There have been rivers of ink written about all aspects of cryptocurrency ever since that fateful day when the Bitcoin Whitepaper was published. Nevertheless, an issue that has repeatedly been thrust into the spotlight (and understandably so) surrounds energy and environmental sustainability. Now the White House itself is adding fuel to the fire through its DAME tax proposal, whose goal is, and we quote: “to make crypto miners pay for costs they impose on others.”
How, you ask? By phasing in an additional 30% tax penalty for cryptocurrency mining companies on all the energy they use in this process. According to the White House, this “exemplifies the President’s commitment to address both long-standing national challenges as well as emerging risks—in this case, the economic and environmental costs of current crypto-asset mining practices.” The idea is simple: Bitcoin mining uses a lot of electricity; this consumption drives electricity prices up; which is bad for anyone unfortunate enough to share a grid with a cryptocurrency mining company.
It appears that the White House has been forced to by their own report, which estimates the total energy consumption for Bitcoin mining in 2022 at an eye-watering 50 billion kilowatt-hours (in fact, the estimate places consumption anywhere between a low of 30 billion kWh and a high of 60 billion kWh). That’s more power consumption than all operating computers in the United States combined—and within the margin of error of the nationwide electrical consumption for such a basic necessity as lighting.
It’s also more energy than Americans consume through their TV sets, and here it is, in a nice graph:
Let’s get this straight from the start: public and private lighting is definitely (and arguably) more important than Bitcoin mining.
However, some arguments favoring the proposal appear to be mired in inconsistencies. When Intel announced its “Bonanza Mine” cryptocurrency mining chips, we took a relatively detailed look at Bitcoin’s global power consumption and the utility that can already be mined from it: anyone who has profited can attest to its utility; anyone who sold something to someone and got paid in Bitcoin can attest to its usefulness; so can anyone who crossed a disputed border carrying their wealth invisibly, or the citizens of El Salvador, where Bitcoin is legal tender. I would be interested to know what process the White House used to quantitatively analyze cryptocurrency applications’ social benefits before concluding that they “have not yet materialized.”
There is also the question of how much of Bitcoin’s energy consumption actually comes from carbon-intensive sources; according to the Bitcoin Mining Council (BMC), a global forum of mining companies representing 48.4% of the worldwide Bitcoin mining network, it is estimated that in the fourth quarter of 2022, renewable energy sources accounted for 58.9% of the electricity used to mine bitcoin – against an estimated 36.8% per Q1 2021.
It will be interesting to see what comes out of this bill. First, a 30% tax on cryptocurrency mining companies would drive most of them out of business, resulting in a concentration of hash power in the hands of the few firms with strong enough finances to stay afloat. That would be terrible for Bitcoin, whose network security requires processing power to be distributed, not concentrated. We wouldn’t go so far as to say that Bitcoin Core developers would be open to changing Bitcoin’s security model from Proof of Work (the reason for the monumental energy consumption) to Proof of Stake (Ethereum made this transition through the merger, basically cutting its energy consumption during transaction validation by over 99%). But Ethereum is not Bitcoin, and Bitcoin is not the only Proof of Work cryptocurrency out there.
