When Cryptomining Comes to Town: High Electricity-Use Spillovers to the Local Economy investigates how cryptocurrencies’ intensive electricity use implies higher prices for small businesses and households. Cryptomining, the process of clearing cryptocurrency transactions, uses large quantities of electricity. In proof-of-work cryptomining, miners compete against each other to solve complex mathematical puzzles, requiring vast amounts of computational power. The idea behind the process is that it allows any individual to become a cryptominer, removing the need for a central agent to validate transactions. As a result of this emerging technology, there has been a surge in firms running large cryptomines across the globe. Bitcoin mining alone now consumes 0.5% of global electricity. This high electricity consumption causes negative externalities like the carbon emissions resulting from electricity production and increased electricity prices for local economies.
The authors examine the second type of externality, aiming to measure the impact of cryptomining on higher electricity bills for small businesses and households. They study the relationship between Bitcoin prices and the electricity market in Upstate New York, and how cryptomining is putting upward pressure on prices. They find that cryptomining leads to households and small businesses in NY paying $240 million more annually on average. This implies that cryptomining could be inducing a $1 billion annual cost to U.S. households and small businesses. In China, the country with most cryptominers in the world, they also found a negative impact on the labour market as well as fixed asset investments. Although local governments can benefit from taxing cryptomining profits, their revenue is smaller than the negative externalities imposed on the residents. The results imply that proof-of-work cryptocurrencies’ advantages — the decentralized nature of validation, anonymity, lower transaction fees — need to be assessed in light of the negative consequences of the energy consumption inherent in the process.