Crypto Miners Owe Federal Government Money, Says Watchdog Report

Cryptocurrency miners operating on public lands have not paid their dues, according to a new report from the federal watchdog group, the Office of the Inspector General for the Department of the Interior (DOI OIG). The regulatory documentpublished this week and dated Monday, highlights the lack of clear policy around crypto mining that has left the US government and its country losing.

Fossil fuel companies and other resource extraction industries mine, in part, on federal lands through a system of permits and leases. As part of the scheme, the state receives kickbacks through royalty payments on all oil and gas extracted (previously 12.5% ​​for land-based operations’ income, but recently raised to 18.75% by the Biden administration).

But apparently some of these oil and gas corporations operating on public lands have set up crypto side chains, which are not taken into account in the royalty payments. The DOI OIG identified at least one gas company that siphoned off fuel obtained from a federal lease to run servers racing to mine blockchain money, after the agency was alerted by the Colorado Oil and Gas Conservation Commission. “Put another way, these activities generate revenue for private companies that use federally owned gas, sometimes without the lessee paying royalties,” the report said. “As a result, these activities may result in the loss of federal or tribal mineral revenues.”

In addition to federal fuel being used without federal permission (and without agreed pay), there are also potential safety concerns for the country and the people involved in operating these cryptomining units, the DOI OIG states.

“Cryptomining itself requires physical infrastructure and can have a significant effect on the country where it occurs,” the report notes. “Cryptomining units include large generators, cooling equipment and a significant number of data arrays contained in mobile facilities. These facilities operate constantly and require enormous amounts of energy.” And DOI OIG is certainly not wrong. Production value on the blockchain is energy demanding and dirty job. Actual crypto mining uses even more energy than the process of actual mining things off the ground, according to a 2018 study.

Additionally, the watchdog group’s report notes that the server systems it documented in Colorado are mobile devices — making it easy for fossil fuel companies to move their crypto operations and avoid disclosure to the Bureau of Land Management or other agencies. Without proper declaration and approval, these mining units may be inadvertently placed in sensitive areas, cause damage to infrastructure, and may not be adequately insured against accidents, the DOI OIG wrote.

“Overall, we identified the use of federal gas to support cryptomining operations as an emerging issue with potential effects on federal lands and resources,” the report said. To address the issue, the inspector general’s office recommended that the Interior Department issue official guidance on how to handle crypto operations going forward, “addressing potential land use issues, security risks, environmental impacts and royalty collection requirements.”

In response, the DOI told its OIG that it would “take steps to include encryption threat detection in future inspector and investigator training,” along with other measures, including notifying the agencies and holding a meeting. But for the OIG, these actions are not quite enough. “We consider this recommendation resolved but not implemented,” the watchdog wrote. – We will continue to monitor [DOI’s] actions to determine whether it has communicated clear and consistent guidance.”