When a City Pulls the Plug: Niagara Falls

What Happened

Cheap hydro power drew bitcoin miners to Niagara Falls, New York. By 2022 the city had adopted a zoning and noise regime aimed at high energy computing. Two operations were caught up in it.

The city sued US Bitcoin Corp to stop its operation, and according to news reports a judge found the facility operating in violation of a court order. Fines were set at $10,000 a day, escalating to $25,000, and by early 2023 the Niagara Gazette reported that more than half a million dollars in fines had gone unpaid. The case settled in April 2023, with mining allowed to resume under compliance conditions.

Nearby, a hosting company called Blockfusion was ordered to cease and desist in October 2022 under the same ordinance. According to CoinDesk, its hosted customers included a public company, and their machines at the site stopped running when the order took effect. Blockfusion later went through permit hearings and won approval to reopen.

Why I Follow This Story

I follow this story because it shows a kind of downtime that has nothing to do with power prices or equipment. A city ordinance idled a facility as completely as a transformer failure would have, and the path back ran through permit hearings and court dates rather than repair crews. Residents in other places have pursued similar outcomes through private lawsuits, as the Granbury noise lawsuits show.

The Blockfusion order also reached people who were not part of the dispute with the city. Hosted customers owned machines inside a building that had lost permission to run. The public reports cited below do not describe the terms of their hosting agreements, so they do not show how the cost of that downtime was divided between the host and its customers. That question is usually governed by the contract itself, often by a force majeure clause, and different agreements address it in different ways.

Issues This Case Raises

• Who carries regulatory downtime. Hosting agreements differ on whether a government shutdown suspends only the host's duties, or the customer's payments as well. The answer depends on the specific contract language.
• Release of equipment. Some agreements address whether machines may be moved to another site if a facility stays idle for a set period, such as 30 or 60 days. Others are silent on the point. Whether a release right exists, and when it applies, can itself become a disputed question.
• Fines and the host's finances. The fines against US Bitcoin Corp started at $10,000 a day. How large penalties affect a host's ability to keep operating, and whether customers have any role in how a host responds to a regulator, are questions the public record here does not answer.
• Information about the site. Parties can disagree about what was known or shared regarding a site's zoning status, permits, and pending ordinances before machines were placed, and about which side was expected to gather that information.
• Who handles local compliance. Noise readings, permit renewals, and contact with code enforcement are operational tasks. Contracts vary on whether they assign those tasks to anyone in particular.

Force majeure and release terms are among the clauses discussed in Mining Hosting Agreements: Terms That Recur. Disputes over regulatory downtime are among the topics on the crypto hosting expert witness page.