THE HUNGER OF EMERGING INDUSTRIES PART 1: BLOCKCHAIN
By Saeed Kaddoura
Emerging industries are characterized by steep profit margins in the early stages of their growth. As the market centers its focus on economic profit, energy growth typically flies under the radar unconstrained.
Picture Blockchain in a Low-Carbon Economy
Have you ever stopped to think what the ‘Interac’ logo on your debit card is? Interac is a network of Canadian banks that verifies electronic transactions between entities. For example, if you buy a bag of apples from your grocery store, Interac confirms that you paid $3.99, and the vendor received $3.99. Think of a blockchain as a digital ledger of contracts between transacting parties, where every contract needs to be verified similar to the grocery store transactions. However unlike Interac, on the blockchain transactions are not verified by an independent entity, but they are verified by other market participants transacting on the blockchain itself. To protect transaction information from the market participants, transactions on the blockchain are encrypted by a complex math problem that only computers can solve to be verified, and blockchain’s appeal comes from the anonymity and security of this process. The applications of blockchain extend to any sector where accelerating contractual agreements could improve process efficiency, however the immediate energy concern revolves around a word we have all surely heard: Bitcoin.
Bitcoin, blockchain’s first and most famous application is a currency that uses blockchain to record Bitcoin transactions; this is the basic foundation of all cryptocurrencies. Verifiers on Bitcoin’s blockchain are incentivised by being rewarded with Bitcoin every time they perform a verification. As the number of Bitcoins in circulation grows, the encryptions become more complicated and the rewards get smaller in order to maintain the currency’s scarcity and prevent inflation. As a result, verifying transaction becomes increasingly computing intensive and energy demanding. The practice of verifying Bitcoin transactions for profit is called “mining”, and all over Canada miners are hunting the cheapest electricity prices to sustain profitability and keep up with dwindling rewards.
Bitcoin mining has become so energy intensive that globally the electricity consumption of mining compares to that of whole countries. On the day this blog was written, this demand was equal to the electricity demand of Austria. In Canada there are numerous mining operations, some of which are even publicly traded on the stock market. A campaign by Hydro Quebec in 2016 intended to attract tech giants with data centres like Facebook and Amazon caught the attention of the international Bitcoin mining community for the same reasons that made the province attractive for data centers: cheap electricity and cold climates. Miners with operations in the province have access to electricity that is 2-3 times cheaper than similar jurisdictions in North America. It’s a good thing that electricity in Quebec comes 95% from hydropower a zero-carbon generation source, but when this electricity comes from fossil fuels it is easy to see why the carbon footprint of mining is significant. On the flipside, Toronto-based mining company Hut 8 recently signed a 100 million dollar deal in Alberta with the City of Medicine Hat to source electricity from a large bubble of natural gas that the city sits on. The Hut 8 plant sometimes consumes over 10 times more electricity than any other facility in the city.
The complexity of blockchain theory and the buzz around cryptocurrency mining makes it hard to visualize how to tackle the hefty electricity demand of this emerging industry. But there are a few things that could be done to utilize this powerful technology responsibly. In the short term:
Purchase electricity from clean zero-emissions sources by buying RECs.
Understand the role blockchain plays in contract management and be able to differentiate between cryptocurrencies and other blockchain applications. Take cryptocurrencies seriously and recognize that there are non-mineable currencies with real life applications that don’t share Bitcoin’s electric gluttony.
As more proven blockchain applications emerge, and it sheds the uncertainty surrounding cryptocurrency mining, on the medium term companies should explore:
Innovations in cryptocurrency verification that reduce the demand for energy.
We are already seeing some emerging technologies trying to achieve this such as IOTA, a cryptocurrency for instantaneous trading on the Internet of Things, which improves scalability of transaction speeds and energy and computational efficiency.
Explore learning lessons of process synergies from other industries. Anyone with a computer knows that processing generates waste heat, on an industrial scale this heat has value and could be re-used in other sectors such as building or water heating.
The large scale study of blockchain is still much like a digital wild west; money has a large influence but is associated with a lot of risks. In the long term:
Cryptocurrencies are financed through Initial Coin Offerings (ICO, the equivalent of an IPO in a stock market). The amount of funds raised reflects the level of public trust in that currency and in turn, its success. So by choosing to invest in cryptocurrencies that demonstrate good environmental stewardship you can use your buying power to create a cleaner industry.
Similarly, support blockchain applications that contribute to a cleaner more efficient economy. An example of this is IBM’s Food Trust group working with corporate giants like Walmart and Nestle to use blockchain for improving the transparency and sustainability of the global food supply chain.
To be frank, mining Bitcoin is purely profit driven and will not lead us anywhere productive. But there are still 4 million Bitcoins remaining to be mined and even at $3,700 per Bitcoin, the lowest it’s been in 2018, mining can still be lucrative business attracting plenty of attention. If miners invest in renewable energy through on-site and off-site projects to off-set their own consumption with zero-emission technologies, they can at least leave a legacy of clean energy that could be utilized long after they are gone.
The Calgary Highlight
Calgary’s history as the energy headquarters of Alberta makes it a natural incubator for blockchain applications in the energy sector. ReWatt Power, a Calgary-based blockchain start-up, is working with a co-operative of 40 ranchers, farmers, and hobby farm owners spread across central and southern Alberta to monetize their solar electricity generation. ReWatt Power uses blockchain to aggregate and verify solar generation data from the co-op members and automates the process of turning them into emissions reduction credits to be sold for profit and improve the members’ profit margins.
Something to Think About
There are still plenty of opportunities to be creative with blockchain that can revolutionize how we do business. We can only get there in a low-carbon economy by exploring innovations in digital currency verification that reduce the demand for energy, and supporting blockchain applications that contribute to a cleaner, more stable, and prosperous economy.