When Cryptomining Comes to Town: High Electricity-Use Spillovers to the Local Economy

Abstract

Cryptomining, the clearing of cryptocurrency transactions, uses large quantities of electricity. We document that cryptominers' use of local electricity implies higher 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 supply curve faced by the community, we estimate that small businesses and households have a negative elasticity to the instrumented price of electricity, with elasticities of -0.17 and -0.07 respectively. Using our estimations, we calculate counterfactual electricity bills, finding that small businesses and households paid $79 million and $165 million extra annually in Upstate NY (or $1B nationally) because of cryptomining demand-for-electricity effects. Using data on China, where prices are fixed, we find that rationing of electricity in cities with cryptomining entrants deteriorate wages and investments, consistent with an electricity crowding out of the local economy. Local governments in both Upstate NY and China, however, realize more business taxes, but only offsetting a small portion of the higher community electricity bill costs. 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: Cryptocurrencies, spillovers, energy, fintech, small-businesses ,taxes

JEL Classification: G18, H7, Q4, R11