Over the past several years, the nation of Iceland has become a hotbed of activity for cryptocurrency mining. With a naturally cold climate (averaging just under 60°F in summer) and ready access to cheap geothermal electricity, the island nation is often seen as an ideal location for large bitcoin mining facilities. As in most countries, Iceland’s cryptocurrency operations exist in a roughly defined — and largely untaxed — legal limbo. Now, one Icelandic lawmaker believes that it’s time for the crypto mining industry to start paying up.
Speaking to the Associated Press, Icelandic lawmaker Smari McCarthy said “Under normal circumstances, companies that are creating value in Iceland pay a certain amount of tax to the government. These companies are not doing that, and we might want to ask ourselves whether they should.”
As a member of Iceland’s Pirate Party, which rose to prominence during the 2008 global financial crisis, McCarthy is understandably concerned about multi-million dollar companies moving into the country without contributing to the tax base. Iceland was particularly hard hit by the crisis, with corporate tax evasion being a major factor. While cryptocurrency mining is providing a significant boost to the country’s economy — which is largely focused on commercial fishing and aluminum mining — Iceland’s government currently isn’t seeing much in terms of of direct financial benefit from the new industry beyond taxes from electricity sales.
Representatives from Hitaveita Sudurnesja, one of Iceland’s major energy companies, claim that cryptocurrency mining is expected to consume around 100 megawatts of electricity in 2018. This is double the amount used by mining facilities in 2017, and actually exceeds the total amount of household energy use in the country. In other words, it’s a big business that is increasingly seen as exploiting a tax loophole. Given that Iceland was one of the few countries to send dozens of bank managers and politicians to prison during the financial crisis for failing to address similar loopholes, it is unlikely that the issue will go unaddressed for very long.
How such taxation would work in practice, however, remains an open question. Apart from electricity, internet access, and real estate, cryptocurrency mining operations currently have few taxable elements. Taxing crypto mining would also mean specifically classifying and regulating cryptocurrencies, something that large nations like the U.S., Russia, and China are still grappling with. Further complicating the issue is McCarthy’s seemingly antagonistic attitude to cryptocurrency mining, which could easily be read as anti-innovation. He told the AP: “We are spending tens or maybe hundreds of megawatts on producing something that has no tangible existence and no real use for humans outside the realm of financial speculation. That can’t be good.”
While McCarthy’s Pirate Party may be less than supportive of the new industry, they currently represent a small minority of 6 out of 63 seats within Iceland’s parliament — better known as the Althing — with the majority taking a more pro-business view of the country’s booming new industry. While taxation of some kind is inevitable for large mining operations in Iceland, it’s unlikely to be prohibitive to future investment.