Mon. Aug 8th, 2022

Supreme Court precedent shows that New York’s moratorium on proof-of-work mining violates Bitcoin miners’ First Amendment rights.

This is an opinion editorial by Aaron Daniel, an appellate attorney and author of The Bitcoin Brief legal research newsletter.

Introduction

New York’s legislative assembly passed” Under strict scrutiny, the government bears the burden of proving:

  1. “its regulation is necessary to serve a compelling state interest,” and
  2. “is narrowly drawn to achieve that end.”

Under this standard, laws are almost invariably declared unconstitutional. The highest level of scrutiny applies to content-based laws because:

“Above all else, the First Amendment means that government has no power to restrict expression because of its message, its ideas, its subject matter, or its content. Regulations which permit the Government to discriminate on the basis of the content of the message cannot be tolerated under the First Amendment.”

Applying strict scrutiny, we first ascertain New York’s interest served by the Moratorium. The legislative findings included with the enacting bill identify “climate change” as a threat to the state. The bill continues, “[i]t is the policy of the State of New York to conserve, improve and protect its natural resources and environment and to prevent, abate and control water, land and air pollution.” And the bill identifies a concrete goal to reduce “statewide greenhouse gas emissions [by] … eighty-five percent by 2050 and that the state has net zero emissions in all sectors of the economy by that time.”

To be sure, the prevention of climate change and protection of the state’s natural environment are indeed weighty interests. There is little authority, however, on where this nebulous interest lies on the spectrum from “rational basis” (most deferential to government) to “compelling” (least deferential).

But even assuming for purposes of argument that climate change does present a compelling state interest, it is impossible for the state to prove that freezing greenhouse gas emissions at current levels from a single subset of only one industry is “narrowly drawn” to prevent climate change and protect the environment. Even if the State of New York froze all emissions within its borders, private and business-related, at current levels indefinitely, this would have negligible impacts on climate change. Climate change is a global phenomenon.

Nor is the Moratorium on proof-of-work cryptocurrency mining emissions narrowly drawn to achieve the state’s goal of reducing emissions by 85% by 2050 and rendering “all sectors of the economy” net-zero. Again, proof-of-work mining is but one subset of one industry within the New York economy.

There is no meritorious argument the state can marshal to rebut the presumption of unconstitutionality under a strict scrutiny analysis.

Commercial Speech — Intermediate Scrutiny

Proof-of-work data might also be considered commercial speech, as it could be argued that it “propose[s] a commercial transaction.” This is, of course, not accurate, as the transaction data published by miners is almost always between other parties involving transactions to which miners are not a party. Moreover, miners publish blocks that contain data beyond mere transactional facts, as previously established, including political opinions. Nevertheless, a judge operating with a superficial understanding of proof-of-work mining could reach for an easy heuristic like commercial speech.

But “even speech that does no more than propose a commercial transaction is protected by the First Amendment.” Speech proposing a commercial transaction is, however, “entitled to lesser protection than other constitutionally guaranteed expression.”

For commercial speech to be regulated under intermediate or heightened scrutiny:

  1. the speech must relate to “lawful activity and not be misleading”;
  2. the governmental interest must be “substantial”; and
  3. the law must “directly advance[] the governmental interest asserted,” and not be “more extensive than is necessary to serve that interest.”

In other words, “[t]here must be a fit between the legislature’s ends and the means chosen to accomplish those ends.”

Proof-of-work miners, by their nature, publish truthful facts about transactions that are verified by the protocol’s network of nodes. This is a lawful activity and not misleading.

Thus, under intermediate scrutiny, the state will have to prove the Moratorium “directly advances” a “substantial interest.” Again, the law is unsettled on where general climate change and greenhouse emissions goals fall within the spectrum of governmental interests. But even under intermediate scrutiny, the state cannot show that its targeting of a single subset of one single greenhouse-gas-emitting industry “directly advances” its climate goals, for the reasons discussed above.

While this is an easier standard for the state to meet, the Moratorium is simply too underinclusive and ineffective at its stated goals to pass any level of scrutiny applied. Nonetheless, any action challenging the Moratorium should avoid classification of proof-of-work block publishing as pure commercial speech in order to establish a precedent securing the highest levels of protection.

Conclusion

Miners securing cryptocurrency protocols through proof-of-work algorithms, such as Bitcoin, are publishers engaged in speech entitled to First Amendment protections of the highest order. Because of this, any law or regulation affecting proof-of-work miners must be generally applicable and content neutral. Laws such as the Moratorium in New York Assembly Bill A7389C, which target proof-of-work miners based on the content of their speech, violate miners’ First Amendment rights and should be invalidated.

Thus, the Moratorium (once signed into law) provides a meaningful opportunity for a test case to establish favorable precedent shielding the proof-of-work mining industry from burdensome regulation — and even outright bans. And, because the issue of whether the Moratorium is narrowly drawn to prevent climate change would be litigated in such a case, it would also provide an opportunity to dispel energy misinformation and fear, uncertainty and doubt (FUD), based on credible expert testimony and judicial fact-finding. Such a case could shift the narrative on Bitcoin mining and demonstrate the incredible benefits proof-of-work protocols provide to society.

The goal of this article has been to spark thoughtful argument and debate on an important issue pertinent to Bitcoin and Constitutional rights. Please feel free to contribute to the discussion on Twitter, or by email.

This is a guest post by Aaron Daniel. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.