Blockchain prevents energy grid and IoT network attacks, but transaction processing speed becomes a new obstacle

Just as blockchain technology already tracks and verifies transactions in bitcoin and other cryptocurrencies, it could similarly coordinate trades in energy units.

Blockchain technology—once thought of only as the peer-to-peer distributed ledger technology that underlies Bitcoin—is now making waves in many other industries. Banks and financial services firms have jumped on the blockchain bandwagon and have or are investigating how to use blockchain to securely process currency transactions, and some companies are now issuing shares on blockchain platforms, but these are not the only industries experimenting with the technology. You can easily logically realize that the technology used to process currency transactions can also be expanded to process other transactions, such as energy.

So could blockchain technology have a major impact on the future of the energy industry? Below we discuss this possibility.

The Problem

The energy industry has changed dramatically over the past few decades. When the electric grid was built, it was designed to support the traditional model of energy generation and consumption - a central entity generates electricity and then distributes it to consumers.

Today, energy generation is becoming increasingly decentralized, with more and more 'prosumers' involved, individuals and institutions that feed energy back into the grid. For example, homeowners with solar panels and commercial infrastructure no longer just consume electricity supplied by central entities - they now also produce their own electricity, which leads to more and more two-way traffic on the grid. Many countries now allow users to sell excess electricity to utilities through a process called 'net metering', where prosumers sell the excess electricity they produce to utilities at retail prices rather than wholesale prices.

While net metering has led to dramatic growth in the solar industry, these developments have not been without controversy. The Nevada Public Utilities Commission has decided to phase out incentives for homeowners to install rooftop solar panels, signaling their anti-subsidy sentiment that net metering is too burdensome for utilities to recoup from local ratepayers. After all, utilities are responsible for maintaining the entire grid, and every kilowatt-hour produced by prosumers means one less kilowatt-hour sold by the utility.

At the same time as electricity production patterns change, more and more devices are being connected to the Internet, enabling them to optimize energy consumption in new ways. The number of connected devices is expected to grow from 1 billion to 10 billion, so there will be a greater need for efficient, scalable and secure methods to handle the transactions generated by these devices. To the extent that these connected devices also interact with the grid, whether as energy producers, energy management software or other capabilities, it seems that there may be constant friction between utilities and prosumers because in the future world, there may be billions of endpoints that will trade energy and other resources with each other.

So, how do you create a system that can automatically verify transactions across nodes instantly as market conditions change?

Blockchain is a possible solution

Blockchain may help the energy industry overcome the challenges it faces. At its most basic, a blockchain is a distributed database (or digital ledger) of transactions that are stored and verified by network participants rather than a centralized database maintained by a middleman. New blocks of information are added to the ledger only after they have been verified by network participants and confirmed by consensus. The permanence of this ledger can make intangible electronic assets more like tangible physical assets, whose ownership can be easily verified and tracked. Just as blockchain technology allows Bitcoin and other cryptocurrency transactions to be tracked and verified, the technology can also regulate the trading of energy units.

For example, a blockchain-based smart meter could allow prosumers to earn cryptocurrency-like points for delivering energy to the grid, which can then be used to purchase energy from other prosumers. Alternatively, a blockchain-based smart meter could be used to identify specific electrons produced by a prosumer, allowing energy consumers to trade directly with each other without having to go back to the utility. By enabling prosumers to trade energy directly with each other, distributed production can continue to operate in environments where net metering is not permitted or economically advantageous.

The transparency, persistence, and decentralization inherent in blockchain computing processing can also address the biggest threat facing the power grid: cyberattacks .

Because network consensus is required to change information on a blockchain ledger, a properly implemented blockchain network is arguably less vulnerable to spoofing attacks—where malicious actors mimic a device to launch an attack and steal data.

Another benefit of blockchain is its use in smart contracts — that is, the terms of a traditional contract are written into software code, recorded on a blockchain, and then automatically enforced based on pre-set rules in the smart contract. Smart contracts can be used for transactions between consumer connected devices — or even as independent autonomous entities that share power and other resources with other devices independent of consumer input.

However, blockchain is not without weaknesses, which could prevent it from gaining rapid widespread adoption in the energy industry. For example, the processing speed of blockchain systems is currently insufficient to cope with the huge number of transactions that occur on the power grid. While this means that the entire power grid is unlikely to be supported by blockchain technology anytime soon, blockchain technology could be adopted on a small scale by the energy industry - perhaps starting with smart meters, then moving on to connected devices, and then microgrids...

in conclusion

While blockchain technology isn’t immediately an end-all solution to the challenges facing the modern energy industry, utilities, energy tech companies, and consumers should be excited about the idea that the grid could integrate blockchain in some way.

The full adoption of blockchain technology may be many years away, but energy industry players should take note of financial services firms’ developments into blockchain, investigate and plan for it, so as not to miss out on future opportunities.