The White House has proposed a Digital Asset Mining Energy (DAME) excise tax on proof-of-work (PoW) blockchain mining operations due to the negative impact of their high energy consumption on the environment, quality of life, and electricity grids.
According to the White House, the DAME tax has the potential to generate significant revenue of up to US$3.5 billion over a decade. However, even though miners already bear considerable expenses such as electricity and hardware upgrades, the suggested tax could lead to the closure of certain mining operations. This is because these businesses are already facing challenges due to the declining market prices of digital assets, which are falling below the necessary levels for profitable mining.
The Impact of PoW Mining
The White House’s proposal highlights the increasing public concern over the environmental impact of PoW mining, which is considered wasteful, polluting, and of little profit or benefit to anyone other than the operators themselves. The PoW method for blockchain mining operations, specifically the one employed by Bitcoin, has received criticism for its negative impact on communities outside the industry.
Quoting the White House press release, it causes “negative spillovers on the environment, quality of life, and electricity grids where these firms locate across the country.” Furthermore, the industry’s pollution disproportionately affects “low-income neighborhoods and communities of color” and increases prices for everyone.
Bitcoin and the Environment
Bitcoin’s energy consumption, used for mining and its transactions, has been a significant concern. According to a Cambridge study back in 2021, the Bitcoin network consumes more electricity annually than the entire country of Argentina. Furthermore, its energy usage is equivalent to the total energy consumption of the United Arab Emirates.
The Foreseen Impact of DAME Tax
The DAME tax is intended to hold mining companies accountable for the detrimental effects their activities have on the environment and society. The White House has suggested that mining companies should bear the full expenses of the negative externalities they cause, such as local pollution, higher energy prices, and the adverse effects of greenhouse gas emissions on the climate.
The proposed tax might force certain mining operations to shut down. Some may even contemplate relocating to other countries to avoid tax and regulatory issues.
Is Proof-of-Work Actually Bad?
The answer to this question is not clear-cut. While the White House’s concerns about PoW mining are valid, the cryptocurrency industry is not the only industry that consumes a disproportionate amount of energy. There are many other industries that consume significantly higher amounts of energy while seeming to deliver little benefit to the general public. However, there is a need for the cryptocurrency industry to find ways to reduce its energy consumption and be more environmentally friendly going forward.
Alternatives to PoW Mining
Suggestions have been made in the blockchain community for alternative methods of transaction processing, such as proof-of-stake (PoS) as a substitute for proof-of-work (PoW) mining. While PoS is believed to be less energy-intensive than PoW, it poses challenges in terms of security and regulation as it is more difficult to determine the identity of “miners.” Another possible solution proposed by Bryan Daugherty, the BSV Blockchain Association Global Public Policy Director, involves using a more scalable PoW blockchain, such as the original Bitcoin (BSV), which can reduce carbon emissions by implementing an unbounded block size every ten minutes.
Conclusion
The DAME tax proposed by the White House could discourage PoW mining and encourage the cryptocurrency industry to find ways to reduce energy consumption and be more environmentally friendly. While the concerns raised by the White House about PoW mining are valid, the cryptocurrency industry is not the only industry that consumes a disproportionate amount of energy.
Nonetheless, there is a pressing need for the industry to find ways to reduce its energy consumption and be more environmentally friendly. Alternative solutions such as the implementation of a more scalable PoW blockchain or the shift to PoS may provide a solution to the high energy consumption of PoW mining.
Giancarlo is an economist by profession with a career spanning nearly two decades. His professional journey has seen him assume vital roles in various government and private organizations such as the Department of the Interior and Local Government (DILG), the National Economic and Development Authority (NEDA), Megaworld Corporation, and the China Banking Corporation in the Republic of the Philippines.
In addition to his civic and corporate pursuits, his forward-thinking approach has led him to manage several prominent websites in the banking and finance sector, notably the Australia-based RateChoice, where he immersed himself in the world of emerging financial technologies and where he found particular interest in Bitcoin all the way back to 2013.
Prior to his addition to Blockzeit’s dynamic team, he held an essential role as Project Manager for initiatives encompassing blockchain, stablecoin, mining, special economic zone development, and iGaming. This noteworthy chapter in his career unfolded under the auspices of InPlan Consultancy Services, Inc., the think-tank of IMPERO Consortium Management Corporation headquartered in Manila, Philippines, and Tokyo, Japan. InPlan, led by a distinguished retired Cabinet member of the Philippines, collaborates directly with IMPERO’s core management team, contributing to strategic planning and business development endeavors.
