The Digital Asset Mining Energy (DAME) tax introduced by the Biden administration in May 2023 is intended to serve the United States’ pro-environment agenda by taxing crypto mining activities. A new study by think tank Competitive Enterprise Institute compares greenhouse gas emissions by major industries – Cryptocurrency mining is far behind several mega industries.
Biden’s Bad Plan
Several global industries including but not limited to chemicals, iron and steel, cement, consume over 2,500 terawatt per hour (TWh) combinedly every year. The study notes, “When placed in context, the energy consumption of the cryptocurrency industry is unremarkable and non-concerning.” Notably, the crypto mining industry, like many other industries, is advancing towards renewable energy sources to mitigate carbon emissions.
Attack on cryptocurrencies might be a part of “a larger government agenda to punish electricity use.” Cryptocurrencies which are based on the Proof-of-work (PoW) algorithm are relatively more energy intensive in terms of production (minting). Presently, Bitcoin (BTC) is the largest cryptocurrency leveraging this mechanism. Furthermore, being a new entrant makes this sector an easy target for the government to further its environment protection goals.
Gathering crypto-related data is a difficult task due to scarcity of associated data aggregators. However, Statista, Cambridge Centre for Alternative Finance (CCAF), and Digiconomist do provide insights over Bitcoin’s data consumption. According to CCAF, BTC consumes nearly 149 TWh of energy, more than what nations like Belgium or Czech Republic uses annually.
A study by a digital asset and blockchain company shows that data centers of the largest 100 banks eat up 264 TWh annually, similarly, the copper industry consumes 167 TWh every year. Both the estimates surpass that of Bitcoin. Moreover, one BTC transaction uses nearly 700 kilowatt per hour (kWh) of energy while 100K VISA transactions are far less consumers of electricity with only 148.63 kWh.
Furthermore, the report calls the DAME tax “Biden’s bad idea.” It notes, “Taxing the electricity use of a single industry sets a terrible precedent that suggests politicians should be free to make scapegoats of politically disfavored industries.” It further reads, “DAME tax’s core rationale that cryptominers do not ‘pay for the costs they impose on others’ applies to all industrial, commercial, and residential consumers of electricity.”
Touching on potential benefits, the study notes that cryptocurrencies offer distinct benefits including cross-border transactions and enhanced financial privacy. It also mentioned stablecoins which the market investors use to avoid being dragged by market volatility. However, one such project called Luna collapsed when its stablecoin, UST, depegged from the United States dollar.
Another topic of the report includes the proof-of-stake (PoS) algorithm used by blockchains like Ethereum (ETH) which uses comparatively less energy. The DAME tax may unintentionally favor PoS-based crypto assets. In September 2022, Ethereum merged its operations with Beacon Chain in an event called The Merge. The move shifted the blockchain from PoW to PoS which consequently reduced the network’s carbon emissions by 99 percent.
