US-based cryptocurrency miners could soon face a tax equal to 30% of the cost of the electricity they use if Congress passes President Joe Biden’s proposed budget for fiscal year 2024, but the proposal has sparked debate. about whether it would actually reduce global emissions and energy prices.
Cryptocurrency mining is a resource-intensive process that attempts to solve increasingly complex equations to create new blocks that can be validated and added to the blockchain.
This process consumes a significant amount of energy, and some estimates put the world energy consumption of Bitcoin (BTC) mining at around 0.59% of world energy consumptionwhich is roughly equivalent to Malaysia’s energy consumption, according to Worldometer.
Biden’s Council of Economic Advisers (CEA) argues that the tax — dubbed Digital Asset Mining Energy (DAME) — “encourages companies to start taking more account of the harms they impose on society.” :
“Estimated to raise $3.5 billion in revenue over 10 years, the main goal of the DAME tax is to start making crypto miners pay their fair share of the costs imposed on local communities and the environment.”
By imposing a tax on the use of electricity, cryptocurrency miners will have a financial incentive to reduce their energy consumption, and since electricity generation accounts for such a large proportion of carbon emissions, this should theoretically reduce emissions. emissions in the United States.
This idea is similar to that of carbon taxes, which are intended to discourage emitters by forcing them to pay the full social cost of their emissions after trying to take into account the costs associated with pollution.
leaks
However, Opponents of the tax argue that it will simply lead miners to relocate to countries with lower tax rates and less stringent environmental regulations, where they will continue to emit large amounts of carbon dioxide.. This situation is known as “carbon leakage”, whereby emissions simply move from one place to another, rather than being reduced as a whole.
As Nic Carter, co-founder of Coin Metrics, points out, these countries may also have a much smaller proportion of energy supplied by renewable sources, so emissions may even increase as cryptocurrency miners move abroad.
hey @hboushey46 /CEA/White House – when you try to ban Bitcoin mining here in the US, this is who you directly empower. Unplug them here, plug them into the much dirtier Kazakh grid. Great policy proposal, you’ve really thought this one through https://t.co/M4uSSHSxqa
— nic carter (@nic__carter) May 3, 2023
Hey @hboushey46 /CEA/White House – When you try to ban Bitcoin mining here in the US, this is who you directly empower. Disconnect them here, connect them to the much dirtier Kazakh network. Great policy proposal, you’ve really thought about this.
Carter was scathing in his criticism of the policy, arguing that it would cut tax revenues contrary to what the Biden administration suggests, increase carbon emissions and empower “geopolitical enemies.”
Ever sat down and thought: how can I direct more money to my geopolitical enemies, lose tax revenue domestically, AND pump more CO2 into the atmosphere?
Well the DAME tax does that
— nic carter (@nic__carter) May 3, 2023
Have you ever sat down and thought: how can I direct more money to my geopolitical enemies, lose national tax revenue AND pump more CO2 into the atmosphere?
Well, the DAME tax does that.
In its blog post, the CEA noted that “the potential for cryptocurrency mining to move overseas — for example, to areas with dirtier energy production — is cause for concern,” but suggested that other countries are also concerned. are moving to restrict cryptocurrency mining, citing nine countries that had already banned the activity.
Speaking to Cointelegraph, the leader of the Bitcoin project of the environmental group Greenpeace USA, Joshua Archer, warned that lRegulations or taxes that deter cryptocurrency mining will likely be created wherever cryptocurrency miners relocate, and he argued that Bitcoin should remove its proof-of-work consensus mechanism.
The climate activism group has been calling for Bitcoin to go proof-of-stake as part of its ongoing “change the code, not the weather” campaign, which began early last year.
One of the countries referred to by the CEA, China Banned Cryptocurrency Mining In 2021 Citing Concerns About Its Electricity Consumption And Environmental Impact. However, studies of the effect of the ban suggest that the activity had simply moved to countries that use much less renewable energy, and actually increased global emissions.
The CEA also argued that the use of electricity by cryptocurrency miners raises costs for other consumers, and increases the general reliance on “dirtier sources of electricity.”
Cryptominers’ intense and volatile power consumption can also push up electricity prices and make local electrical grids riskier as a result of increased strain on equipment, service interruptions and safety hazards. 6/ https://t.co/dN4vtqjHch
— Council of Economic Advisers (@WhiteHouseCEA) May 2, 2023
The intense and volatile power consumption of cryptominers can also drive up electricity prices and make local power grids more risky as a result of increased stress on equipment, service interruptions, and security risks.
While this makes sense based on economic theory, as increased demand within a market leads to higher prices, it may miss some important nuances of the crypto mining industry and its effect on the US electricity market. Joined.
“The beauty of bitcoin”
The CEO of Bitcoin miner Marathon Digital Holdings, Fred Thiel, told Cointelegraph that “The beauty of Bitcoin mining is that it naturally incentivizes renewable energy generation.”
Thiel elaborated that “In many cases, green energy sources – such as solar and wind farms – are only viable if there is a constant demand for that energy when it is produced,” adding:
“While the power needs of most consumers fluctuate, miners act as consistent baseload power consumers. They help stabilize the grid, making new green energy projects economically viable.”
According to Thiel, while Bitcoin mining incentivizes the production of renewable energy, Bitcoin miners in the United States are also drawn to renewable energy sources, as the excess power they produce that cannot be returned to the grid is some of the cheapest energy available in the United States.
Thiel added that if this excess energy was not used by Bitcoin mining companies, it could not be used by consumers and would be wasted.
Thiel noted that this mutually beneficial relationship between renewable energy producers and Bitcoin miners is contributing to a shift already underway towards more sustainable sources of electricity, pointing to the most recent Bitcoin Mining Council (BMC) survey.
Based on the survey results, the BMC estimated that 58.9% of the electricity used in Bitcoin mining through the last quarter of 2022 was generated by renewable energy sources, a figure that is increasing over time.
Thiel was also very scathing about the DAME tax, arguing that “it’s a shot at a specific industry, not a specific practice or fuel source,” adding:
“If the Biden Administration really wanted to reduce global emissions, it would focus on the ways electricity is generated, not the arbitrarily selected industries that use it.”
He said that the proposal is “intended to put Bitcoin miners out of business” and “will increase energy prices for consumers and reduce the viability of renewable energy development in the US,” concluding:
“Either the administration is completely wrong, or this proposed tax is nothing more than a move to hamper this industry for political reasons, because it is not in the interest of people, the energy grid, or the environment.”
The proposal comes amid calls that a lack of regulatory clarity and access to banking in the US is killing its crypto industry, and if the DAME tax is passed by Congress it may be another nail in the coffin. .
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