While the value and reputation of cryptocurrencies like Bitcoin fluctuate by the hour, the legitimacy of its operating system, blockchain, is staying intact. Blockchain’s verification system makes it a safe, secure way of organizing and respecting transactions between users, with an extremely rare chance of user fraud.
The unregulated measures make it a tantalizing endeavor for companies looking for a new way to reduce third-party involvement and create a more efficient method of transferring data and chargers. However, before blockchain can really revolutionize the energy industry, one issue needs to be solved: it uses a massive amount of energy.
Mining for cryptocurrency is beginning to use up more power than anything in the world, including the coal and natural resources that energy companies are trying to replace. The sheer amount of processing power that blockchain necessitates to function is directly contradictory to the energy companies that want to utilize it in new and exciting ways that can accelerate the Internet of Things (IoT) and lead to more efficient energy practices.
Last year, initial coin offerings (ICOs) made up 75% of funding for blockchain in the energy industry. Similar to IPOs, startups are able to gain funding through this method by selling crypto coins in exchange for Bitcoin (BTC) or Ethereum (ETH), in addition to or instead of venture capital and crowdfunding. The value of these new crypto coins could be based on energy savings, such as CO2 emissions or megawatt hours of electricity. Investors and startups are ready to back this technology.
Currently, green energy providers in the US receive tradable renewable energy credits or certificates (RECs) for a certain measurable amount of power generated by the renewable energy source. RECs can be sold to the open market, and when on a shared grid, can be traded. This system can be fully utilized on a blockchain. Currently, customers use their utilities and pay for the amount they consume. Solar panel owners have a slightly different experience. Solar panels can produce an excess of solar energy for the user. By tying that into a grid, and selling solar energy credits, the owner of the solar panel makes a profit and has provided energy that would’ve gone to waste without the grid system. Applying blockchain to this system could mimic this trading of energy for everyone in the grid. The transparency of blockchain also allows everyone on the ledger to conduct and legitimize transactions, so this guarantees that all processes will be as green as possible.
In the future, combining the grid system with blockchain, ICOs, and IoT is inevitable. By monitoring the energy use of all building owners and devices on a grid, algorithms will best be able to detect where resources are needed most and divert the energy or materials to where they’re needed in real-time.
A building could be fully modified on IoT to monitor the usage of every device. The usage of energy could be linked to an ICO that produces credit for amount of energy saved, and this credit, using a smart contract on a blockchain, can pay utility bills for using the perfect amount of energy, saving cost and reducing waste.
The biggest hindrance in the energy industry is the hypocritical energy monster that is blockchain. The proof of work system that directly secures the transactions and allows them to be seen, but not altered, is based on an immense number of machines functioning at an insanely high capacity. Last year, Bitcoin mining alone used as much energy as the country of Ireland. If this technology is going to be implemented in the energy industry, it can’t directly contribute to its downfall.
One solution is the proof of stake model. This model selects the verifiers based on how close they are to the transaction – their own stakes. These cryptocurrencies require less computational power overall but place a stronger burden onto a smaller amount of people. This model isn’t quite as popular yet, due to its lower reward. If proof of stake is able to offer the same reward levels as proof of work or if computers are able to solve the proof of work algorithms in a more energy efficient way, blockchain could eventually use a standard amount of energy.
Blockchain is becoming an important player in the energy industry because of cost-effectiveness, security, transparency, and reduction of outside parties. It’s on its way to dramatically restructuring the way we pay for energy, leading to the fully connected, energy-efficient, intelligent buildings we dream of. Blockchain users now have the responsibility to fix the energy drain problem so that these new green-friendly technologies aren’t at a cost that is absurd in its inefficiency.
By Luther Garcia, CEO at ECS Global Solutions