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

Matteo Benetton, Giovanni Compiani and Adair Morse

No 31312, NBER Working Papers from National Bureau of Economic Research, Inc

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-codes: G10 G23 G5 Q4 Q52 R1 R23 (search for similar items in EconPapers)
Date: 2023-06
New Economics Papers: this item is included in nep-ene, nep-pay and nep-ure
Note: AP CF EEE PE
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