President Joe Biden has proposed a tax on cryptocurrency mining to address economic and environmental concerns, but experts are skeptical about its implementation. The proposal, named Digital Asset Mining Energy (DAME) excise tax, would impose a tax of up to 30% on the electricity costs of crypto miners, with increments of 10% over three years starting January 2024. The tax is expected to raise around $3.5 billion over ten years and aims to combat climate change.
Crypto mining firms currently do not pay for the full cost they impose on others, such as local environmental pollution, higher energy prices, and the impacts of increased greenhouse gas emissions on the climate. The DAME tax aims to encourage firms to take better account of the harms they impose on society. The President’s Council of Economic Advisers estimates that crypto mining in the US consumed as much electricity in 2022 as all the country’s home computers or residential lighting.
Biden’s proposed tax on crypto mining would impact bitcoin more than other cryptocurrencies as it uses proof-of-work (PoW) as its underlying mechanism for achieving consensus. Other networks, such as Ethereum and BNB Chain, use proof-of-stake (PoS), which uses less energy. The crypto industry, however, claims that a significant portion of crypto mining relies on sustainable energy sources.
One of the challenges with implementing any crypto-related tax policy is that the industry is global. If taxes on crypto mining in the US are too high, miners could move to a more favorable jurisdiction, especially as the limited supply of bitcoin increases competition among miners and the rewards for mining bitcoin diminish. While the administration’s plan acknowledges the risk of miners moving abroad, it does little to prevent mining operations from shuffling between states in search of the lowest tax rates.
To ensure that crypto mining is not merely pushed from one local community to another, a national policy is needed, according to the CEA. New York, for example, banned bitcoin mining operations that use carbon-based energy last year. China also banned crypto mining in 2021. While proponents of cryptocurrency tout its benefits, such as enhancing financial inclusion, security, and transparency, the CEA said crypto’s broader social benefits have yet to materialize.
