Monday, May 8, 2023

A YIMBY approach to bitcoin mining

The Biden government has adopted a NIMBY approach to bitcoin mining. But I think YIMBY (with a twist) would be a better policy.

In an attempt to have U.S. crypto miners pay "their fair share of the costs imposed on local communities and the environment," President Biden has recently proposed a tax on miners equal to 30% of the cost of the electricity used. The White House believes that a national tax would be better than leaving it up to individual states, because that would ensure that mining is "not simply pushed from one local community to another."

The inconsistency here (and the White House seems to recognize it) is that the tax will push miners to "relocate abroad," often to places with "dirtier energy production." So on net, Biden's NIMBY approach may actually increase the fallout from bitcoin and other mined coins (a list that includes not only bitcoin but litecoin, zcash, and dogecoin).

The White House tries to get out of this contradiction by listing other countries that are moving to "restrict crypto asset mining," including China, so presumably it thinks that if everyone adopts the same NIMBY approach, then mining will effectively be eradicated. But I'm not buying that argument. There will always be some bloc of countries willing to host miners.

If the Biden government is genuinely concerned about the effects of crypto mining, it should scrap its current plan and adopt a YIMBY approach to crypto mining. But it should twin this YIMBY approach with an environmental handling fee on end-users of mined coins.

Widespread crypto mining is a symptom of something deeper: casual crypto speculation. Speculators drive up the prices of bitcoin and other mined coins, which pulls mining capacity online. Instead of attacking the symptom, like Biden proposes, better to go straight to the root, the actual gambling. When faced with a tax or handling fee on purchases of mined coins (unmined ones wouldn't be affected), Americans would opt for alternative bets. This would induce the global prices of bitcoin, dogecoin, zcash, and litecoin to fall. Lower prices would in turn push the mining industry to shrink, not only only in the U.S., but all over the world.

A mining industry would still exist, albeit on a smaller-scale. This is where YIMBY comes in. For efficiency's sake, the much slimmer mining industry should be allowed to operate wherever it sees the most opportunity. If that happens to be the U.S., then so be it. Leave it be.

The Biden administration claims that it is concerned about the environmental costs of mined crypto. Alas, its NIMBY policy will only lead to the same amount of mining, except dirtier and less efficient. With YIMBY and a tax, not only is mining reduced; what's left is the better kind of mining.

No comments:

Post a Comment