The cloud era has ushered in a new force of decentralization. While sophisticated blockchain deployments are launching all over the world and interest in blockchain investment is picking up rapidly, such innovations are met with growing concern across governments and world economies. In particular, the US government views them as sources of financial instability and economic unrest. Fearing that cryptocurrencies will threaten existing legal structures and result in a loss of economic power, many regulators in the United States view the growing shift towards decentralization with skepticism. As a result, navigating new business models around archaic regulations proves to be a barrier for innovation.
With blockchain technologies seeking to democratize and decentralize energy transactions between consumers, existing regulatory frameworks stand as hurdles inhibiting blockchain’s true disruptive potential. The constitution was not drafted with blockchain mind so current regulations prove incompatible with the technological innovation of the modern day. Reasons for disapproval of blockchain p2p platforms stem from concerns about consumer protection rights and security that regulators are just now beginning to understand and act upon. Therefore, we have seen very little progress made thus far in peer to peer energy trading without direct utility involvement.
From a regulatory standpoint, Peer to Peer energy transactions are a central point of friction within the blockchain movement. In California and a few other states, green energy retailers are permitted to sell energy to direct to consumers. But in most regions of the United States, utility companies continue to be the primary entities that sell electricity to households. In the height of the sharing economy, consumers are demanding greater connectivity and the convenience of control that blockchain powered marketplaces provide yet regulatory structures are not set up to support commercial practices. Certifications are available for individuals to sell energy to one another but requirements are so stringent that they hinder accessibility.
Overall, US lawmakers are reluctant to change regulations in favor of decentralization. A July 2016 Congressional resolution notes that “blockchain technology with the appropriate protections has the potential to fundamentally change the manner in which trust and security are established in online transactions through various potential applications in sectors including financial services, payments, health care, energy, property management, and intellectual property management.*” The United States federal government has not exercised power in regulating blockchain. Therefore, states remain in charge of dictating their own rules and regulations revolving around recognizing blockchain and it’s legal use cases. In 2015, New York led the way in introducing legislation around blockchain by becoming the first state to regulate virtual currency. Since then, bills in eight more states have been drafted promoting the use of bitcoin and blockchain and more are in the pipeline.
However, the EU is much more welcoming of new blockchain technology. In early 2017, the European Union government announced it is working on a progressive plan to support distributed ledger technology (DLT) based projects and is seeking to undertake more “pilot projects to foster decentralized innovation ecosystems and help reshape interactions between consumers, producers, creators and among citizens, businesses and administrations to the end benefit of society”**. By adopting a business philosophy based on innovation and extending so much support to the exploration of blockchain, the EU has made itself a prime destination for blockchain development. The EU’s openness to blockchain projects is suggestive of the US lagging behind.
But with significant momentum surrounding blockchain in energy, we cannot help but question whether blockchain can catalyze change in US regulation. Recently, there has been increased activity and task forces dedicated to exploring the future of the electricity industry. Illinois has launched an 18-month consumer-focused study to address critical issues facing Illinois’ electric utility industry in the coming decade and beyond that seeks to evaluate how introducing new technologies and policies would be advantageous for Illinois***. Moreover, startups like NAD Grid have increased partnerships and relationships with leading utility companies to lure more government investment towards a solution. The interconnectivity of technical talent, utilities, and government regulators is vital for not only aiding the environment but also empowering customers to better manage their energy use.
Blockchain solutions in the energy space seek to bring more efficiency and growth into the energy markets. In order to provide this efficiency and provide consumers with access to cleaner energy, active regulator involvement is crucial. While some solutions aim to include the utilities, progress cannot truly be made until there is a focus on broader business models that involve the regulator. Ultimately blockchain is an enabling technology that can have profound benefits on society. Change will not be instantaneous and will vary on a state by state basis.
Sources:
*https://www.congress.gov/bill/114th-congress/house-resolution/835
**http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52016DC0733&from=EN
