if you are mine digital resources—like cryptocurrency—your job could soon get a bit more expensive.
The White House has announced plans ask crypto miners to pay a premium for power consumption. from President Biden proposed budget for fiscal year 2024 includes a Digital Asset Mining Energy Tax (DAME) equal to 30% of the electricity used in crypto mining.
Digital asset mining is a process for validating transactions on a network. Since no one controls the network, no centralized account automatically records debits and credits. Shared user records are added to a distributed ledger, the virtual equivalent of the good old green ledgers. Verifying those transactions is essential and requires high-powered computers to perform complicated calculations quickly. But there is a reward: if you are the first to enter a new “block” in the permanent transaction log, you will receive a reward, usually newly minted crypto coins.
The combination of these complex formulas and the race to be first means that success often depends on the use of high-powered computers. The result is that miners can use a lot of energy. The increase in energy consumption, the administration claims, results in adverse environmental effects, including air and water pollution, and increased energy prices for those in the community who share an electrical grid with miners. And, they argue, those environmental impacts exist even when miners use existing clean energy.
The solution? A special tax on the use of electricity by miners of digital assets. Under the administration’s proposal, any company using computing resources, whether owned or leased, to mine digital assets would be subject to a special tax equal to 30% of related electricity costs.
To calculate the tax, companies would need to report the amount and type of electricity used, as well as the value of the electricity. Those who produce or purchase power off the grid would be subject to tax based on an estimate of electricity costs.
The tax would not take effect immediately. Starting in 2024, the tax would be applied gradually over three years: 10% in the first year, 20% in the second, and 30% in the third.
The tax sounds high, but the administration believes it is justified. in the recent Economic Report of the Presidentcite Goldman Sachs estimates suggesting that crypto mining accounted for more than 2% of US energy consumption as of early 2022. The report also notes that the amount of electricity used to mine bitcoins in the US is all computers home or residential lighting in the country.
Not all digital asset mining uses the same amount of energy. For example, proof of work, the race to be first, tends to have more power than proof of stake, which uses specific miners to validate transactions. According to the president’s report, Bitcoin
Still, the White House says the energy consumption linked to mining digital assets is “very real and imposes very real costs.” In addition to pollution and higher prices, running a power grid at full capacity without stopping can lead to failures in infrastructure not designed for such high-intensity use.
And as old machines burn down (crypto mining hardware can become obsolete every year and a half or so), they become “e-waste,” resulting in harm to human health and the environment. It’s the same idea as throwing away your cell phone but on a larger scale. Digiconomist has estimated that a single bitcoin transaction can generate more e-waste than two iPhones (but less than one iPad).
A state takes action
As prices rise and concerns about the environmental impact of crypto mining mount, at least one state has taken steps to try to curb it. Last year New York passed a law that imposes a temporary moratorium on new permits for fossil fuel power plants hosting proof-of-work cryptocurrency mining: The law could deter startups from moving to the Empire State. While some companies have raised concerns about the new law, many environmental groups are hopeful other states will follow suit.
The White House saysHowever, that a national policy is needed to “ensure that crypto mining is not simply pushed from one local community to another.” The DAME tax is just one of the efforts proposed by the White House to ensure “the responsible development of digital assets, modernize their tax treatment, and mitigate risks to financial stability.” the tax is My dear to raise $3.5 billion in revenue over ten years,