The Blockchain goes green

 By Danny Bradbury

Bitcoin, the cryptocurrency that took the financial world by storm, gave people a new way to exchange value. It also gave us an energy headache…

The digital currency relies on computing power to fuel its vast, decentralized network. That computing power requires electricity – and lots of it. As the network’s success has grown, so has its effect on the world’s energy systems.
Cryptocurrency doesn’t have to be bad for the planet, though. With some imagination, environmentally minded entrepreneurs have taken its underlying technology and re-engineered it to help, rather than hinder, the environment. This article explains the problem at the heart of bitcoin and looks at its environmentally friendly alternatives.

How bitcoin became a power hog

Bitcoin began as a promising way to quickly exchange digital money. Until it arrived, people had relied on banks to transmit money. The banks served a valuable purpose by holding a central record for all transactions.
Bob and Julie might live on opposite sides of the world and not know each other. Yet Bob may have to send Julie money. He could mail it, but that transaction would be insecure. In any case, if she claimed that it had not arrived, how could he trust that she’s being truthful? By processing the transaction electronically, a bank could get the money to Julie faster and then confirm without a doubt that she had received it.
Mathematics experts, spooked by the financial crisis of 2008, wanted a self-governing system that didn’t rely on central banks. An anonymous cryptographer known only as Satoshi Nakamoto developed the blockchain as the basis for bitcoin. In this system, there is no central record. Instead, everyone participating in the network has a copy of the record. When someone makes a transaction, it is copied across all records in the network so that everyone knows what happened.
How does the blockchain prevent one person from tampering with the record and copying it everywhere else? That’s where bitcoin’s energy problem begins.

To be copied across the blockchain, a transaction must be electronically ‘sealed’ into it. Think of it like a wax seal, applied to every page in an accounting book. Once the seal has been applied, no one can go back and alter things without breaking it.
Instead of using wax, computers use math to seal transactions, and instead of a page they deal with transactions in blocks. To seal a group of transactions into the blockchain, all the computers participating in it compete to solve a difficult math problem, in a process called ‘mining’. Solving it creates a code that seals all the transactions for the last 10 minutes into the blockchain. The computer that solves the problem receives some newly generated bitcoin as a reward.
To tamper with any transactions sealed into the blockchain, any crooks would have to go back and solve the math problem themselves, edit the information and then reseal it. But that math problem took all the computers on the network 10 minutes to crack, making it highly unlikely that one computer alone could do it. To make it even harder, every block includes information from the previous block. If the fraudster wanted to rewrite transactions from further back, they would have to ‘unseal’ a series of blocks to do it. That is practically impossible.
This method of securing transactions is known as ‘proof of work’ (PoW), and it is fiendishly clever. The more computers mining the blockchain, the more complex the math becomes, making it even more difficult for fraudsters to interfere. But in bitcoin’s success lies its problem, because each computer uses computing power to do the math. The more computers that participate, the more electricity that the bitcoin network uses. The most recent estimates from analysis site Digiconomist suggest that the bitcoin network is using as much energy as the entire country of Chile.

Greener blockchains

No new technology stands still, and the blockchain technology underpinning the original bitcoin network was crying out for someone to uncouple the concept from the decentralized money network and redevelop it for new initiatives in a more environmentally sustainable way. One example is Bitcoin Green. While this decentralized money system has the same financial goals as the original bitcoin, it aims to achieve them using a fraction of the energy.
Bitcoin Green replaces PoW with ‘proof of stake’ (PoS) to reduce the number of computers doing the work. In this system, a small number of computers mines on behalf of everyone else. They distribute a proportion of the reward to people on the blockchain, based on the quantity of Bitcoin Green cryptocurrency that they already hold. Bitcoin Green’s organizers believe that the blockchain will use at the very most 0.06 percent of bitcoin’s current energy consumption.

Bitcoin Green (BITG) - Sustainable Cryptocurrency - Proof-Of-Stake & Masternode

Dan Larimer, inventor of a new blockchain technology called EOS believes that he can reduce that energy consumption still further with his own underlying technology, called ‘delegated proof of stake’ (DPoS). In this scenario, no one does any math at all. Instead, the community elects 21 ‘block producers’ who simply verify the transactions on the blockchain. The block producers are automatically elected every time they seal a block. If they act fraudulently, they won’t get re-elected.

Blockchains that help people produce energy

Other blockchain projects go far further than these. Rather than simply figuring out a greener way to exchange money, they want to use blockchain to solve environmental problems. One example is renewable energy production. SolarCoin is a cryptocurrency designed to reward solar energy producers by replacing a PoW that consumes electricity with one that produces it. Owners of solar panels can earn SolarCoins as they produce solar energy.
Users can send their proof of generation documents (such as renewable energy certificates) to the SolarCoin Foundation or in some cases connect their energy meter directly to its blockchain. They get coins in return. Every 1 megawatt hour of energy that a panel produces equates to a SolarCoin. They can then trade SolarCoins on the open market. The coins are trading at around 15 cents each at the time of this writing.

While SolarCoin rewards individual households for energy the company has already produced, the Sun Exchange makes solar energy available to people who could not otherwise afford it using the power of the blockchain. The initiative enables investors globally to contribute to the cost of solar panel projects, mainly for communities in Africa, via a blockchain using its own cryptocurrency known as SunEx. When a project reaches its crowdfunding goal, the company installs the solar panels and the local community begins paying a lease for the equipment. The lease repayments provide the original funders with a return on their investment via the blockchain.
In Brooklyn, New York, LO3 Energy is using a mixture of blockchain technology and microgrids to make the exchange of energy in the local community more efficient. Participants in the community-powered Brooklyn Microgrid generate electricity using solar panels and then trade it among themselves. Participants can sell their excess renewable energy to neighbors as necessary using an LO3-developed decentralized blockchain-based local energy marketplace called Exergy.
WePower aims to make renewable energy funding more efficient on an even larger scale by letting renewable power plants capitalize on the energy they plan to produce. Based in Lithuania, but operating in several countries, the initiative lets energy companies create ‘digital power purchase agreements’ (PPAs), which are effectively contracts to provide power in advance. The PPAs reside on the blockchain in the form of smart contracts. These are blockchain-based computer programs that connect to the electricity grid and monitor the energy being produced and consumed by the contract holders.
Energy producers initially sell the contracts in exchange for WePower’s own cryptocurrency, called WPR tokens. Traders can then buy and sell these contracts on the open market. The result? A liquid, decentralized energy market that can span international boundaries, and which WePower believes will connect renewable energy companies with investors quickly and easily, spurring investment in this underserved market.
The blockchain may have started as a means of distributing money, but imagination and innovation are changing its role in the world. Instead of chewing through electrons, it is rewarding people for the new ones that they produce. As the renewable energy industry wakes up to the power of the blockchain, prepare to see a lot more power created, distributed and paid for using this exciting new technology.

READ MORE: Blockchain and the energy business by Nicholas Newman

about the author
Danny Bradbury