For many years, environmentalists have complained about the massive amounts of energy needed to secure cryptocurrency blockchain networks. For instance, they point out that the Bitcoin blockchain consumes more power than some small countries annually. However, blockchain technology could also be a solution for challenges facing the energy sector. Here is how:
Enhanced Efficiency in the Energy Market
Globally, the energy markets are valued at around $5 trillion. It is a complex sector that involves a lot of moving parts from the extraction of raw materials, processing, storage, and transportation to the final consumer. Due to the complexity of these processes, trading in the energy markets can sometimes be complicated.
Using the blockchain could help to improve the efficiency of tracking each transaction within the energy markets. Besides being able to efficiently track transactions, the technology can enable near-instant settlement. As a result, deals worth billions of dollars that would ordinarily take days or weeks to conclude could be completed in a few hours or minutes. Best of all, this process does not require any third parties.
Enhanced Regulatory Compliance
For regulators, blockchain technology holds great potential for enhancing regulatory compliance. Today, most regulators require huge amounts of data from companies in the energy sector to detect any issues of non-compliance. With current technology, collecting and analyzing this data is usually a huge challenge. Besides that, there is always a risk that this data could be compromised and sensitive corporate data leaked.
Using the blockchain could help to eliminate most of these problems. The technology can enable transparency for regulatory compliance. At the same time, it could help to protect data from being leaked to unauthorized parties. A blockchain-based platform could also help to ensure a standard data format for the energy industry, which does not exist today.
Peer to Peer Energy Trading
In the current model of energy trading, consumers typically sell excess power from their renewable energy installations. When they need it, it is sold to them later. The only problem with this model is that consumers pay more to the power company than what the power company buys their energy at.
One solution to this issue is to create micro-grids. Through micro-grids, consumers can sell power to each other in a micro-grid depending on their consumption needs. In short, energy is converted into tokens secured on the blockchain. These tokens can be traded amongst community members who produce excess amounts of power from their sustainable energy systems.
Hindrances to Widespread Adoption of Blockchain Technology in the Energy Sector
While the use of blockchain technology looks promising in the energy sector. There are still some factors that hinder its widespread use in the energy industry. These are:
Scalability
One of the biggest challenges to using the blockchain in the $5 trillion energy sector is scalability. Unfortunately, the current design of blockchains means that they become extremely slow when used to conduct huge amounts of transactions. The proof of work model, which is touted as the most secure algorithm for securing blockchains, is also highly energy-intensive. As a result, solutions for these issues need to be found before the blockchain can be deployed in the energy sector.
Confidentiality and Data Security
To operate a global blockchain-based energy markets platforms, the security and privacy needs of companies involved need to be addressed. Some solutions have already been created. They include private blockchains and consortium blockchains.
Unlike a public blockchain, a private blockchain has centralized control. Permission to data on the chain is highly controlled as well as who can add data to the chain. With a consortium blockchain, access to the blockchain is controlled by a consortium of nodes, instead of a single, centralized entity.
Global Standards
The concept of the blockchain is still relatively new. However, during that time, numerous standards have emerged for various alliterations of the blockchain. To achieve a global and efficient blockchain-powered platform, various standards will have to be agreed upon.
Thus far, such standards have not been created. Instead, various projects are competing against each other, hoping to achieve critical mass, and become the leading blockchain standard for the energy sector. However, such a process could take years for a global standard to be achieved. Besides that, there is a risk of different systems being developed and succeeding concurrently, which could lead to a fractured energy market.
Summary
The utilization of the blockchain in the energy sector is still in its infancy. However, it already shows a lot of potential in terms of improved efficiency, lower costs, and faster settlement. One development that could lead to even greater improvement in the energy sector is the combination of the Internet of Things and the blockchain. In a sector that relies heavily on the shipment of cargo and energy units from one location to another, being able to efficiently collect data from IoT devices and execute commands automatically using smart contracts could lead to a great improvement for the energy industry.