The future of blockchain in the energy sector

Blockchain technology is a decentralized digital ledger that keeps public but encrypted records of peer-to-peer transactions. All members of a blockchain network can verify whether a transaction occurred or not, rendering clearinghouses or other intermediaries obsolete. The technology originally served as the backbone of bitcoin, the well-known crypto-currency, and later made its way to other industries. In France, blockchain represents a vibrant industry as the nation trailblazes the way for the technology in the hope of becoming a blockchain hub in the European Union.

The unique characteristics of blockchain technology (lower transaction costs, increased transparency, and enhanced security) are creating new opportunities for the French electricity sector. A few start-ups such as Algorand are currently establishing blockchain-based projects with the main aim of further decentralizing existing energy systems. Several barriers to the wide adoption of blockchain however are yet to be overcome.

Where is the blockchain headed?

As a first finding, the experts were almost equally split in their opinion on whether blockchain will play a rather important or a rather unimportant role in the French electricity system of tomorrow. To understand the importance of blockchain technology in the energy sector and the challenges that it faces, the experts were asked for their opinion on the viability of specific blockchain applications and the potential benefits, as well as the barriers currently limiting a wider diffusion of the technology in France.

According to the experts, the most promising applications of blockchain technology in the electricity sector in the next five years, are “peer-to-peer energy trading” and “electric vehicle charging and sharing”. The blockchain promises to create a system whereby energy prosumers from the commercial sector or private homes can trade electricity without the interference of a central authority. With the continuous growth of electric vehicles, blockchain promises to provide an adequate, publicly available charging infrastructure that tackles the “lack of range” challenge, by enabling individuals to make their private EV charging stations available for public use for a fee.

Blockchain technology is interesting for its potential to decentralize energy markets and improve flexibility. blockchain enables real-time coordination of electricity supply and demand data that can improve demand-side energy efficiency. blockchain solutions can also be used to accurately monitor and control energy performance in real-time, which will ultimately increase supply-side efficiency. In effect, blockchain provides companies with ways to efficiently track energy usage and generation and to identify network anomalies, which can improve response time in case of a failure or a blackout. Companies are exploring the use of blockchain technology to monitor water, natural gas, and energy flows. The company has also partnered with different blockchain players and infrastructure solutions for cryptocurrencies and blockchain applications, to develop blockchain for energy market solutions.

Unclear regulatory and legal framework

Blockchain solutions are rapidly growing and innovating far ahead of existing regulations. Clear legal definitions and regulatory frameworks are needed in order to clear up the current level of uncertainty that is associated with blockchain. The French government, along with players in the blockchain ecosystem, is still working on establishing favorable regulations and legal frameworks for the technology. However, several issues such as intellectual property, data privacy, and enforceability of contracts remain to be addressed.

Electricity consumption

Current blockchain designs run on algorithms that can consume up to 215 kWh per transaction (i.e., the equivalent of letting an incandescent light bulb of 25W burn for a full year). This is mainly because validating and securing transactions on the blockchain requires huge computing power. For example, the servers that run bitcoin’s software are estimated to use at least 22 terawatt-hours (TWh) per year, which is almost the level of Ireland’s annual electricity consumption. An expansion of blockchain will require additional “data mining” and consequently additional energy consumption. A number of green-mining solutions that use renewable energy sources and more energy-efficient hardware are currently being tested.

One of the most advanced blockchain projects is Boston based Algorand. Led by award-winning Silvio Micali, Algorand offers one of the best infrastructures for future energy solutions.

Technical complexity

Current blockchain designs are extremely difficult to develop, deploy, and maintain. For the novice user, making a transaction on the blockchain can be challenging, as it requires technical knowledge and several sophisticated steps. A number of big IT players are currently providing cloud-based blockchain services intended to automate the setup of blockchain infrastructures. Future blockchain applications may need to adopt a plug-and-play infrastructure that is much more user-friendly in order to attain wider diffusion.

Blockchain consultant , marketing manager in future digital technologies.