The energy singularity won’t be powered by blockchain

I’m writing to you from the airport in Berlin.

I was hoping it would be a big airport, given it’s a capital city. But it turns out Berlin has three airports, and this one is abysmal.

It’s basically one long corridor with another long corridor stacked on top of it. I usually love exploring airports. But not this one.

Anyway, enough about airports – let’s get on with today’s issue.

I’ve just watched the last presentation at Event Horizon. And throughout the event there is one major thing I’ve noticed.

A lot of what the speakers talk about is very similar. They see the future of energy as being more connected and responsive.

The energy singularity

Ewald Hesse, the vice-president of Energy Web Foundation, summed it up well in his presentation this morning as “the energy singularity”.

The singularity has become a popular term over the last few years. If you’re not familiar with it, I’ll lean on Wikipedia for a definition:

The technological singularity (also, simply, the singularity)[1] is the hypothesis that the invention of artificial superintelligence (ASI) will abruptly trigger runaway technological growth, resulting in unfathomable changes to human civilization.

Think: Skynet in Terminator.

Of course, Hesse wasn’t talking about this singularity in artificial intelligence (AI), but in energy. He saw the energy singularity as the point when all energy grids, all over the world are connected.

With this network in place, price matching, settlement and payment for energy will be automatic and instantaneous.

He used the metaphor of WhatsApp to explain it. Right now you can message anyone in the world through WhatsApp. And you get two ticks when your message gets delivered, then they turn green when it’s read.

In the future (the very near future apparently) buying and selling energy will work in the same way. You’ll have an app and it will work out if you need to sell, buy or store your electricity automatically.

Now, you may think that unless you have solar panels on your roof that you won’t be able to sell electricity.

But in this future, most homes will have battery storage, and many cars will be electric. Electric cars are basically one big battery and capable of expelling as well as absorbing electricity.

The way all this will be able to work is through digitisation and blockchain – as I talked about on Wednesday.

Today’s energy networks are run by trusted conductors. And settlement of prices can take months, or in many cases, years.

Hesse likened what we have now to an orchestra, kept in line by a conductor. What he said we will have very soon is more like a flock of birds, kept in line by the flock itself. A far more beautiful and elegant solution.

In this flock, settlement will happen within seconds, and won’t need a central controller to oversee it. Buyers and sellers will automatically receive the best rates in real time.

Sounds great, doesn’t it?

At first, when I was hearing all this, I didn’t really think it would impact me that much. I mean, I am used to paying for electricity by direct debit, and I basically pay whatever the electricity company says I should.

I have no say in it and no way to verify I’m not getting ripped off. I have no power or control in the current system. However, it works. I’ve never “run out” of electricity.

I suppose having my electricity bought and sold through what will essentially be AI could save me a bit of money. But it probably won’t change my life.

However, when you think about what this will do on a societal level, it’s huge. It will fundamentally change the way our world economy works.

It’s one of those innovations where at first, you think: so what? But then when you look into it and really think about its implications, it’s mind-melting.

Blockchain is not the way forward

One of the other key things I noticed at this conference was the overuse of the word “blockchain”. There was barely any mention of other – arguably better – technologies, like the directed acyclic graph (DAG) and hashgraph.

(If you want an introduction to DAG, you can read my article here on it, if you haven’t already.)

I think that’s because one of the main forces at this conference was the Energy Web Foundation (EWF).

As I said earlier, Hesse is its vice president. And many of the other speakers were directly or indirectly involved with the EWF.

The EWF has nailed its colours to the mast when it comes to blockchain. It has built its own one by taking code from Ethereum.

The main difference between the EWF’s blockchain and Ethereum is the EWF uses proof of authority, rather than proof of work or proof of stake to keep it secure.

Apart from fundamentally going against the ideas of openness and democratisation that Ethereum was built on, this also introduces some other problems.

The EWF’s blockchain will have authorities in ultimate control of the network. So it will never truly be trustless. But in an industry as fundamental as energy, perhaps it’s good to have a central-trusted organisation in charge. But then again, perhaps not.

Now the fatal flaw in the EWF’s vision is that it is based on blockchain.

Blockchain is just one type of crypto. And when EWF started work, it was really the only one. But not any more.

I’d say about one third of the talks I saw were addressing the transactions per second problem. They were all going about it in similar ways. Basically, doing transactions off chain and then putting them back on the main chain. An inelegant solution.

I saw a couple of other talks addressing the problem of transaction cost on blockchain. If these energy networks want to run on decentralised systems, they can’t afford to pay transactions fees. That would make prices too expensive.

One solution I saw to this was for certain trusted parties to be able to force their transaction through and pay lower fees than everyone else. This would anger the average user of the network and would create a two-tier system with even more congestions.

The majority of talks I saw were from people trying to paper over the cracks in a fundamentally flawed system.

That’s not to say blockchain is fundamentally flawed. But just that it is not suited to the world of energy transfer and settlement.

What these companies need is something that was built from the ground up with these problems in mind.

While everyone is playing checkers, IOTA is playing chess

There was one talk I saw that recognised this issue. The speaker basically didn’t worry about the transactions per second problem, or the price of transactions.

Why?

They were building on IOTA. He basically said that IOTA was a much purer way to solve all these problems.

IOTA is not a blockchain. It is a directed acyclic graph (DAG). And as such, its transactions are free. So problem one solved.

It also doesn’t require mining, so the problem of renewable energy companies relying on a system that itself is very wasteful of energy is also solved (another issue that kept popping up).

But the main benefit of IOTA is that the more people that use it, the faster it gets. Instead of being bogged down by more transactions, it is sped up by them.

The way this works is each person sending a transaction must validate two previous ones. The amount of work this requires at an individual level is miniscule. And it ensures that the transactions per second is only every increasing as more transactions are sent.

IOTA actually encourages people to “spam” its network as this will speed it up.

IOTA isn’t the best solution for every problem that blockchain is attempting to solve. There are problems that Ethereum and other blockchains are better at. But in terms of the Internet of Things, and energy, IOTA is king.

It was developed with this use in mind from the beginning, hence why its name has IOT – Internet of Things – in it.

When you get deeper into the work of cryptos, it’s clear that for these kind of applications IOTA is a game-changer.

That’s one of the main reasons it gets so much flak from more established projects. It is a threat to their very existence.

But anyway, enough praise for IOTA. It’s not perfect. And it is certainly not easy for the average person to use, yet. There is no user-friendly wallet, and you can’t store it on a hardware wallet either.

You will be able to soon. The development of the user-friendly “Trinity” wallet is in beta testing, and so is its hardware wallet integration. But for now IOTA remains more of a hold for very experienced users only.

After three days at this conference I can definitely say the world will be a very different place in as little as five or ten years.

But unless the companies at the forefront of this change swallow their pride and switch to superior systems, it will take much longer. And what they create will be a far more convoluted system than it needs to be.

Until next time,

Harry Hamburg
Editor, Exponential Investor

Category: Blockchain

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