White House Proposes Energy Tax To Curb Crypto Mining Emissions

• The White House has proposed a plan to make crypto miners pay a tax equal to 30% of the electricity they use during their mining operations.
• As well as reducing the emissions from crypto mining, the White House believes this tax could raise $3.5 billion in revenue over the next decade.
• A recent Economic Report of the President cites estimates by Goldman Sachs that suggest crypto mining accounts for more than 2% of U.S. power consumption.

The White House has proposed a plan to have crypto miners pay extra for the energy they consume during mining operations. Dubbed the Digital Asset Mining Energy (DAME) tax, miners will pay a tax equal to 30% of the electricity they use in crypto mining. Under the proposal, any business or company that uses computing resources - whether owned or leased - to mine crypto and other digital assets will be subject to an excise tax equal to 30% of the related electricity costs.

The tax is estimated to raise $3.5 billion in revenue over the next decade.

Crypto Mining And The Environment

Bitcoin has frequently been lambasted for its energy-intensive mining process. Five years ago, Nature Climate Change warned that Bitcoin mining alone could push global warming over the 2ºC catastrophic threshold in just 14 years if adoption rates matched those of other broadly used technologies. 

Nowadays, all the blame has shifted to fossil fuels thanks to the global energy crisis spurred by Russia’s war in Ukraine, while Bitcoin and cryptocurrency mining hardly get a passing mention.

But how much, really, is Bitcoin and crypto mining contributing to our climate crisis?

It’s a question worth pondering considering that scientists have warned that we have a mere 10-year window to act to stop this global phenomenon or risk permanent and irreversible damage to our ecosystems.

Ever-Rising Mining Rates

For some crypto buffs, critics who squawk at the vast amounts of energy supposedly consumed by crypto mining and how it contributes to climate change are little more than churlish, pedantic party poopers. 

In one camp are the PoW (Proof-of-Work) maximalists who argue that bitcoin is the “most secure public chain” as measured by hashrate, but denying that bitcoin is an energy hog.

In the other camp are crypto apologists (such as CoinShare) who concede that bitcoin and crypto mining are indeed power-hungry processes, but immediately go on the defensive by claiming that most of the energy is derived from renewable sources.

Bitcoin’s carbon footprint is all about how much electricity miners consume when trying to solve those arcane computational problems. 

The bad news: Bitcoin’s hash rate has increased exponentially over the past few years.

This suggests that Bitcoin and crypto mining do consume huge amounts of power, probably enough to warrant the wrath of environmentalists as we shall see shortly.

Total Hash Rate (TH/s)

The estimated number of terahashes per second the bitcoin network is performing in the last 24 hours

Source: Blockchain.com

Securing Crypto Networks Is Costly

By necessity, the most secure cryptographic networks such as bitcoin are also the most energy intensive since they rely on heavy resource consumption to defend their networks from malicious attackers. PoW projects, like bitcoin, rely on mining to secure their blockchains and require the hashing power to continue even after every coin has been mined. Less resource-intensive networks do not employ such rigorous processes and are, consequently, almost certainly less secure.

Mineable coins belong to the PoW category, of which CoinMarketCap lists several hundreds. These are the main culprits as far as energy guzzling is concerned. Non-mineable coins such as Ripple, EOS, Stellar, Tezos, NEO, and NEM are more energy efficient as they don’t require tons of energy to validate transactions and secure the network as their PoW brethren.

Another notable exception is ethereum.

Last year, Ethereum ditched the 'proof of work' model utilized in the mining process of most cryptocurrencies including bitcoin for a new one called 'proof of stake.'

This is how the ethereum team describes the radical makeover:

Proof-of-stake (PoS) is the consensus mechanism that Ethereum will use following The Merge. Ethereum is moving off of proof-of-work (PoW) to proof-of-stake because it is more secure, less energy-intensive, and better for implementing new scaling solutions. While it has always been the plan to transition to proof-of-stake, it is also more complex than proof-of-work, and refining the mechanism has taken years of research and development. The challenge now is to implement proof-of-stake on Ethereum Mainnet. This process is called "The Merge"

Ethereum claims the technological changeover will cut its carbon footprint by 99%.

Back to the million-dollar question: how much energy does bitcoin and crypto mining suck off our power grids every year?

A recent Economic Report of the President cites estimates by Goldman Sachs that suggest crypto mining accounts for more than 2% of U.S. power consumption, roughly the same as that used to power all residential lighting in the country or all of the home computers. The White House has rightly contended that the energy consumption tied to digital asset mining is “...very real and imposes very real costs.” Crypto-asset activity in the United States results in 25 to 50 Mt CO2/y, equivalent to 0.4% to 0.8% of total U.S. emissions. Apart from the obvious ecological burden, high electricity consumption by mining rigs designed to run non-stop also places considerable stress on the power grid.

The global figures are not any better.

The Cambridge Bitcoin Electricity Consumption Index has placed it at nearly 240 TWh. That’s about 1% of global electricity production, and enough to power Switzerland for one year and five months. The carbon footprint is ginormous, too--80 Mt CO2 per year, comparable to the carbon footprint of Romania. Mind you, that’s bitcoin only--not counting power consumption and carbon footprint of altcoins such as bitcoin cash, ethereum, litecoin, and monero among others.

Source: Cambridge Bitcoin Electricity Consumption Index

 The government says DAME tax is just one of several measures it has proposed to ensure “...the responsible development of digital assets, modernize their tax treatment, and mitigate risks to financial stability.’’

 There’s already a precedent here.

Last year, New York passed a law that imposes a temporary moratorium on new permits for fossil fuel power plants that perform cryptocurrency mining using the proof-of-work model.

By Alex Kimani for Oilprice.com

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