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

49 Pages Posted: 17 Feb 2021

See all articles by Matteo Benetton

Matteo Benetton

University of California, Berkeley - Haas School of Business

Giovanni Compiani

University of Chicago - Booth School of Business

Adair Morse

University of California, Berkeley - Haas School of Business; National Bureau of Economic Research (NBER)

Date Written: February 5, 2021

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

Suggested Citation

Benetton, Matteo and Compiani, Giovanni and Morse, Adair, When Cryptomining Comes to Town: High Electricity-Use Spillovers to the Local Economy (February 5, 2021). Available at SSRN: https://ssrn.com/abstract=3779720 or http://dx.doi.org/10.2139/ssrn.3779720

Matteo Benetton (Contact Author)

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

Giovanni Compiani

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Adair Morse

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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