After more than doubling in value this year, Bitcoin has crossed the $100 mark. But Bitcoin and other crypto-currencies have environmental consequences, and according to Dr. Yossi Borochov, now there is an opportunity to impose taxation on them that will work for the environment. Opinion
Dr. Yossi Borochov, Angle - Science and Environment News Agency
The annual report of State Comptroller published in November includes a chapter on the taxation - or rather the non-taxation - of digital encrypted currencies (crypto), including Bitcoin, Ethereum and others. The estimated loss to the Israeli economy from not taxing the profits on the investment in digital currencies is around 2-3 billion NIS. This raises the questions of what is the tax rate and what is the recommended method of taxation, and what will be the use of these funds? purely economic, but also the environment.
recently Donald Trump stated, who will begin his second term as President of the United States in 2025, on his vision to make the United States a crypto mining powerhouse. At the same time, many countries, including Japan, as well as the OECD countries, are preparing to make cryptocurrencies legal. One of the possibilities arising from the strengthening of the power of Bitcoin and other crypto-currencies is the exchange of the gold held by countries with Bitcoin. Like gold, Bitcoin is a limited resource in the world, and is used by many investors as a currency to protect against shocks and inflation in times of crisis. More like gold, Bitcoin mining Requires enormous energy resources, which are estimated by the amount of electricity consumed by a medium-sized country like Ireland. The extensive use of electricity results in greenhouse gas emissions and environmental damage, when the greenhouse gas emissions of the gold וThe Bitcoin Around 100 million tons of carbon dioxide equivalent per year for each resource.
How do you mine bitcoin?
according to An article by Dr. Neta Lipman, "Bitcoin works using the blockchain technology, a network of information files, called blocks, which are linked to each other. Each block serves as a kind of 'safe' that is very difficult to crack, when the person who has the code to the 'safe' is actually the owner of the file. Making transactions Using the coin actually means transferring the code from person to person. Each block contains the history of its transactions (that is, who transferred the code to whom To add a block to the blockchain, it is necessary to encrypt it, using a computational operation known as "mining". 'Puzzle' discovers the password to the new 'vault' and takes ownership of it, however, the system has a limited amount of blocks and is designed so that over time, The more computers try to create a block, the more complicated the puzzle becomes and therefore it is necessary to invest more computational power to gain ownership of a block. Additional computational effort is invested in the verification phase that occurs when the transaction is executed and which is intended to verify that the correct code has worked from person to person."
Quantifying the environmental damage
In light of the negative environmental costs of using crypto, the suggestion to policy makers in Israel is to adopt a Pigovian taxation method for investors. The principle underlying this method is the quantification of the environmental damage from the production of some product (in this case, a digital currency), and using the tax collection to repair the damage. In fact, the carbon footprint should be zeroed out by the investment of the tax collected through advanced measures of mitigation and adaptation. The required taxation rate should not be different, in my humble opinion, from the taxation rate imposed on capital gains - 25 percent on the real profit. Similar to any investment in the stock exchange, the investment in the digital asset carries chance and risk, and there is no logical reason to impose a different tax rate on the crypto.
We know of a number of products on which Pigouvian taxes have been imposed, the main ones being cigarettes and alcohol, with compensatory taxes designed to reduce consumption. In Israel, a fee was imposed on plastic bags in food chains, which was found as effective, and on plastic bottles. Also, ten years ago, the clean-up fund was established by order of the Israeli government, which was intended to use taxpayers' money in the treatment of environmental damages. according to The report of the cleaning fund for 2022, the fund's revenues exceeded NIS 5 billion.
In conclusion, the regulators in the State of Israel should act immediately and clearly to impose a capital gains tax on crypto investors. The tax rate must be determined, as well as a signature on the International Reporting Convention (CARF) of Organization of the OECD, which will allow verification of the source of the funds in each transfer. In addition to this, clear and direct instructions from the central bank must be given to the commercial banks through proper banking procedure (NABT, Bank of Israel instructions instructing how to act) in the area of AML/CFT (money laundering and terrorist financing). Moreover, the tax money must be are referred to a new national environmental fund, which will work to offset the negative external cost by investing the funds in green projects, which will work to reduce greenhouse gas emissions in Israel.
Dr. Yossi Borochov is an economist and natural resource management researcher at the School of Environmental Sciences, Haifa University.
More of the topic in Hayadan:
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How do you know if the source of the cryptocurrency that the miner transfers to the bank account is from mining or from a purchase from someone else?
Another thing: how do you know what the carbon footprint of each miner is? After all, there are different computers with different efficiencies (different energy consumption for a fixed number of calculation operations), and there are different energy sources that pollute in different amounts (variable emissions for a fixed energy output), and maybe (I don't know if) there is a difference even between different times of the day and year.
And will they even bother to calculate the carbon footprint of each miner? After all, it is much simpler to tax the profit at a uniform rate (this is the proposal implied in this letter), without additional complications. Although then the miners have no interest in becoming more efficient, and reducing their carbon footprint. What's more, when the tax rate is uniform - the business looks more economic and less environmental.
Besides, if the energy producer pays for the pollution himself - there will be double (and not real) taxation for the same damage.
In my humble opinion, the polluting factor can be taxed directly - according to emissions, and from there the price of the pollution will be passed on to *all* its consumers. Or the polluter will simply reduce emissions, because he will have the will and ability to do so. (Unlike consumers, whose influence on emissions is more indirect).
Once the money is transferred to the users' bank accounts
How can cryptocurrencies be taxed? After all, their whole idea is to avoid government criticism.