coindesk.com
In its bid to marginalize the domestic crypto industry, the White House has unleashed financial regulators, deputized the bank sector, and generally harassed crypto firms here. On top of that, it is now trying to push through a de facto ban of mining in the U.S. with the Digital Asset Mining Energy (DAME) excise tax. The proposed levy would add 30% to electricity costs for miners, which would be enough to turn their economics upside down and force them to leave these shores.
CoinDesk columnist Nic Carter is partner at Castle Island Ventures, a public blockchain-focused venture fund based in Cambridge, Mass. He is also the co-founder of Coin Metrics, a blockchain analytics startup.
The tax sets an extremely dangerous precedent, as it singles out an industry that lawfully purchases electricity, holding the electricity buyers responsible for the carbon emissions of the underlying generation. This makes no sense. It’s not bitcoin miners’ responsibility to decarbonize the electricity they purchase – that falls to the architects of the grid. If the Biden admin can’t get the grid to be sufficiently green, it should focus on that rather than punishing an industry that buys less than a single percentage point of the electricity produced in the U.S. in a given year. Additionally, the proposed tax may not even be legal. Appellate attorney W. Aaron Daniel has argued convincingly that Bitcoin mining is protected speech under the First Amendment, and that a mining ban singles miners out unfairly, as New York State has done already.
Other industries don’t get held responsible for grid emissions this way, just politically disfavored ones like Bitcoin miners. If this precedent is set, any politically disfavored energy consumer will potentially be in the crosshairs. I could easily imagine the next DAME tax targeting>Cambridge University, but it’s somewhat dated and imprecise). The most popular other countries are, in rough order, China (yes, despite the ban, there’s about 17% of hashrate in China), Russia, Canada, Kazakhstan, Indonesia, Paraguay, Norway and Venezuela. We also know that Bitcoin mining directly finances the governments of Russia, Iran, Venezuela and North Korea. These regimes use Bitcoin mining for sanctions evasion, to turn their mineral wealth into cash. Attacking domestic miners in the U.S. hashrate simply means that other miners are more profitable on net, because their share of the pie is bigger.
Read more: Nic Carter - There's No Such Thing as High Fees on Bitcoin
Supporting the state coffers of these direct adversaries should hardly be a goal of the Biden administration, but that’s what the DAME tax would do.
The authors of this tax – I’m told the ringleader is Heather Bouchey of the White House Council of Economic Advisors – acknowledge that miners can freely move abroad, undermining their policy. But they seem to be laboring under the naïve delusion that governments globally will impose similar levies on Bitcoin miners. This is wishful thinking in the extreme. The Biden Admin claims that “China banned such activity completely in 2021,” but we know there is still meaningful Bitcoin mining in China. And the Biden Admin, which has fewer friends abroad by the day, can hardly expect other jurisdictions to move in lockstep with them. The U.S.’s loss is Russia’s, Iran’s, China’s, and Venezuela’s gain. Additionally, the Biden admin has repeatedly called for more transparency in terms of miner emissions and energy impact – they have clear access to this data if miners are based here in the U.S., but virtually no insight if these miners are domiciled in China or Russia.
And if you look at the emissions profile of these alternative domiciles for miners, they are almost all (with the exceptions of Paraguay Norway, and possibly Canada) characterized by a higher carbon intensity of generation than the U.S. American generation, in the aggregate, is 379 g/CO2e, versus 544 g/CO2e for China, 742 g/CO2e for Kazakhstan, 360g/CO2e for Russia, 623 g/CO2e for Indonesia, and 493 g/CO2e for Venezuela.
These numbers are only indicative, as in practice, mining in the U.S. is generally cleaner than the generic grid at the country level. There is considerable mining for instance in West Texas, which has copious amounts of wind and solar, for which there is insufficient transmission. Other hotspots of mining in the U.S. include hydro-powered mining in upstate New York, hydro in the Appalachians, natural gas/nuclear in Ohio and PA, and stranded flare gas in Wyoming, Montana, and the Dakotas. (Mining with otherwise-flared gas is actually carbon-negative overall).
As for the purported “costs” imposed by Bitcoin miners on local communities, that argument is highly dubious. Bitcoin miners are just>last winter and in summer 2022 in Texas, miners dialed down their consumption, so energy could flow back to ordinary households. It’s no wonder that Texas governor Greg Abbott has praised miners for their benevolent presence on the ERCOT grid.
Such is the flexibility of mining from a location perspective that a number of miners, like Iris Energy or Terawulf, are able to make the exclusive use of renewables part of their corporate mandate – something that virtually no other industry can match. And there are some miners like Aspen Creek that explicitly support the buildout of new, additional renewables as part of their mission. Any solar or wind installation it helps finance will provide decarbonized power to ordinary households too. This is hardly something the Biden Admin can complain about.
More generally, the Administration’s attitude, as revealed by the DAME tax, exposes its technologically regressive, de-growth agenda. Biden officials aren’t satisfied with Bitcoin miners using clean power, preferring to try and ban the industry entirely.
Bitcoin miners have the prospect to help stabilize increasingly renewable grids and even economically support new wind and solar installations. They can create a new model of location-agnostic datacenters that are co-located with renewable generation, rather than relying on the old hub and spoke model that requires costly transmission. Bitcoin miners are pioneering the model of bringing demand to the source of generation, but other industries will follow, like green hydrogen, fertilizer production, and eventually, other forms of compute.
Additionally, if the Biden Admin wants to carry out their “electrify everything” plan, which is a necessary component of decarbonization, tit will need multiples more generation than we have today. Someone will have to pay for this. How, then, is a novel source of demand for electricity, especially renewables, considered a bad thing?
The Biden Administration’s rejection of a buyer of energy that is location-agnostic, interruptible, and uniquely suited to purchasing new renewable sources of power is totally at odds with its own stated objectives for the transformation of the grid. As for the tax, it doesn’t achieve any of its stated aims, and empowers America’s enemies. Clear-eyed policymakers should reject it outright.
Thanks to Ethan Vera for his contributions to this article.