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Blockchain: Democratization of the Energy Sector?

Dr. Arrojah Adade-Boafo's picture
ERP and EAM Implementer Consultant

Dr. Adade-Boafo is a scholar and practitioner of cloud enterprise information systems implementation – Enterprise Asset Management (EAM) and Enterprise Resource Planning (ERP) for Energy &...

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  • Apr 20, 2021 10:37 am GMT
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When the Bitcoin cryptocurrency was ironically introduced during black October of 2008, it was the underlying technology blockchain that would eventual outshoot the digital currency revolution. For many industries, it seems, blockchain is poised to delivery disruption. For the energy sector, democratizing of the grid via blockchain technology will deliver that decentralization desired by Cypherpunks and other crypto- anarchists who advocate for privacy through cryptography.

The global energy grid is converging on renewables like wind, solar, and the capability to store excess energy. With these technologies an increasing number of small businesses and homeowners are now both consumers and producers. The desire for anonymous, trust less, and decentralized ecosystem that does not rely on big utilities continues to grow. The burning desire is to utilize this cartel of users and produces to buy and sell without a central authority. This new paradigm ensures buying and selling to each other without the big utilities. This disparate group of producers, buyers, and sellers want to use blockchain to navigate this new ecosystem.

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Blockchain is an evolution that allows producers, buyers, and sellers to exchange value.  Basically, the transaction history is stored in blocks that are tamper-proof and secured by cryptography. These blocks are immutable ledgers on a peer-to-peer network of which each member has a copy of the ledger. More interesting is that no one individual owns the system, thus making decentralization absolute.  Could blockchain be the key to unlocking old technologies within the energy sector?

According to E&Y, venture capitalists have raised $1billion to fuel the blockchain market. One of the markets’ enthusiast is Energy Web Foundation. This nonprofit foundation is funding multiple efforts to boast capacity. The foundation’s open source blockchain is based on Proof-of-Authority (PoA) which far outpaces Bitcoin’s consensus equivalent Proof-of-Work (PoW). Proof-of-Authority allows the blockchain to track ownership and proof validity of records. For example, PoA can determine agents authorized to use any number of renewable energy services such as electric car charging stations.

In Norway, the Vattenfall utility is developing blockchain systems to allow any individual to produce, buy, or sell energy from their solar panels. Conversely, The Brooklyn Microgrid Project in NY operates a peer-to-peer blockchain systems. This blockchain system allows buyers and seller to trade renewable energy from their Smart Meter excesses. Thus, eliminating the need to wait for weeks to cash-in from Net metering. Similarly, Lition and Grid Singularity, both in Germany, are building blockchain apps to transform the energy sector. Both firms are bathed in optimism of decoupling the relationships between individual producers, consumers, buyers, and their centralized utilities; with the goal of democratizing the energy sector. Blockchain will enable all these start-ups to be able to generate Ethereum smart contract to collaborate without the benefit of a centralized authority.

However, this evolutionary technology has several challenges. It lags in processing speed compared to traditional processing. Bitcoins for example executes about 4.6 transactions per second, while non-blockchain credit card companies process thousands of transactions per second.

Regardless of the consensus algorithm used to establish consensus on the blockchain, mining requires too much computational power. This energy guzzling mechanism contradicts climate change gains attributed to renewable. In addition, to energy and infrastructure cost, blockchain mining algorithms share the same feat of negating decentralization. The challenge for the scientific community is to establish cost effective blockchain mining strategies. For the energy sector, the goal should be, at a minimum, to encourage Application-Specific Integrated Circuits (ASIC)-resistance. ASIC farms invariably, until powered by renewals, are not ideal to the aspirations of the climate change communities.

Consensus challenges notwithstanding, the blockchain technology faces attacks. Both Bitcoin and Ethereum platforms have experienced attacks. Though consensus mechanisms are designed to prevent Sybil attacks, blockchain platform developers in the energy sector should guard against double spend attack when dealing with digital currency. Likewise, the potentially incendiary 51% attack could demoralize network members and encourage censorship by a pool of mining owners who could control more than 50 percent of the blockchain platform.

Between venture capitalist, engagement by banks, and academia, there is perpetual optimism for the blockchain technology economy. Globally, the energy sector is a heavily regulated industry – an inescapable force. The goal therefore should be to develop smart blockchain platforms that adhere to decentralization, guard against the challenges outline in this article; but equally important, develop solutions that must work within the framework of the local and national regulations.  

 

By: Arrojah Adade-Boafo, D.B.A

Sources: Includes: UC Berkeley, Blockchain Professional Certification Program; Vattenfall, Lition, and Grid Singularity videos.

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Matt Chester's picture
Matt Chester on Apr 20, 2021

Thanks Dr. Adada-Boafo-- this is one of the better explainers I've seen of why blockchain and energy might align well and not simply be a solution in search of a problem

 

The desire for anonymous, trust less, and decentralized ecosystem that does not rely on big utilities continues to grow.

Curious-- does this suggest that those who don't desire this (say, legacy utilities who may be threatened by a more distributed, less centralized grid system) might see blockchain itself as a threat? 

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Dr. Arrojah Adade-Boafo on Apr 22, 2021

Matt, Yes. Utilities will see these decentralized ecosystems as a threat but also as an opportunity. So far, utilities have found ways to still integrate with individual solar panel consumers. I suspect, utilities will innovate the minimize or mitigate this new threat. 

arrojah

Patrick McGarry's picture
Patrick McGarry on Apr 20, 2021

Dr. Arrojah-

Extremely well written article. Thank you for sharing.

Do you see RTO markets capable of dealing with the Blockchain disruption?

Patrick

Dr. Arrojah Adade-Boafo's picture
Dr. Arrojah Adade-Boafo on Apr 22, 2021

Patrick:

Thank you. I am not sure and would have to investigate a bit to give you a definite answer. The blockchain disruptions tenants - Decentralization, distributed ledgers that are immutable, the no need for trusting participating partners, etc. and some mechanism for determining consensus can be applied to most organizations with some caveat. For RTO, I suspect, Ethereum Smart Contract may be a viable option.  But, in general, the caveat presents itself as follows: Uber (or taxi-service) can be implemented on a blockchain. The network nodes of anonymous participants will transact with drivers. However, the missing piece will be customer service? Who do you call to complain? 

I hope this helps.

arrojah

Ben Ettlinger's picture
Ben Ettlinger on Apr 21, 2021

Well written article on blockchains. I do have a question/comment on two paragraphs..

"The burning desire is to utilize this cartel of users and produces to buy and sell without a central authority. This new paradigm ensures buying and selling to each other without the big utilities. This disparate group of producers, buyers, and sellers want to use blockchain to navigate this new ecosystem."

"The goal therefore should be to develop smart blockchain platforms that adhere to decentralization, guard against the challenges outline in this article; but equally important, develop solutions that must work within the framework of the local and national regulations. "

Is "without a central authority" and "framework of local and national regulations" a contradiction in terms. Can you have one with out the other? I would argue "without a central authority" is anarchy.

Dr. Arrojah Adade-Boafo's picture
Dr. Arrojah Adade-Boafo on Apr 22, 2021

Thanks Ben. Good question. They are contradicting terms. In fact, the whole concept of decentralization is questionable.  In theory, no one controls Bitcoin. Satoshi Nakamoto (person/group) designed a truly decentralized system. However, Nakamoto has set aside 1 million bitcoins that may never be part of the system. Is this to establish monopoly or just hording.  Conversely, it appears that miners are the “owners” of the Bitcoin ecosystem. Without mining, the concept of cryptocurrency would not exist. To cement the idea of miners’ ownership, the capital required to find a block and establish consensus is capital intensive.

So, the question remains. So long as there are state and federal regulators; some organization is in control; and there is a centralized authority aspect to the ecosystem.

Regards,

arrojah

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