A proposal by the US government to impose a tax on cryptocurrency miners aims to mitigate the significant environmental impact of the industry. However, experts caution that this measure may merely relocate the issue rather than resolve it.
Cryptocurrencies like bitcoin rely on a security process known as mining, which entails complex computations and substantial electricity usage. Recent data from the University of Cambridge indicates that bitcoin alone contributes to 0.69 percent of the global electricity consumption.
In the United States, it is estimated that 2.3 percent of the country’s electricity consumption in 2023 was attributed to 137 mining operations. Moreover, a 5 percent surge in electricity prices in Texas has been directly linked to the heightened demand from miners. President Joe Biden’s proposed budget for the fiscal year 2025 highlights the adverse environmental impacts of cryptocurrency mining, noting potential environmental justice implications and increased energy costs for those sharing an electricity grid with digital asset miners.
In response, the budget suggests implementing a 30 percent tax on miners’ total energy expenses, covering power from the grid as well as electricity self-generated by miners. The tax would be phased in, starting with a 10 percent levy in 2025, increasing to 20 percent in 2026, and reaching 30 percent in 2027. A similar tax proposal by Biden in the previous year failed to become law due to challenges in the House of Representatives and Senate, obstacles that the current attempt also faces.
This development coincides with bitcoin reaching a record high above £56,000 in recent weeks, prompting strong opposition from the cryptocurrency sector. Dennis Porter from the Satoshi Action Fund criticized the move as a “back door ban” on mining and pledged to vehemently oppose what he perceives as targeted discrimination.
When New Scientist reached out to several major bitcoin mining companies for feedback on the proposed tax, Block Mining, Frontier Mining, and HIVE Digital Technologies did not respond, while TeraWulf declined to comment.
However, imposing taxes on the industry may lead to unintended repercussions, warns Alex de Vries from VU Amsterdam in the Netherlands. He points out that when China prohibited bitcoin mining in 2021, companies relocated their operations to countries like Kazakhstan, where over 90 percent of the electricity supply is generated from fossil fuels, notably coal.
De Vries emphasizes that taxing miners may not effectively address the issue, as mining activities are highly mobile and adaptable to different regulatory environments and energy costs worldwide. He underscores the global nature of climate change, highlighting the importance of reducing emissions from miners on a global scale. De Vries advocates for a shift in bitcoin’s operations akin to Ethereum, which eliminated mining and drastically reduced its energy consumption by 99.99 percent. However, he notes the lack of interest among most bitcoin developers in pursuing such changes.