Working Paper: NBER ID: w31312
Authors: Matteo Benetton; Giovanni Compiani; Adair Morse
Abstract: Cryptomining, the clearing of cryptocurrency transactions, uses large quantities of electricity. We document that cryptominers' use of local electricity implies higher electricity prices for existing small businesses and households. Studying the electricity market in Upstate NY and using the Bitcoin price as an exogenous shifter of the part of the supply curve faced by the community, we estimate the electricity demand functions for small businesses and households. Based on our estimates, we calculate counterfactual electricity bills, finding that small businesses and households paid an extra $92 million and $204 million annually in Upstate NY because of increased electricity consumption from cryptominers. Local governments in Upstate NY realize more business taxes, but this only offsets a small portion of the costs from higher community electricity bills. Using data on China, where electricity prices are fixed, we find that rationing of electricity in cities with cryptomining entrants deteriorates wages and investments, consistent with crowding-out effects on the local economy. Our results point to a yet-unstudied negative spillover from technology processing to local communities, which would need to be considered against welfare benefits.
Keywords: cryptomining; electricity prices; local economy; spillovers; technology processing
JEL Codes: G10; G23; G5; Q4; Q52; R1; R23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| bitcoin price (E42) | demand for electricity by cryptominers (L94) |
| cryptominers (E42) | increase in electricity prices for small businesses (L97) |
| cryptominers (E42) | increase in electricity prices for households (L97) |
| increase in bitcoin price (G13) | increase in tax revenues for local governments (H71) |
| cryptominers (E42) | decline in local fixed asset investments in China (G31) |
| cryptominers (E42) | decrease in wage levels in China (F66) |
| demand for electricity by cryptominers (L94) | local electricity prices (L97) |
| increase in electricity prices (L97) | increase in costs for small businesses (M13) |
| increase in electricity prices (L97) | increase in costs for households (D19) |