President Biden just revealed new plans for the White House to persuade congress into passing a 30% tax increase on the electricity used for cryptocurrency mining. This comes as part of the many pushes he has made in the fight against climate change. Biden’s reasoning for the tax increase is that crypto mining proves to be harmful to society through the amount of electricity it uses. Should this pass congress, it is likely that we will begin to see some major changes in the whole crypto industry. Today, we will look more into why this tax is being proposed, and the effects it might have on the crypto industry.
What is crypto mining?
You may have heard the term crypto mining before, but what exactly is it? Crypto mining is one of those terms many people simply assume you understand, but in reality, not everyone learns what it really is. While the process of crypto mining is a very complex one, understanding how it works is rather simple.
In order to fully understand crypto mining, it’s necessary that you know what the blockchain is. The blockchain is the technology cryptocurrencies use to verify one’s ownership of their cryptocurrency. It is a secure leger that doesn’t require the use of any third-party, but rather uses keys for people to access their currency.
So where does mining come into play? In order for the blockchain to work successfully, it’s necessary that one’s assets are able to be verified. This is done through a series of complicated mathematic calculations. After completing one of these calculations, the coin in question is verified and in addition to this, the miner is rewarded with another coin. This is what makes crypto mining as rewarding as it is.
What makes crypto mining harmful?
After learning what mining cryptocurrency is, you might now ask what makes it so harmful? The answer to this question comes from the very nature of crypto mining. As we mentioned before, in order to verify a coin on the blockchain, complicated mathematic calculations need to be solved. These equations are what makes the blockchain so secure, but they also require a large amount of energy to be completed. It is also necessary for one to have a rather large amount of dedicated computing power in order for mining to be profitable.
As a result of this large need for energy and computing power, crypto mining can be very harmful to the environment. The White House listed several figures that show the sheer amount of energy used by crypto miners. The amount of energy used for crypto mining is comparable to the amounts used for powering all of the country’s home computers or lighting. In addition to this, there is quite a bit of negative spillover that can occur as a result of excessive mining.
What effect would this tax have on the crypto industry?
Because mining is such a big part of the crypto industry, something like a 30% tax increase on the electricity used for it could be devastating. The crypto industry is certainly no longer at the peak it reached a couple of years ago. Less profits on mining cryptocurrency is enough of of a reason for many miners to quit the industry as a whole. This was made very apparent when Ethereum made it impossible for one to mine the currency, causing it to drop significantly.
Cryptocurrency is still at the early stages of its life, so it isn’t bizarre to think that a tax like this could be the end of its life. We have previously written an article on the state of Bitcoin, the largest cryptocurrency and how even though it isn’t doing as well as it once was, it still had the potential to recover. Because this tax will affect cryptocurrency as a whole (or at least minable cryptocurrency), it is unclear what the future of cryptocurrency will look like should this tax increase pass.