If you mine digital assets—like cryptocurrency—your job might soon become a little more expensive.
The White House has announced plans to ask crypto miners to pay a premium for energy consumption. President Biden’s proposed budget for the 2024 fiscal year includes a Digital Asset Mining Energy (DAME) tax equal to 30% of the electricity used in cryptomining.
Crypto Mining
Mining for digital assets is a process for validating transactions on a network. Since no one controls the network, no centralized account automatically records debits and credits. Shared user records are added to a distributed ledger—the virtual equivalent of the old green accounting ledgers. Verifying those transactions is essential and requires high-powered computers to perform complicated calculations quickly. But there’s a payoff—if you’re the first to enter a new “block” in the permanent record of transactions, you’ll receive a reward, typically newly minted crypto coins.
The Problem
The combination of these complex formulas and the race to be first means that success often relies on using high-powered computers. The result is that miners can use a lot of energy. The increase in energy consumption, the administration claims, results in adverse environmental effects, including air and water pollution, and an increase in energy prices for those in the community that share an electricity grid with miners. And, they argue, those environmental impacts exist even when miners use existing clean power.
The Proposal
The solution? An excise tax on the use of electricity by digital asset miners. Under the administration’s proposal, any firm using computing resources—whether owned or leased—to mine digital assets would be subject to an excise tax equal to 30% of the related electricity costs.
To figure the tax, firms would be required to report the amount and type of electricity used, as well as the value of the electricity. Those that produce or acquire power off-grid would be subject to tax based on an estimate of electricity costs.
The tax would not take effect immediately. Beginning in 2024, the tax would be phased in over three years—10% in the first year, 20% in the second, and 30% in the third.
The Reasons
The tax sounds steep, but the administration believes that it’s warranted. In the recent Economic Report of the President, they cite estimates by Goldman Sachs that suggest cryptomining accounted for more than 2% of U.S. power consumption as of early 2022. The report also notes that the amount of electricity used to mine bitcoins in the U.S. is roughly the same as that used to power all of the home computers or residential lighting in the country.
Not all digital asset mining uses the same amount of power. For example, proof-of-work—the race to be first—tends to take more power than proof-of-stake—which uses specific miners to validate transactions. According to the President’s report, Bitcoin
BTC
, which accounted for over a third of all crypto assets’ value as of December 2022, is mined using proof-of-work, while Ethereum
ETH
switched over to proof-of-stake in September 2022.
Still, the White House says that energy consumption tied to digital asset mining is “very real and imposes very real costs.” In addition to pollution and higher prices, running an electricity grid at maximum capacity nonstop can cause breakdowns in infrastructure not designed for such high-intensity usage.
And as old machines burn out (crypto mining hardware may become obsolete roughly every 1.5 years), they become “e-waste,”—resulting in harm to human health and the environment. It’s the same idea as tossing out your cell phone but on a larger scale. Digiconomist has estimated that a single bitcoin transaction may generate more e-waste than two iPhones (but less than an iPad).
One State Takes Action
As prices rise and concerns mount about the environmental impact of crypto mining, at least one state has taken steps to try to curb it. Last year, New York passed a law that imposes a temporary moratorium on new permits for fossil fuel power plants that house proof-of-work cryptocurrency mining—the law could discourage new companies from moving to the Empire State. While some businesses have voiced concerns over the new law, many environmental groups are hopeful that other states will follow suit.
National Policy
The White House says, however, that a national policy is needed to “ensure that cryptomining is not simply pushed from one local community to another.” The DAME tax is just one of the efforts proposed by the White House to ensure “the responsible development of digital assets, modernize their tax treatment, and mitigate risks to financial stability.” The tax is estimated to raise $3.5 billion in revenue over ten years,