Carbon footprint tax for Bitcoin?
Shared by maratunexpro · 23d ago · 9 comments

Our startup developed a technology to capture CO2 directly from air and utilize it for less than $10USD per captured and utilized metric ton. At COP26 was negotiated the taxation system of the companies that has carbon footprint that will start from 2023. What do you think about that guys? Will Bitcoin owners have tax problems?

cesccanet · 23d ago

Last Spring I was working on a simulation to understand energy consumption of blockchain protocols based on this paper from Macal and Kaligotla (2018) http://simulation.su/uploads/files/default/2018-kaligotla-macal.pdf. The problem of CO2 emissions in Blockchain is very interesting, and by changing the consensus mechanism or aspects of the protocol you can get very different results, so it is no surprise that this topic is becoming important for policy research reasons. I don't think it makes so much sense to tax Bitcoin owners because hodling does not produce emissions, but taxing miners may make sense. Since that may be difficult to implement, it would not surprise me that the tax is passed on to exchanges based on the number of transactions, block size or something like that.

maratunexpro · 23d ago

Wow, this is very interesting experience. Sure, mining Bitcoin has huge Carbon foot print, and miners will have taxes for electricity consumption. So, I have a question, how governments will recognize witch exactly Bitcoin was payed in tax and witch not, will the governments have some kind of register database that will trace all the crypto currency unit?

cesccanet · 23d ago

The beauty of Bitcoin and other L1 protocols such as Ethereum is that the ledger where all transactions are made is public. Anyone can use services like Etherscan (https://etherscan.io) and see exactly the address of the sender and the recipient of any blockchain transaction. Governments can and in fact already explore the public ledger to monitor criminal activity, so in the hypothetic case Tax Agencies wanted to lift a tax on a blockchain protocol, they would be able to use those services too. The problem here is that it is not possible to know who is behind a given address, because Blockchain protocols do not store that information (addresses are anoynmous). Some addresses, however, are well known to belong to Crypto Exchanges such as Coinbase, Kraken or KuCoin. Those exchanges are subject to regulations such as KYC and AML (highly dependant on the jurisdiction though). So, in the hypotethical case a Government wanted to design a tax on blockchain CO2 emissions, it would make more sense to pass that tax to the exchanges (who I suspect would, in turn, pass that tax to users in the form of higher fees), in a way that is directly proportional to the number of transactions in and out of the blockchain from those exchanges (when buying or selling Bitcoin). Note here that the nominal value of the transaction (1000 bitcoin or 0.012 bitcoin) does not matter from a carbon emissions perspective. What matters is the number of blocks (packets of many transactions) that are produced during the mining process. Other types of transactions such as those happening between cold wallets would escape this hypothetical tax design because it would not be practical to enforce it (who is behind a cold wallet?).
Any other type of tax design would be possible to design on paper, but hard to enforce and impractical for all purposes. Mining could, in principle, be subject to a tax (and in fact that would theoretically be the most perfect way of doing it because it is the closest to the CO2 emission source), but it would be very hard to create a register of miners and enfoce such a tax globally. A lot of mining occurs already in countries with little oversight or where energy is very cheap (such as Kazakhstan). If one country (say the US) were to unilaterally impose a tax on mining, that would only incentivize even more mining to occur in Kazakhstan, and the tax would end up not being collected at all, and to make matters worse it would cause mining power to be in the hands of less actors (or countries) and make the protocol less secure, so it's a terrible idea.

maratunexpro · 23d ago

Now I understand more. Thank you for clear and detailed explanation.

I'm from Kazakhstan, and I totally understand the situations with mining (electricity cost, and regulations). This summer Kazakhstan government has released new regulation law. They adding energy consumption limits and new tax system with carbon tax, also mining farms can not be placed in the city areas, only on country side. Kazakhstan mining farms switching to the biogas electricity generators, to avoid most of the taxes.

manojranaweera · 21d ago

I recently watched a video by a climate change skeptic.

With sanctions on Russia backfiring on the collective west, and the west having to rethink of bringing back the coal fired power stations and the cost of powering electric vehicles becoming higher than diesel cars, the world is changing rapidly on climate control initiatives.

Sorry to go off the topic, but is this a concern for you?

maratunexpro · 19d ago

By the reference to the official scientific papers and documentation, we can see that as humanity we don't have second chance to continue to live on this planet. For our company, saving our planet is number 1 prior. Unfortunately, some people share their thoughts without doing any research.
Thank you for your comment. Lets save this planet together!