The Digital Asset Mining Energy (DAME) tax was introduced by the Biden administration in its 2024 federal budget. It proposed an excise tax that would tax up to 30% of cryptocurrency miners’ electricity costs to counteract their impact on climate change; however, it was dropped in partisan debt ceiling negotiations in late May 2023.
The tax aimed to reduce the mining community’s contribution to climate change and was expected to raise $3.5 billion in revenue over 10 years. The U.S. Energy Information Administration estimates that crypto mining in the United States used the same amount of energy as all of the country’s home computers or residential lighting in 2022.
- The DAME tax was an example of President Joe Biden’s broader efforts to ensure the responsible development of digital assets and to modernize crypto taxation.
- A tax on cryptocurrency mining would reduce profits for miners and work to discourage the practice.
- Bitcoin mining is highly concentrated, with 10% of miners controlling 90% of the mining capacity on the network, placing most of the tax burden on this group.
- The DAME tax failed to be passed in 2023.
How Would the DAME Tax Work?
President Joe Biden’s proposed tax on crypto mining would affect Bitcoin (BTC) more than the rest of the crypto market, as it is the largest blockchain network using proof-of-work (PoW) consensus. Ethereum (ETH), the world’s second-largest crypto network by market capitalization, switched from a PoW consensus to proof of stake (PoS) in its September 2022 Merge upgrade. That upgrade led to Ethereum’s energy usage dropping by more than 99%, according to the network.
At the time of the proposal, the U.S. Council of Economic Advisers said the DAME tax was an example of the president’s broader efforts to ensure the responsible development of digital assets and to modernize crypto taxation.
The U.S. Treasury’s 2024 revenue proposals described the tax as follows:
“Any firm using computing resources, whether owned by the firm or leased from others, to mine digital assets would be subject to an excise tax equal to 30 percent of the costs of electricity used in digital asset mining.”
Companies involved in digital asset mining would have been required to report the amount and type of electricity they used during their mining process. They would also give details on the source of their electricity.
Meanwhile, firms leasing computational capacity for mining would also be required to report the value of electricity used by external customers.
The proposal would have gone into effect for taxable years beginning after Dec. 31, 2023. The tax would have been phased in for the first three years, beginning with a lower rate of 10% in the first year, 20% in the second, and 30% in the third.
What It Meant for Crypto Miners
The DAME tax would have significantly affected crypto miners and changed the industry landscape. As Bitcoin continues to be the dominant cryptocurrency, the industry has remained focused on it. Miners pay a lot to acquire high-tech mining rigs and build and maintain their mining farms, so they incur more than high electricity bills during operations.
The problem with taxing the industry’s electricity use is Bitcoin mining profitability. Raising operating expenses by taxing electricity might permanently damage the industry because energy is its primary resource, and no other cryptocurrencies fetch the same market value as BTC.
Bitcoin mining is also highly concentrated, with research in 2021 showing that 10% of Bitcoin miners controlled 90% of the mining capacity on the network.
DAME Effect Example
The crypto bear market during 2022 put pressure on the mining industry, with firms struggling with debt and lower income due to the falling price of cryptocurrencies. From December 2022 to February 2023, three miners went bankrupt or organized debt restructurings due to the stress on their finances. The mining industry also has to ride crypto’s market swings, and many took advantage of Bitcoin’s rally in early 2023 to cash out some of their holdings and repair their balance sheets.
In an April 2023 production update, Riot Platforms Inc. (RIOT), one of the world’s largest miners by market cap, produced 639 BTC during the month. The coins were created at its massive Rockdale Facility, which runs a fleet of more than 95,000 miners. In its first-quarter 2023 earnings report, Riot posted a net loss of $55 million on revenue of $73 million, highlighting the margin pressures in the industry.
Riot was also forced to reduce its power consumption during extreme heat conditions in September 2023, forgoing revenue so that the grid it operates on did not fail to provide power to consumers.
What the Tax Might Mean for Everyone Else
Because there is an enormous amount of money to be made mining Bitcoin, the practice isn’t going to disappear until the profits do. A tax on energy use might only prompt miners to pack up and move their operations abroad to more tax-friendly countries. This wouldn’t help reduce energy consumption globally or reduce carbon output for the sake of profits. It might only place the burdens of high energy use and unnecessary pollution on another country.
If miners didn’t move operations, they would be forced to reduce their energy consumption or pay large sums of money in taxes. Mining farms use vast amounts of energy—for example, if one miner consumes 3,250 watts, it would use 78,000 watt-hours per day (3,250 watts × 24 hours). A farm of 94,000 of these miners would consume 7.332 billion watt-hours (GWh) per day (7.332 million kWh). At a rate of $0.10 per kWh, this would equal about $2,200 per day in taxes—decent revenues for a government that needs funding.
The Energy Information Administration estimates that about 0.855 pound of carbon dioxide (CO2) is emitted per kilowatt-hour, so this farm would contribute close to 6.3 million pounds of CO2 per day. A tax that attempts to reduce CO2 contributions from miners might help reduce emissions, at least in the U.S.
Do Crypto Miners Pay Taxes?
Yes, crypto miners are supposed to pay taxes on any income generated through mining.
What Are the Taxes on Crypto in 2023?
If you earn income through crypto mining, the earnings are taxed as ordinary income. But if you buy and hold a crypto for more than one year before cashing it in, it is taxed as a capital gain (or loss). So, if you mine a Bitcoin, you pay income taxes on it that year. If you hold that Bitcoin for more than one year and cash it in for dollars at a gain from its market value when you mined it, you’ll need to pay capital gains taxes.
What Is Digital Asset Mining?
Digital asset mining is using computers or specifically designed machines to do work on a blockchain that results in a reward of a digital asset.
The Bottom Line
The Digital Asset Mining Energy (DAME) tax was a proposed tax on the energy used by digital asset miners. It would have imposed a hefty fee for mining, creating profitability issues for miners. However, it could have significantly reduced the industry’s impact on the climate—or forced miners to move somewhere where they weren’t so heavily taxed.
The DAME tax proposal of 2023 was not passed, but it is likely not the last attempt to tax crypto miners’ energy use.