Power-hungry cryptominers push up electricity costs for locals

Photo illustration of a hand holding a bitcoin in front of a power plant
Photo: STRF/STAR MAX/IPx via AP Images

When cryptominers come to town, local residents and small businesses pay a price in surging electricity rates.   

A new Berkeley Haas working paper estimates that the power demands of cryptocurrency mining operations in upstate New York push up annual electric bills by about $165 million for small businesses and $79 million for individuals—with little or no local economic benefit.

“Small businesses operate on very thin margins, so I don’t think they’d be happy paying for the energy that cryptominers are using,” said Asst. Prof. Matteo Benetton, who co-authored the paper with Assoc. Prof. Adair Morse and Asst. Prof. Giovanni Compiani, now at the University of Chicago’s Booth School of Business. “And the profits do not stay local: Bitcoin mining profits can be moved from upstate New York to Italy or Colombia or China in a second.”

While cryptomining has been criticized for its outsized environmental impact, the paper is the first to quantify its negative economic impacts on local communities. Massive cryptomining server farms employ just a few people yet guzzle electricity by the megawatt. That’s because “proof-of-work” cryptocurrencies, such as Bitcoin and Ethereum, require brute computational power to solve the complex math problems required to verify transactions on a blockchain. 

Bitcoin mining alone was estimated to consume 0.5% of global electricity in 2017. From Mongolia to Montana to Washington, cryptominers have flocked to northern locales where it’s easier to keep servers cool. They’re also lured by cheap, abundant power supplies—sometimes with discounts on electricity. 

Impacts upstate

The researchers analyzed upstate New York, where Niagara Falls has fueled inexpensive hydropower and rural communities like Plattsburgh have borne an outsized impact from cryptomining operations that moved into former industrial sites. By looking at surges in Bitcoin prices and electricity demand curves, the researchers estimated that mining pushes up monthly electric bills about $8 for individuals, and $12 for small businesses. 

“That adds up to $250 million just for upstate New York for a year, and if you think of scaling that up for the U.S., we estimated it’s about $1 billion per year—many times that globally,” said Compiani. “These are warehouses full of computers and they only require one or two IT people to run the whole operation, so it’s unlikely that it  brings jobs or stimulates the economy.”

They did find that local governments were able to capture some increased tax revenue—most likely in the form of real estate taxes—amounting to about $40 million per year. That may be why some localities have offered discounted power, Compiani said. However, the increased tax revenue only offsets about 15% of the increased costs to locals.

Chinese price constraints 

The researchers also looked at China, where electricity prices are constrained by the government rather than fluctuating with demand. While the data available was less detailed, they found evidence that mining operations seemed to crowd out other potential industries that may have employed more people, slightly depressing local economies. There is also anecdotal evidence that the increased power demands with constrained prices has led to supply shortages, rationing, and blackouts. 

Implications for data centers

While the paper focused only on the impacts from cryptomining, the researchers noted that large data centers—which are proliferating from the growing processing demands of cloud computing, AI, natural language processing, and quantum computing—may generate many of the same impacts for local communities. 

Read the full paper: “When cryptomining comes to town: High electricity-use spillovers to the local economy.”

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