The Energy Blockchain: How Bitcoin Could Be a Catalyst for the Distributed Grid

There’s a new buzzword emerging in the energy industry: blockchain.

Blockchain is commonly known as the public database created to track the cryptocurrency Bitcoin. It chronologically records and links every transaction made across the network, making Bitcoin more secure and keeping authentications decentralized. Blockchain is the reason Bitcoin can exist and transactions using it can be trusted.

But the blockchain concept isn’t limited to Bitcoin. Experts are now asking if it can be used to track the flow of electrons on a distributed grid. 

If the future two-way electric system is made up of billions of endpoints interacting with each other — microgrids, solar systems, smart appliances, in-field distributed computing and energy management software — how do you create a secure system that can verify instantaneous, autonomous transactions across these nodes as market conditions change?

Many people believe that the blockchain can serve as the foundation of this system.

“Bitcoin is largely changing finance. But moving into blockchain energy could be much bigger than Bitcoin,” said Lawrence Orsini, the founder of LO3 Energy, a company building an “open-source, cryptographically secure” blockchain to manage transactions across a microgrid.

Orsini joined a group of other blockchain enthusiasts and energy professionals at the Massachusetts Institute of Technology (MIT) this week to discuss how the concept could be applied to the energy system — primarily the fast-changing electric grid. The conversation was moderated by GTM CEO Scott Clavenna.

Aside from some early demonstrations, the applicability of blockchain on the electric grid is largely theoretical. At this stage, a few early participants are designing authentication systems specifically for energy and appliances. But mostly, people are trying to wrap their heads around where the blockchain could be applied — and how to get it started.

“It’s quite early. But I’ve been looking at the blockchain for about four years, and I’ve realized its potential implications across many industries, including energy,” said Chris Taylor, a senior dispatcher at NRG, setting up the night’s conversation. “We are on the ground floor of one of the most significant transitions in human history.”

In a December piece published by the Deloitte University Press on how blockchain is moving into other industries, David Schatsky and Craig Muraskin offered a clear explanation for why it’s such an attractive concept: “Blockchain technology offers a way of recording transactions or any digital interaction in a way that is designed to be secure, transparent, highly resistant to outages, auditable, and efficient; as such, it carries the possibility of disrupting industries such as financial services, remaking business practices such as accounting and auditing, and enabling new business models.”

Energy is one of those industries that could be transformed by blockchain, argues a growing group of believers. (Although Schatsky and Muraskin point out that “there is little concrete happening” in energy at the moment.)

That hasn’t stopped experts from dreaming and experimenting. 

“We can turn Bitcoin into almost anything,” said Joi Ito, the director of MIT’s media lab, speaking on a panel of energy and blockchain experts. 

LO3 Energy has already built out two nodes that are collecting consumption and generation data across the microgrid and “feeding it into a blockchain,” said Orsini.

“They’re not quite ready for prime time, but [the nodes] are up and running,” he said.

In January, IBM and Samsung unveiled an early platform for controlling connected devices based on the blockchain concept, called ADEPT. The platform uses software developed by Ethereum that authenticates “smart contracts.” Those “contracts” could be micro-transactions between appliances within a home as they react instantaneously and autonomously to changing conditions on the grid, for example.

Paul Brody, the leader of Ernst Young’s technology strategy arm, called this “device democracy.”

“We demonstrate how, using ADEPT, a humble washer can become a semi-autonomous device capable of managing its own consumables supply, performing self-service and maintenance, and even negotiating with other peer devices both in the home and outside to optimize its environment,” wrote IBM in a draft white paper on device democracy. (The final white paper can be found here.)

Brody formerly worked at IBM and helped build the ADEPT platform. “We needed a completely new way to manage connected devices for the internet of things,” he said. Blockchain was the place to start. 

In the future, all smart devices across a network — perhaps connected by ADEPT — will be able to securely send and receive data while autonomously reacting to market signals. And this will all be hidden to the average consumer, said Brody.

“Most consumers will not know or care if their appliances run on blockchain. If I have to think about every trillionth of a kilowatt-hour I’ve saved, it’s never going to happen,” he said.

Along with LO3 Energy and IBM, a Vienna-based startup called Grid Singularity is also experimenting with blockchain to authenticate energy transactions. The company is targeting developing countries, where it wants to make pay-as-you-go solar more secure. Its eventual goal is to build a blockchain platform for energy systems that can be applied to any type of transaction on the grid.

Ed Hesse, the co-founder and CEO of Grid Singularity, doesn’t see other platforms as full-on competitors yet. “I don’t see one universal blockchain. I see many different blockchains that overlap,” said Hesse.

Bitcoin proved blockchain can work. Now investors, startups and behemoths like IBM are investing real money to test how it could be applied to energy and the broader internet of things. So how would blockchain be adopted in those sectors?

No one had a precise answer. Perhaps in smart meters first, then in appliances, and then across a microgrid. There are currently far more theories and proposals than real-world examples.

And while regulators might like the idea of using blockchain to help monitor the grid of the future, they haven’t even begun to grapple with how to support it. 

“You’re going to see a lot of fumbling in the dark until someone finds a light switch,” concluded Brody.

It’s still early days conceptually for the energy blockchain. Finding early-adoption cases is important. But all the experts agreed that big thinking is just as crucial at this stage.

“It would be a waste to just use the blockchain to just do meter billing,” said Ito.

Expect blockchain to become an increasingly popular term in energy. But don’t expect much more than small pilots and conceptual frameworks for many years to come.