Ilya Rekhter: Proposed tax on Bitcoin mining is bad business

Remember all the talk about banning gas stoves back in December? Forbes summarized it best with its article headlined, “Yes, chefs, the government is coming for your gas stoves.”

Consumers and politicians from both sides of the aisle pushed back, saying that “This is a recipe for disaster. The federal government has no business telling American families how to cook their dinner” and “It is about telling the American people the federal government knows best.”

The good news is that the commission chair backtracked, and our gas stoves appear to be safe for now. The bad news is that the government appears to be back with another infringement on economic freedom: a proposed 30% extra tax on electricity used for Bitcoin mining.

Innovation vs. taxation

For those who are not familiar, Bitcoin mining is the process of validating transactions on the Bitcoin network by solving complex math equations. In return for this work, miners are rewarded with a certain number of Bitcoins. The power consumption for this process is no joke, which is why the proposed 30% tax will effectively force all American-based companies overseas.

Bitcoin and the Bitcoin mining industry will continue to grow regardless of U.S. policy, only with countries like Paraguay and Russia taking our place as market leaders. Imagine if a similar tax was levied on tech startups in the 1990s because computers used too much electricity. The internet would have still prevailed, but Silicon Valley might have ended up in Moscow instead of San Francisco.

Rebuilding rural communities

While Bitcoin mining does use a lot of power, energy consumption doesn’t tell the whole story. Bitcoin miners are incentivized to seek out cost-effective energy sources, which means that setting up shop in a major city would be impractical due to competition with office buildings and millions of residents. As a result, many miners choose to invest and operate in rural areas, where once-prosperous industries have since declined, leaving behind excess energy resources.

In fact, some states have already recognized the economic benefits of Bitcoin mining and have passed so-called “right to mine” bills to protect mining businesses from discriminatory electricity rates. In recent months, Missouri, Montana and Mississippi have all passed these bills with bipartisan support. Indiana, which prides itself on being a business-friendly state, should follow suit.

Leading the transition to sustainable energy

Additionally, many mining companies are already sourcing a majority of their energy from renewable sources and are actively accelerating the transition to sustainable energy by serving as a buyer of first resort for new projects. At my company, Megawatt, we specifically selected our mining site because it was near a wind farm and used more than 85% carbon-emission-free energy.

While not every mining company may be as committed to sustainability, the fact remains that Bitcoin mining is more sustainable than many people realize. According to a report from the Bitcoin Mining Council, the global Bitcoin mining industry used 58.8% renewable energy as of Q4 2022. This is compared to the United States, which only derives 31.3% of its power from renewable sources and the global average of 21.7%.

Mining keeps the lights on

Moreover, Bitcoin miners can help monetize stranded or wasted energy and incentivize more renewable projects. Developers can invest in larger projects knowing that Bitcoin miners can serve as buyers of first resort if there isn’t immediate demand for the electricity they produce, allowing them to get a faster return on their investment and build more renewable projects. This example is particularly relevant in Indiana because we’re currently in the process of building America’s largest solar farm—a $1.5 billion dollar project being built over several phases.

The government’s proposal also asserts that Bitcoin mining “creates uncertainty and risks to local utilities and communities.” This couldn’t be further from the truth. In reality, Bitcoin miners help finance new utility improvements and help balance the grid with their flexible load. By turning off their machines during periods of peak demand, miners help prevent blackouts so communities have electricity when they need it most.

Indiana’s ‘right to mine’

This proposed tax on electricity will bring an end to Bitcoin mining innovation in America. But more than that, it sets a dangerous precedent for what other electricity-centric goods the government can tax. What’s next? A tax on electric dryers? After all, we can dry our clothes on a rack. Or maybe a tax on Christmas lights? They use roughly the same amount of electricity globally as Bitcoin mining.

Consumers should be able to make their own decisions about how they use the electricity they pay for, without government interference. I will personally be working on passing a “right to mine” bill in Indiana to ensure innovative businesses can grow with confidence in our state. Gov. Eric Holcomb has been quoted as saying: “Indiana’s business-friendly climate paired with our strong Hoosier work ethic make our state prime for entrepreneurial growth and innovation.” Let’s hope that continues to be the case.•

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Rekhter is co-founder and CEO of Megawatt.