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Will the USA Ban Bitcoin Mining?

By Evan Jones05/19/2023

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On May 2, 2023, the US announced a new proposal for the 2024 fiscal year, including something called the Digital Asset Mining Energy (DAME) tax. Though it still has to pass through congress, the proposal is already generating a lot of controversy within the US crypto sector, while also shining a light on a lack of awareness by policymakers. Let’s discuss the newly proposed tax, critique some points, and assess whether the USA will ever ban Bitcoin mining. 

Digital Asset Mining Energy (DAME) Tax

The DAME tax is fairly simple; if passed, mining firms would face a tax equal to 30 percent of the cost of the electricity they use for mining cryptocurrencies such as Bitcoin (BTC), Dogecoin (DOGE), and Litecoin (LTC).

Ostensibly, the US government implies that this tax will make crypto mining firms “pay for costs they impose on others”. What they’re referring to here is increased costs for electricity in areas where there is considerable mining activity in addition to emissions and pollution. 

“Currently, cryptomining firms do not have to pay for the full cost they impose on others, in the form of local environmental pollution, higher energy prices, and the impacts of increased greenhouse gas emissions on the climate.”

Let’s see how much of their statement holds water.

Policy Making Misstep? Critiquing the Proposal

A large portion of the argument made by the US government here is that they’re helping to fight climate change due to the large amount of energy consumed by mining operations. While that argument may have been valid two years ago, the crypto sector moves at a much faster rate the regulatory policies do. 

In September 2022, Ethereum, the second largest digital asset by market cap, switched from proof of work (mining) to proof of stake (no mining), immediately cutting its energy consumption by 99%. Of course, this isn’t noted anywhere in the government release.

Not only that, but the global Bitcoin mining industry’s sustainable electricity mix has improved to 58.9% and remains one of the most sustainable industries globally. For context, according to the U.S. Department of Energy, only about 20% of all U.S. energy is derived from sustainable sources. So, Bitcoin mining uses more sustainable energy than the US grid as a whole, something they obviously aren’t going to mention.

They also argue that Bitcoin miners take energy away from regular consumers. But, in Q4 2022, 14 Bitcoin Mining Council (BMC) members reported 2.5 GW worth of Bitcoin mining operations participating in energy reduction/restriction programs and 1,280 GWh of energy  subsequently being released back to local grids during times of peak demand. The majority of this curtailment is within the United States and Canada. Through these programs Bitcoin mining is proving itself in numerous regions as a powerful grid stabilizer and buyer of excess energy.

One of the other points they make is that local businesses and households end up having to pay more money for their electrical bills than they would if these mining firms weren’t there. While this is true, context is again key. They point to a study that shows that “small businesses and households paid $79 million and $165 million extra annually in Upstate NY (or $1B nationally) because of cryptomining demand-for-electricity effects.” When presented in that manner, it seems like a lot of extra money. When you actually divide the national figure out by the number of households (131 million in 2022), it works out to a whopping $7.63 more per year, per household. Not even $1 a month. If you add in all the small businesses, it’s even less per.

Is saving your country’s residents $7 a year worth potentially having crypto innovation flee to other nations? The US government notes that while that is a possibility, other countries are also increasingly moving to restrict crypto asset mining. They note that China banned such activity completely in 2021, as have eight other countries. Somewhat ironically, most of the countries that have banned crypto mining or crypto in general tend to be dictatorships or are politically unstable.

So Will the US Ban Crypto Mining?

Though the US isn’t outright banning crypto mining with the DAME tax proposal, they’re certainly not fostering a welcoming environment. Small to midsize mining operations are likely to be unable to afford the tax and will likely either have to close up shop or move their operation to a more friendly jurisdiction. Larger firms such as Cipher Mining will have to decide if it’s worth operating in the US if the proposal is passed, as a 30% tax will certainly eat into revenue. 

It seems unlikely at this time that the US will outright ban crypto mining, but these types of proposals lean towards shunning the technical innovation presented by blockchain technology rather than welcoming it. The US may decide that it’s more important to protect their fiat currency USD than to have technical innovation, essentially picking status quo over change. The reality is that the USD gives the US a ton of power over the majority of the world’s financial decisions because it’s the reserve currency, and there seems little chance that they’d like to relinquish that control. 

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bitcoin
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guide
mining
Evan Jones

Author

Evan entered the crypto scene in 2017, attracted to the many disruptive possibilities that blockchain could have on current world systems. He has a keen interest in decentralized services, payment processing, and viable NFT use cases such as event ticketing. He spends his days writing with his dog Kobe under his feet, if not on his lap.

Further reading

What’s the Future of Cryptocurrency? image
What’s the Future of Cryptocurrency?12/09/2022
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How to Predict Cryptocurrency Prices12/08/2022
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