Establishing a Framework for Bitcoin Miners to Make Tax-Efficient Charitable Donations

ABSTRACT Companies of all sizes, including Bitcoin miners, engage in charitable giving. As Bitcoin mining evolves into a substantial industry and integrates into mainstream society, it faces challenges not only from scams and environmental criticisms but also from everyday concerns such as tax compliance. One key area is the role of deductible donations, which sits at the intersection of the cryptocurrency ecosystem and the established U.S. tax system. This paper introduces an innovative approach called “hashrate contracts,” which builds upon the long-standing framework of tolling contracts. Just as tolling contracts allow producers to manage inputs and outputs efficiently while transferring operational responsibilities, hashrate contracts enable charities to assume the income associated with mining activities. This structure not only optimizes tax deductions for Bitcoin miners but allows them to claim a charitable deduction for federal income tax purposes, bridging a key gap between the cryptocurrency ecosystem and established financial and regulatory practices. JEL Classifications: K23; K29; K34.