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Texas Still Wants to Become Nation’s Cryptocurrency Leader

Despite the high-profile collapse of crypto trading platform FTX, the Legislature’s Work Group on Blockchain Matters has established a master plan to propel the state to the forefront of the $5 billion industry.

(TNS) — The high-profile collapse of FTX might have tainted cryptocurrency trading platforms, but it isn’t slowing advocates’ plans to make Texas a leader in the still-growing industry.

The Texas Work Group on Blockchain Matters recently released a master plan to establish the state as a leader in the industry that’s valued at about $5 billion globally.

The Lone Star State now ranks as the fourth best state for crypto enthusiasts, according to a 2022 Smart Asset study that considered a number of factors, including crypto-friendly legislation. Texas trails Nevada, Florida and California.

“Where Texas can differentiate itself is by continuing to be a leader in cryptocurrency-related legislation in order to attract companies dissuaded by regulatory uncertainty,” the report said.

The blockchain work group, created by the Texas Legislature in 2021, has 16 members with representatives from state agencies, universities and private industry. The group met monthly this year to draft its 84-page report containing 21 recommendations.

The group addressed four areas related to blockchain technology: economic growth opportunities, the current state of the industry in Texas, workforce and academic needs, and legislative recommendations. Blockchain technology is the backbone of the digital world, creating a record of cryptocurrency transactions that are maintained across linked computers.

One of the group members, Christopher Calicott, managing partner at Austin-based Trammell Venture Partners, said when crypto goes mainstream, Texas needs to be prepared to benefit. The global blockchain technology market size is expected to surpass $1.6 trillion by 2030, according to a projection from Precedence Research.

“Crypto never had a massive consumer adoption moment like what happened with Starbucks customers using QR codes in the drive-through, but we think that’s imminent,” he said.

The master plan to expand the blockchain industry in Texas includes sections on education, energy, finance and government.

The recommendations include creating incentives to attract companies that don’t make money off monetizing data, which goes back to the industry placing an emphasis on privacy. The state should “embrace its tradition of individual liberty” by “making it explicit that the U.S. Constitutional protections against unreasonable search and seizure extend to activity on the internet,” the report said.

The group also suggested that miners who agree to voluntarily curtail their power usage when the state’s electric grid is overwhelmed shouldn’t be required to pay taxes on their electricity bill.

“This is a small cost to taxpayers that will lead to significant benefits for grid reliability,” the report said.

The report said these miners help stabilize the grid by “soaking up stranded energy.” The more miners that need to connect to the grid, the more willing Texas will be to invest in electricity-producing assets that benefit the whole state.

During the week of July 11, when temperatures in North Texas soared above 100 degrees, 15 bitcoin miners curtailed their electricity use, leading to 1,000 megawatts of power being turned off for several hours. That equated to about 1.5 percent of the grid’s load at peak demand.

The group’s recommendations are a starting point. From here, state lawmakers will look through the ideas for ones they want to advance to a vote.

Do Crypto Players Need More Incentives?

Not all Texans think crypto companies need better treatment.

Jackie Sawicky, a self-described environmentalist, has been leading a protest against Castle Rock, Colo.-based Riot Blockchain building North America’s largest Bitcoin mining facility in Rockdale. Crypto mining is “purposely designed to waste as much energy as possible,” something the state doesn’t need when it is having to ask residents to cut back on usage, she said.

“Most people don’t utilize crypto in any way, yet the companies get very special treatment while we’re being pushed to the brink,” she said.

This summer, electric rates for Texans surged more than 70 percent. Crypto miners use about 3,000 megawatts of energy per day, or about 4 percent of peak demand during the hottest days, said Lee Bratcher, president of the Texas Blockchain Council. There are at least 27 mining operations in the state, but there is no way to know for sure the total number, according to the council.

Sawicky pointed out that Riot Blockchain already gets paid to shut down operations when the state’s electric grid is overloaded. Riot said it made about $9.5 million in credits in one month this summer for shutting down during peak demand times. As part of a voluntary power curtailment program, crypto miners can power off their facilities and sell the power they aren’t using back to the grid at a premium rate.

Riot also received an incentive package from local development officials. The company was offered a 45 percent discount on local taxes for the next decade. Tax abatements and sales tax credits allowed Riot Blockchain to hire a large team, said Chad Harris, chief commercial officer of Riot Blockchain.

Rockdale city manager Barbara Holly told the Texas Work Group on Blockchain Matters that Rockdale was on track to exceed $1 million in sales tax revenue for the first time in its history after Riot came to town.

But Sawicky argues the negatives far outweigh any positives.

“It’s all a pyramid. It’s a decentralized scam — a complete bubble. And a lot of them don’t have plans for rainy days, so when the economy is crashing and people want their money back, they say, ‘Oops, we spent the money,’” she said. “There is no future in Bitcoin.”

Sawicky was alluding to FTX’s recent bankruptcy amid an $8 billion shortfall.

Bratcher said the group is working on a bill in response to the FTX fallout that will help prevent a similar collapse from a company in Texas. The bill would require exchanges to submit proof of their reserves to the Texas Department of Banking, as well as disclosures to an auditor. This is to prevent the commingling of customer funds with the company funds, something done by FTX.

“We think we can lead the country on this,” Bratcher said.

The industry failures are coming from companies with inferior business models, Calicott said. They take customers’ assets on the platform and use them for the company’s business goals, he said.

There are many crypto companies that offer better consumer protection, he said.

“What FTX does is gives us a fantastic contrast to the way some Texas businesses are actually approaching Bitcoin, taking a much more fiscally conservative approach,” he said. “We feel like the blowback from a regulatory perspective would be detrimental to Texas businesses that are getting it right.”

©2022 The Dallas Morning News. Distributed by Tribune Content Agency, LLC.
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