Most of us have heard the terms cryptocurrency, bitcoin and blockchain, but we are not entirely clear on their meaning or importance to the power industry. Cryptocurrencies are electronic forms of money, and bitcoin is one of the most widely distributed and prevalently used cryptocurrencies today. Blockchain is the mechanism used to authenticate cryptocurrencies and all of these concepts are of huge importance to the power industry because the fundamental process behind blockchain, including the creation and use of cryptocurrencies requires significant power usage and it represents a possible trend for the future.
Blockchain technology is a method of using a network of decentralized computers to validate a transaction using common algorithms and creating a unique encrypted identifier or block, which is added to a string of records (a chain of blocks) associated with that transaction, thereby creating an incorruptible digital record. Blockchain technology was originally created to document cryptocurrency transactions, but it is recognized to have potentially unlimited potential for other uses. Those uses include supply chain records, stock transactions, financial transactions beyond cryptocurrencies, crowdsourcing, real estate records management and more. Major retailers, banks and software companies are closely monitoring the advancement of blockchain technology.
Of all the uses for blockchain technology, its application to cryptocurrencies is the most prevalent. Cryptocurrencies exist only in the Ethernet. They have no intrinsic value like the old U.S. currencies made of gold or redeemable for silver; supply is not controlled by a central bank or government; and they have no physical form. That is why the creation of unique and nearly impossible-to-fudge digital records for cryptocurrencies is so important. And it is not just an intellectual exercise. The estimated annual revenue associated with the creation of the most common cryptocurrency, bitcoin, is roughly $7 Billion. Plus, there are more than 1000 additional cryptocurrencies on the web.
So why are cryptocurrencies and blockchain technology of importance to the power industry? It’s simple. Creating and validating a cryptocurrency, say a bitcoin, requires significant computing power to run mathematical algorithms. Remote computer systems extensively involved in so called “mining” for bitcoin or solving the equations that document a new piece in the digital records of the currency require power to run and disperse heat. When cryptocurrencies were just a novelty, the computer power needed was insignificant. Today, data centers and even extensive server farms that draw 10’s of megawatts are required for large operations. Estimates of the energy use for bitcoin creation, likely the most common cryptocurrency, range from 14 to 57 TWh annually, worldwide. Operations develop where power is cheap and major mining operations may favor cooler regions where computer system cooling costs will be less.
Even the advocates of cryptocurrencies recognize that the energy usage associated with their creation is high. Are the entrepreneurs and industry watchdogs who believe the blockchain technology behind digital money mistaken about its future? They don’t believe so. Many experts believe there will be improvements in the mining or computing process that will help to moderate the energy requirements associated with blockchain systems. Others suggest that blockchain processes will take advantage of declining renewables power costs and hybrid systems involving renewable energy storage. Ok, is this starting to sound like a pipe dream? Well, consider this: analysts at Morgan Stanley believe cryptocurrency mining will use more power this year than electric cars will require in the next seven! (See: http://news.morningstar.com/all/ViewNews.aspx?article=/MW/TDJNMW20180113122_univ.xml.)
Moreover, other advantages of blockchain technology appear to outweigh the energy costs. These include the ability to conduct transactions simultaneously with reduced errors, limited system disturbances and greater security. The potential benefits for the stock market, international banking and many other commercial sectors are believed to be immense. So, while it might not be prudent to go out and invest your nest egg in cryptocurrencies, it may be smart to watch the development of blockchain technology and consider how your utility can take advantage of it.