By: Joe Forbes — CEO, Causam eXchange
“We always overestimate the change that will occur in the next 2 years and underestimate the change that will occur in the next 10 years. Don’t let yourself be lulled into inaction.” – Bill Gates
This quote from Bill Gates describes well the state of blockchain in energy. It should inspire both pragmatism and excitement for patient and persistent founders and investors.
In this blog, I will try to summarize some of my gleanings from two recent forums where energy blockchain was discussed.
The first event was UNC Chapel Hill’s Cleantech Summit held on March 1-2 in Chapel Hill, North Carolina. I was on a panel called: “Blockchain in the Energy Sector: Hype Versus Reality?
The second event was GTM Research’s Blockchain in Energy Forum on March 8, a highly focused crowd where I was a spectator. However, on the same day, Greentech Media ran a cover story on our work in energy blockchain at Causam eXChange called: “Causam: The Blockchain Firm for Blockchain Skeptics — ‘It’s like Visa for the electric grid.’“
Here are 4 takeaways around the wild west of energy blockchain opportunities.
- Energy is a perfect sector for using blockchain to solve problems.
Why is that?
First, it is full of intermediaries — that is, businesses that sit in between transactions involving the movement of power or money.
Second, it is a slow moving beast. Some might even say that the energy industry is like the biggest dinosaur with the smallest brain. The lack of historical urgency around innovation is precisely what makes it ripe for innovation today.
Third, there is a lot more activity at the grid edge today. Think distributed generation with solar, smart meters, demand response, and energy storage. This requires some intelligence at the grid edge, too. Blockchain, especially smart contracts, can enable that.
So how can blockchain help the energy sector?
GTM lays out 18 major uses cases in these general buckets. We explore use cases in a related article here.
- Transactive energy — consumers becoming prosumers that provide grid services
- Accounting — retail billing, renewable energy credits, settlements, or asset registries
- Cryptocurrency focused — crowdfunding for renewable energy asset finance
- Cybersecurity — establishing trust for messaging among transacting parties
The Energy Web Foundation goes even further to suggest 200 possible use cases for blockchain in the energy sector. I’m crossing my fingers that they are right.
- Blockchain in energy is happening today, not just in some distant dreamland.
Fun fact: The first blockchain transaction purportedly took place in 2010 when bitcoin was used to buy pizza in Florida. (I know, stereotypical, right?)
As of March 2018, GTM is tracking 40 deployed projects and 33 more that are planned. Unfortunately for us in the U.S., the EU is leading the way, mostly in Germany and Netherlands. We need to step up our game.
This includes activity among 122 companies, in which most focus on transactive energy. In response, a number of panelists put it this way: “We have to be blockchain pragmatists. We don’t need a utopian view where everyone’s toaster is trading power with our neighbors’ refrigerators. We need real use cases with revenue and beachhead customers.”
As of December 2017, Solarplaza estimated that there were 90 companies or pilot projects, where most focus on peer-to-peer (P2P) power trading. And 74% of these started in 2016 or 2017. So there are plenty of lemmings eager to follow the crowd’s momentum towards the promised land of cheaper energy from clean sources, all controlled “auto-magically” through smart contracts or smart phones. (Now click your heels three times and say…)
That’s where Causam eXchange is an odd duck. We’ve been building our technology platform in stealth for over four years. but we only recently added blockchain as a tool in our toolkit to solve financial settlement problems in the power sector. On top of that,we’ve created over 80 patents (granted and pending) to provide a solid foundation for our software solutions.
- Investors are paying attention, but they need a valid point of entry to the market.
To date, over $300M has been raised for energy blockchain companies.
Over 70% of this capital has been raised via Initial Coin Offerings (ICOs), a unique alternative to traditional capital raising, in which the U.S. Securities Exchange Commision (SEC) has become very interested recently. (But remember what it means when someone refers to something as “interesting.”)
Accordingly, there are pivots on the horizon.
First, there is a slow recognition that venture and corporate investors bring far more value than just the value derived from their dollars with their network, advice, and governance. Although it takes an experienced entrepreneur to be humble enough to know this. (I’m raising my hand as a big believer.)
Second, there is a movement towards selling tokens as securities to accredited or institutional investors — i.e., no grey area regarding securities compliance. That’s the path we’re taking with our tokenized security offering. We call it the BITE — Blockchain Instrument for Transferrable Equity. Here is our press release about this innovative method we’re using to raise capital via real securities on the blockchain pursuant to SEC Rule 506(c). Investopedia talked about this work here.
Third, experts note that conversations about blockchain within large corporate strategics makes its way up to, or comes down from, the highest level — CEOs or the Board of Directors. As such, they see this innovation as either a big threat, or a big opportunity, or both. Regardless, they are looking for ways to get smarter, find partners, make strategic investments, and perhaps even buy some of these startups.
Fourth, investors noted that they wanted to see founders with experience in 1-2 prior ventures. Others noted that many energy blockchain entrepreneurs have little to no operational experience, but instead created some smart code to solve a problem. I am a huge fan of the innovation among the next generation of entrepreneurs, but for us, Causam eXchange follows many of our prior startups and seven prior public and private exits. After 30 years of experience, we didn’t need to start a new business, but we did so because our energy blockchain company is, we believe, the biggest opportunity we’ve ever created.
- Blockchain is still just a teenager. But oh, the potential.
OK, so as a father, I think about my kiddos years ago: So much hope, vision, excitement, along with great educations, a strong community, and solid upbringing (thanks, honey). Their thinking and actions were different than mine. Sometimes better. Sometimes needing a little refinement. I knew they’d take over their world, but how soon?
And now for blockchain…
It has gone from an obscure tool for Bitcoin enthusiasts, and near zero interest in the broader business world, to an overused buzzword that brings both thrills and nausea at the same time.
Here are some ways that blockchain needs to improve:
- Governance — Some panelists called this the #1 most important, yet least studied, blockchain topic. Consider this: How would you feel if your power were to be managed entirely by millions of people and machines, whose identity and location are unknown to you?
- Scalability — Bitcoin can handle 5 transactions per second. So, it’s not the solution. For Ethereum, the mostly widely used blockchain for the power sector, the number is 16. But some suggest that the power sector could need 1,000 transactions per second for things like voltage support.
- Interoperability — How will blockchains interact with existing systems and hardware on the grid? How will different blockchains interact with each other? This is a big deal for us at Causam eXchange. Having built and sold multiple companies in the telecom sector, I know that replacing 800-pound gorillas (i.e., utilities, power grid) does not happen overnight. As such, our software can work with all types of hardware and legacy systems.
- Privacy — Open data is a great thing, empowering choice and efficiency. But who owns the data captured in energy blockchain ventures?
So where do we go from here?
Get back to the grindstone. Work out the kinks. View dominant electricity players as partners, not enemies. Help real estate owners become virtual power plants, increase asset values, improve their green credentials, and keep tenants happier. Help retail electric providers, municipal utilities, and electric coops to aggregate renewable resources, delight customers with new electricity choices, and improve operational efficiency. And put in the long hours to co-create a more renewable, digital, distributed, and secure power grid. As RMI’s Founder Amory Lovins put it: “We can’t get to 100% renewables until the grid clears from the bottom up, and is self-organized and self-healing.” On that note, let’s get back to work transformation highfalutin innovation into real solutions for real customers.
Finally — 3 Videos
Let’s “meet” face to face and talk blockchain in energy. Below are three super short videos about how we view this sector. So, grab a coffee or a beer, and let’s “chat.”
What makes Causam eXchange unique?
The challenges of a blockchain-only approach to building businesses in the power sector
Why we are raising capital via a tokenized security offering:
Our BITE – Blockchain Instrument for Transferrable Equity