Last month six community members living on President St, in the Brooklyn neighborhood of Park Slope created the first local marketplace for renewable energy on a blockchain network. They individually invested in solar panels and created a community to sell their excess energy, called Brooklyn Microgrid.
Briefly, Blockchain is….
A blockchain is a decentralized network that enables exchange of information and value directly between peers without third parties (think banks or tech companies). Each transaction or interaction is transparently recorded and forms a chain of history that cannot be altered in the future. Trust is thus relocated from centralized service providers, those banks and tech companies, to the peers themselves, allowing people to build their reputations as they transact and participate in blockchain marketplaces.
Most people will interact with a blockchain marketplace through an interface that looks similar to most web applications today. The Brooklyn Microgrid community is using an open energy platform, called TransActiveGrid, developed by ConsenSys and LO3 energy.
TransactiveGrid uses the Ethereum blockchain to record each community member’s portion of solar energy production. TransActiveGrid is comprised of smart contracts (agreements between peers) that exist on the blockchain. The blockchain is a trusted ledger that all members of the community can access at any time. These particular smart contracts transform the excess produced energy into renewable credits that other community members can purchase and then utilize.
These smart contracts can be verified by anyone with Internet access, ensuring the distribution of trust. Below is a screenshot of the TransActiveGrid contract that I accessed from my web browser. I did not need a special account or special permission to find it. It is written in a computer programming language called Solidity, which is intended for writing smart contracts on Ethereum. Much of it is in plain English and it’s pretty simple to decipher at least the most important information. Here the contract is defining the parameters of the renewable energy credit.
From Renewable Energy Corporations → Community Solar
Each community member was previously using Green Mountain Energy as an alternative to fossil fuels. Green Mountain and other similar companies market themselves as ‘carbon offset’, meaning they run large wind farms in places like Idaho and Texas and then sell these credits to conscious consumers. You can use credits from a wind farm in NY for a higher price. In New York, Con Edison contracts Green Mountain as a supplier behind-the-scenes and residents still pay their bills to Con Ed.
While it is a step in the sustainable direction, this process is not transparent, not local, and not community-centric. Individuals trust in Con Edison and Green Mountain to actually produce the amount of renewable energy they claim where they claim and no local peer-2-peer market exists.
In the Brooklyn Microgrid community, there is no need for Green Mountain Energy. Community members produce their own renewable energy, and incentive each other to purchase any excess, creating a local marketplace. These six neighbors invested in their solar panels at separate times over the past five years. Today there are two large panels on one roof with smart meters that monitor each of the neighbors portion of solar energy production.
From Money → Mutual Credit Systems
The current implementation uses Paypal for members to send US dollars to purchase credits from their neighbors (See the paypal email popup in the photo of the first transaction that occurred on April 11th, a purchase of 195 renewable energy credits). The Brooklyn Microgrid community set a price of their credits based upon the comparable Green Mountain price:
7 cents per 1 credit of renewable energy = 1 kW-h.
This particular smart contract is connected to an owner who has complete control over adding community members to the marketplace and adding the smart meters associated with each community member. This implementation centralizes the regulation of price and power of the marketplace with one person. In order to develop a viable cooperative economic model, we have to insert a governance component that revolves around human decision making.
Towards Community Governed Resources
When we define the community, the rules, and the regulation of price, then a new model arises. Let’s imagine this community marketplace has quarterly governance meetings to govern resource consumption and build trust amongst the members. The community can exist in a state of credits and debits to one another, without needing the instantaneous paypal transaction.
A community comes together and agrees that their solar production and consumption will constitute a bank. The smart contracts on the blockchain record the transactions, and credit or debit member accounts. At that quarterly time period there will be a netting of accounts. The necessary payments will be issued at that time, and the community members can come up with their own protocol of payments (e.g. paypal, cash, barter, or carrying over all credits & debits into the next period).
In the example below there are five community members that constitute the bank. They have agreed that a renewable credit is 7 cents per kw-H in a smart contract. They have decided that the community member who produces the most is allowed to sell first in a smart contract. So Ashley pays 40 x 7 cents, and Joan pays 50 x 7 cents. That amount is distributed first all to Rob, and then the remaining 15 credits to Lucy. Thus Lucy carries over 5 extra credits she is owed into the next time period. The actual transfer of the funds is up to the community members for now. Over time we will build some cool software to improve this exchange process — but the trusted and transparent ledger is the foundation for cooperative economics.
Since no money is required to be exchanged at the moment of a transaction, the system incentivizes a greater degree of trust that builds over time. This mutual credit system has been tried and tested in communities worldwide over time without blockchain (check out Gwendolyn Hallsmith and her food bank work in Montpelier, VT). It works when the boundaries of a community and the rules of the marketplace are clearly defined.
If trust is present in the community, perhaps there is no need for an additional reputation system to penalize people who don’t pay or break rules. However, for larger communities there will be a need for a reputation system that will limit or block the participation of members who do not pay their owed amounts, or that break rules the community has designated.
This community can set rules like:
- community members’ accounts cannot fall below -100 credits
- community members’ accounts cannot rise above +100 credits
- renewable energy credit = X cents
- community members must produce X to be a member
- each transaction builds the user’s reputation within that community
- more reputation for producing than consuming
- community members must attend 3/4 quarterly governance meetings
- changes to the price of the credit requires 3/4 consensus (possibly using a system like Boardroom)
By having the quarterly meetings, we build trust because we know that our transactions have a social component. We know we will be accountable to members of our community for our consumption of resources. And we know the faces of the neighbors with whom we will be sharing our energy consumption. We start building community through our relationships of exchange. These economic models that ensure accountability to our communities are an integral thread of how we move from a world with unsustainable economic consumption practices to one that is considerate of living in accordance with the actual resources we have — equitably.
The Value of a Provable Reputation: Sustainable Business
The cost of solar panel installation for each community member costs around $30,000, but subsidies from the NY State and the Federal Government usually end up in a tax rebate of around $23,000. There is an upfront capital requirement, and a desire to get off fossil fuels as primary motivation, sure. Yet these community members are simultaneously starting to prove their reputation attached to their community identity by participating in a marketplace as renewable prosumers on a trusted ledger. If we imagine a world in which this reputation will start to become valuable, then an incentivize that wasn’t previously available emerges. #untappedvalue
Let’s take triple bottom line — people, planet, profit — a popular concept, even in the venture capital landscape. Bcorps, sustainable business, generational investments, and social entrepreneurship are all attempts to capture this value. This proposed community governed microgrid model actually proves reputation of renewable energy producers and consumers in a marketplace. If we agree that triple bottom line is an asset in the marketplaces of today, we can begin to intuit how valuable provable reputation will be in the future.
This cooperative economic model demonstrates governance of a shared resource with human checkpoints. The model is based upon multidisciplinary research and taking the first steps towards blockchain implementation with Future Culture and our other activist collaborators, mostly in Sullivan County, NY.
Future Culture is a nonprofit focused on intelligent activism and specifically blockchain for communities. We’re currently exploring the art of reputation and developing reputation-based complex barter systems to work out the necessary criteria for community economies to ethically exist on blockchain.
Implementation of blockchain for sharing of resources will require experts who understand the technology to work alongside communities to create their own governance systems, placing the values of each community at the center of each process. Only then can we begin to develop platforms with easy to use templates for communities worldwide, and develop a network of implementation and training experts. The blockchain space will mature only as we begin to consider the human components of an economy that are vital for any proposed system to thrive.
by Ashley Taylor, Cultural Implementation Strategy with ConsenSys