Blockchain: The transaction solution for decentralized electricity markets?

Blockchain, a decentralized transaction technology that allows for cryptocurrencies such as Bitcoin, is generating a lot of buzz. It has the potential to significantly reduce transaction costs while protecting the privacy of the parties involved.

Fintech companies were the first to take note of the technology’s disruptive potential. By now there are books and conferences on blockchain, venture capital firms that focus specifically on blockchain, and startup competitions for the best blockchain business model. Industries other than those in the Fintech sector have started to explore the opportunities that blockchain offers as well – including the incumbents in the energy industry.

On March 3, 2016, New Scientist magazine published an article entitled “Blockchain-based microgrid gives power to consumers in New York.” The startup Transactive Grid enables people to trade renewable energy directly with their neighbors. The billing process does not go through one of the traditional energy providers, and the rules of the deal are verified in a smart contract – a blockchain-based computer protocol that facilitates, verifies, and confirms the conditions.

Whereas this transaction was programmed as a stand-alone application, the Vienna-based startup Grid Singularity plans to create a platform where producers, consumers, and prosumers can trade their energy without a central utility, all based on blockchain.

With the rise of decentralized energy generation, the balancing, billing, and management of decentralized electricity has become increasingly complex due to the vast amount of data and transactions involved. Blockchain would be able to reduce these transactions to a simple act. Trusted and certified sensors would provide the necessary data for smart contracts. In fact, based on a blockchain platform, any kind of energy app could be developed – ranging from due diligence of a power-generation entity to demand-side management.

Even if blockchain technology is just beginning to attract attention, there are tremendous opportunities for decentralized energy markets to exploit