Bitcoins do not magically appear out of nowhere. Each one is “mined” in a blockchain process that eats enough electricity to power an American household for 1.57 days.
This process is what gives the coins their value. The work involved in the creation of the smart contracts gives cryptocurrencies the authority to be used to buy items – a privilege ordinarily left to governments and treasuries.
If bitcoins are the currency of the future, its miners must consume electricity that does not overthrow the global carbon budget. This revolution must be powered by renewables, and blockchain techniques themselves could provide the impetus for this level of control over energy flows.
“Imagine you’re growing a whole lot of tomatoes, but you can’t trade them over the fence with the neighbor for their zucchinis – you’ve got to go to the supermarket to sell to them and buy from them,” said David Martin, CEO of the Australian firm Power Ledger. “That’s the situation in energy markets now – we want to change that.”
Currently, private households that have solar panels on their roofs can sell back their excess energy to the local or regional grid that is most easily accessible to them. They earn back a low rate per kilowatt hour by selling to the utilities companies, but offering the extra power to other homes in a peer-to-peer network would generate higher returns. The process would incentivize the adoption of solar power and raise energy capacity at the same time.
To keep track of the trades, Martin says the platform would use a proof-of-stake algorithm, analogous to the proof-of-work formula at work in bitcoin mining operations.
“Using the [modified] blockchain brings more transparency, including on data exchanged. It uses the fraction of energy of conventional blockchain. Proof-of-stake is ideally suited for energy,” Martin told the Guardian.
The system would use smart meter data and existing infrastructure to make the new energy market a competitive alternative to fossil fuel-based power, which tends to be limited by a physical production rate, rather than by computer power.
“Yes, I believe that proof-of-stake blockchain applications can validly compete with other non-blockchain based solutions in energy trading,” he says. “Peer-to-peer energy trading is nascent, notoriously difficult to manage and blockchain solutions might be useful.”
Innovations in the policy landscape will necessary to allow blockchain-based energy to thrive.
“The system was designed at a time when regulators didn’t contemplate distribution and storage, let alone customers trading among themselves – everything is set up for a system of generating power a long way away from a centralized source,” Martin said.
Currently Power Ledger’s experiment is limited to a 500-site test in Auckland, New Zealand, via a partnership with the island nation’s largest power provider. The blockchain’s scope is limited geographically so far, but a supportive legal and solar infrastructure could bring this new concept to the forefront of the grassroots energy trading landscape.
By Zainab Calcuttawala for Oilprice.com
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