The economic cost of cryptomining
When cryptominers come to town, local residents and small businesses pay a price in surging electricity rates.
That’s because “proof-of-work” cryptocurrencies, such as Bitcoin and Ethereum, demand brute computational power to solve the complex math problems required to verify transactions on a blockchain. Cryptomining server farms guzzle electricity by the megawatt.
A new Berkeley Haas working paper—the first to quantify the negative economic impacts of cryptomining on local communities—estimates that the power demands of mining operations in upstate New York push up annual electric bills by about $79 million for individuals and $165 million for small businesses.
“Small businesses operate on very thin margins, so I don’t think they’d be happy to pay for the energy that cryptominers are using,” says Asst. Prof. Matteo Benetton, who co-authored the paper with finance colleagues Assoc. Prof. Adair Morse and Giovanni Compiani, now at Chicago Booth.
Miners choose northern locales to keep servers cool and are lured by abundant, cheap power—sometimes with discounts. While those excess costs are slightly offset by tax revenue of about $40 million, the miners’ massive server farms employ just a handful of people, and profits aren’t local. “The real profits from bitcoin mining can be moved from upstate New York to Italy or Colombia or China in a second,” Benetton says.