now head to the House City, County, and Local Affairs committee next week.

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The bills 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.

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 are a major nuisance for the rural communities where they’ve popped up.

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Another slate of proposals, six resolutions filed by Sen. Bryan King (R-Green Forest), failed to get the two-thirds approval necessary in the House to proceed as bills last week. King had a significantly more aggressive approach and was sharply opposed by the crypto mine industry and their lobbyists. Rep. David Ray (R-Maumelle) served as their de facto spokesman, with half a dozen speeches in the House attacking King’s proposals.

Ray and other industry backers are friendlier to SB78 and SB79, co-sponsored by Sen. Joshua Bryant (R-Rogers) and Missy Irvin (R-Mountain View), the two bills that passed Wednesday.

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King had hoped to get the votes on his resolutions expunged in the House (part of his argument for doing so, he said, was that Ray had made inaccurate statements, which Ray disputed). But he simply did not have enough support. Most House Democrats did not vote for King’s resolutions last week (see here for House Minority Leader Tippi McCullough’s explanation). These Democrats would have been an obvious mechanism for new support, given that his proposals would use strict regulation and fees to police bad corporate actors with negative externalities — normally an approach that would be popular with Democrats. But as far as I know, there was no interest in changing course, even after it became clear that the Legislature would be taking up the crypto issue during this fiscal session one way or another. King’s proposals were shut out of consideration altogether.

As the Senate took up the two remaining bills Wednesday, King and Sen. Stephanie Flowers (D-Pine Bluff) hammered Bryant — who sponsored the original Act 851 that caused the mess in the first place — as an untrustworthy actor whose new bill had major holes. They didn’t explicitly say he was in the pocket of the crypto industry, but they both said “something doesn’t smell right.”

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Addressing Bryant, Flowers asked, “Senator, you don’t have one of these [crypto mines] in your area, do you?” The answer was no. She continued: “You didn’t know much about anything about this when you filed that bill last year, did you?”

King, Flowers and Sen. Greg Leding (D-Fayetteville) were the only “No” votes on SB78. There were zero “No” votes on SB79.

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For a full explanation of both bills, see here. To summarize:

  • SB78 restores local control to local governments to regulate crypto mine businesses (though not home mining operations); requires certain noise mitigation techniques (though without a decibel limit); requires crypto mining facilities to be at least 2,000 feet from the nearest residential or commercial use structure, or to be 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.
  • 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.

My take: The two bills aren’t perfect, but they establish mechanisms for regulation of the crypto industry and address many of the concerns created by Act 851. Much will come down to how the rules are promulgated and enforced by state agencies. But crucially, they will allow local governments to make their own regulations on crypto mine businesses after they were hamstrung by Act 851. There are plenty of concerns — and I would have much preferred to have some of King’s tougher provisions included, or at least part of the discussion — but I view them as positive overall and certainly better than nothing.

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There were plenty of fireworks on the Senate floor. A few highlights:

Flowers said that the Legislature should now call a special session on crypto regulation “to flesh out and deal with other issues that people are learning about in their communities.” Bryant said he would probably support a special session. Flowers suggested that if problems continued, he ask the governor to call a special session “to deal with unknown issues that are constantly popping up.” He agreed that he would.

Watching Flowers, who voted for King’s resolutions when they were on the Senate floor, it was hard not to imagine what might have been: She was the star of the debate, and showed how Democrats could have taken an aggressive stance on this issue. Oh, well. She’s been doing so since the session began.

Flowers also expressed dismay that neither bill fully repealed the disastrous Act 851.

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When Bryant was unable to answer a series of questions about the current number of crypto mines in the state, their ownership or their practices, Flowers suggested he had never really known much of anything about the crypto issue.

“I knew I wanted to protect property rights and individual rights that deal with industry,” Bryant said, explaining his sponsorship of the lobbyist-written Act 851.

Flowers asked him to explain why his bill made everything worse. Bryant said that his bill hadn’t made crypto mines any louder (they just took away the ability of local governments to regulate the noise problem).

“I know this is all a gimmick,” Flowers said. “I don’t understand, when there’s so much uproar, why we couldn’t have a special session. … I think it’s dishonest. I think it’s a reflection of the character of the sponsor.”

Sen. Bart Hester immediately took to the floor, his feelings hurt on Bryant’s behalf, and said, “To question this man’s character is out of line and something that is not acceptable in this body.”

King asked whether Bryant was aware of who owned all of the crypto mines in the state, now numbering at least 20. “You have not done any research or know who owns all of them, or what type of system each of them are doing?” he asked. Bryant said that he did not.

King expressed frustration about vague language like “reasonable” noise levels and “industry standards.” He compared such provisions for crypto mining, and “do not discriminate” language protecting the industry, to his own profession of poultry farming. “Do you know any other business out there that has that kind of language in there?” he asked. (The troubling “discriminate” language appears to remain in the bill but Bryant claimed that it only remained in a non-statutory portion.)

King also brought up the issue of Chinese ownership, which seems to be a little demagogic to me, but is an oft-cited concern among legislators. King said lawmakers were being hypocritical by going softer on the question than they had on other issues (Flowers made a similar point about Tom Cotton’s anti-China rhetoric). “All of a sudden, we’re worried about the Chinese growing soybeans, drones, all this other stuff,” King said, “but now when it comes to crypto mines … This is a pro-China jobs bill.”

He also pointed out that the rules against certain foreign ownership would be difficult to regulate in practice given that most of these companies operate with a web of LLCs and shell companies — it can be extremely tough to figure out who actually has controlling interests. He asked whether the attorney general’s office would have extra staff or funding to deal with such an intensive and complex investigation. Bryant said that they did not. King also complained that companies would have a full year to divest from foreign ownership if they ran afoul of the law.

“You talked about restoring local control,” King said — but SB78 explicitly prohibits local governments from certain regulations regarding home crypto mining (for more on this issue, see here).

“Home crypto mining is viewed more as a hobby,” Bryant said. He said these would not be a nuisance because home crypto mining is generally not very profitable and would be limited by the infrastructure of a home and regulations on power being consumed in the home.

“If a city wants to make regulations to say no backyard chickens, that’s their prerogative to do,” King said, again referring back to his own industry. “I don’t want to make a law that forces or ties their hands on that. I want to give them the freedom to decide. This flies in the face of local control.”

King also brought up the role of the Satoshi Action Fund, the shady dark money group that reportedly wrote Act 851 (“follow the money,” he said); expressed concern about the lack of explicit water regulation in the statutory language; and had various other questions about potential legal hiccups with the bills — too much to get into here.

I spoke with King briefly after the votes Wednesday. He said he was frustrated with both Republicans and Democrats who stymied efforts at more aggressive regulation. Some of the excuses, he said — including from Democrats who said they objected in principle to non-budget bills during the fiscal session —simply didn’t make sense. “They can’t reasonably explain their actions,” he said. “This doesn’t even rise to the standard of ‘the dog ate my homework.'”

Wednesday was the deadline for expungement. King said there were still mechanisms he could use to start over and try again, but given the dwindling fiscal session calendar, there likely wouldn’t be enough time. His proposals are almost certainly dead.

King applauded the powerful questions from Flowers on the Senate floor and the handful of Democrats who backed his bills in the House. But speaking as a former minority leader when the Republicans were a tiny block in the House, he believed that Democrats had missed an opportunity. “They blew one of the biggest opportunities they had to actually make a difference for the citizens of Arkansas,” he said. “They could have been the ones who put it over the top … and to make a difference as a block.”

He was just as harsh on his own party: “The Republican Party of local control that I grew up on is dead.”

Though he voted for SB79 (the bill originally sponsored by Irvin), he worried that it had been watered down and neutered in the amendment process — and would not be strong enough to take on potentially billion-dollar companies in the crypto mining industry, bolstered by the most expensive law firms in the state. “To me it’s like going up to a Hell’s Angel and slapping him with your handkerchief,” he said.

Ultimately, the effectiveness of SB79 will come down to how well Gov. Sarah Huckabee Sanders and her administration enforce it, King pointed out.

“The governor is pro-crypto mine,” he said. The executive branch would be able to delay and kick the can down the road in the rule-making process, he said. He did not believe that “this crypto-loving governor” could be trusted to take strong action in regulating the industry.

“Think about it,” he said. “After this session, the power to address this is solely with Sarah Huckabee Sanders. That’s what the Democrats gave her.”