How can blockchain be used in the electricity sector?
The 1940s saw the creation of the first atomic bombs, bringing unparalleled destruction to the world. However, after World War II and the realization of the enormous power of the atom, scientists and governments began to explore ways of harnessing nuclear power for the benefit of humanity. Programs like "Atoms for Peace," signed by US President Eisenhower, and the work of the Institute of Physics and Power Engineering in the USSR paved the way for the use of nuclear power in generating electricity. Today, this technology remains in use thanks to the innovation that followed World War II. Initially a destructive force, the splitting of the atom has been transformed into a tool for good, providing electricity to people around the world.
Blockchain technology is at a similar stage to where nuclear power was after World War II. We have the breakthrough, but we are still figuring out the best ways to use it for the benefit of the world. Blockchain is a decentralized ledger that securely links public records using cryptography. Its first use case was the creation of Bitcoin, the world's first decentralized digital currency. Since then, new applications have emerged, such as decentralized finance (DeFi) and the use of smart contracts for accountability, supply chain management, and other industries that require transparency and global reach. Blockchain technology has the potential to transform many industries and improve our lives.
The use of blockchain technology in the electricity sector has potential for significant impact. Two of the most mature use cases for blockchain currently are the replacement of traditional currencies and the growth of the decentralized finance (DeFi) industry. While the replacement of currencies is a complex and political topic that may never happen, DeFi is a rapidly expanding field with over 3,000 companies. DeFi originated on the Ethereum network in 2015 as a way to raise funds through initial coin offerings (ICOs).
Utilizing mature blockchain tools in the electricity sector could be a great starting point for finding synergies between these two industries. The transition to sustainable energy is a crucial step in mitigating the effects of climate change. According to the Intergovernmental Panel on Climate Change, the world needs to spend $2.4 trillion annually until 2035 to slow the impact of climate change. Currently, most of this funding comes from large investors and funds, leaving out retail investors. By using the trust and global reach of blockchain and the decentralized financing methods of DeFi to raise capital, this technology has the potential to be a catalyst for reaching the necessary funding to combat climate change.
Smart contracts, a mature tool from the blockchain toolkit, enable the creation of agreements between parties without the need for intermediaries. This allows for peer-to-peer (P2P) exchange of energy and money. The future of energy appears to be decentralized, and the use of these tools can provide incentives for the adoption of distributed energy resources (DERs). The lack of incentives for installing DERs may become a non-issue with the application of blockchain technology.
Transparency can be improved by using blockchain to view in real-time the transfer of each kWh of energy from Internet of Things (IoT) devices (such as smart meters) to others. Additionally, using blockchain-powered supply chain methods can create a transparent environment for observing every aspect of power generation, transmission and distribution. This level of transparency was unimaginable just 20 years ago.
The use of blockchain technology in the electricity sector can offer several benefits, including:
Safe and efficient transactions
Verification of ownership of each kWh in a decentralized system
A global marketplace for investing in renewable energy.
Blockchain technology has the potential to transform the electricity sector in ways that were unimaginable just a few years ago. By enabling peer-to-peer energy trading, transparent supply chains, and decentralized financing, blockchain is paving the way for a more sustainable, secure, and equitable energy future. As the use of blockchain continues to grow and develop, its impact on the electricity sector will only become more significant and far-reaching.