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

74 Pages Posted: 6 Jun 2023

See all articles by Matteo Benetton

Matteo Benetton

University of California, Berkeley - Haas School of Business; Centre for Economic Policy Research (CEPR)

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)

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Date Written: June 5, 2023

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.

JEL Classification: G10,G23,G5,Q4,Q52,R1,R23

Suggested Citation

Benetton, Matteo and Compiani, Giovanni and Morse, Adair, When Cryptomining Comes to Town: High Electricity-use Spillovers to the Local Economy (June 5, 2023). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2023-78, Available at SSRN: https://ssrn.com/abstract=4469901 or http://dx.doi.org/10.2139/ssrn.4469901

Matteo Benetton

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

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

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Giovanni Compiani (Contact Author)

University of Chicago Booth School of Business ( email )

Chicago, IL
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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