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IOTA Aims to Take P2P Distributed Energy Trading Beyond Blockchain

Software and network systems engineers proficient in the numerous and varied facets of designing, construction and operation of distributed computing-communications networks are in increasingly high demand across the global energy and power sector as deployment and use of distributed energy resources (DERs), smart grid infrastructure and consumer demand response management (DRM) continues to rise. Blockchain-based, peer-to-peer (P2P) energy trading stands out among the many and various specializations fundamental to or revolving around applications of distributed computing across the energy and power sector.

The extraordinary rise in the monetary value of Bitcoins, whether in terms of US or Australian dollars, euros, Chinese renminbi or Japanese yen, has been a primary factor attracting interest, and investment, in Bitcoin’s underlying blockchain P2P electronic trading and transaction management platform. That list includes some high-profile, government-sponsored blockchain-based digital energy trading pilot tests and proof-of-concept trials.

The IOTA Foundation is taking the concept of blockchain P2P trading and transactive energy concepts a big step further with its IOTA Tangle platform. I interviewed IOTA Foundation Member and chairman of E7 Ventures David A. Cohen for Solar Magazine in order to gain and share insights regarding IOTA Tangle advantages and benefits as they relate to distributed, P2P energy sharing and trading systems. We delve further into this topic in this first of a two-part series here on Energy Central.

Moving Beyond Blockchain

There’s a lot more to blockchain than the creation and trading of virtual cryptocurrencies. High-profile public-private blockchain development projects to trade national currencies, stocks, bonds and energy have emerged. In addition, multinational corporations and banks are evaluating use of blockchain platforms in a bid to remove the middleman, streamline processes and sharply reduce the costs associated with financing international trade, managing the flow of goods moving through far-flung logistics and supply chain networks, and reducing greenhouse gas (GHG) emissions

At least two major obstacles stand in the way of much wider, broad-based commercial use of blockchain trading/transaction platforms, however: system scalability and transaction processing speed. The IOTA Foundation believes it has a solution with IOTA Tangle, a highly secure, fast and efficient P2P network platform that also offers the ultimate economic benefit: zero transaction fees.

The IOTA Foundation set a record for market capitalization on the Bitfinex crpytocurrency exchange June 13. Some USD 0.5 million worth of IOTA tokens were traded in the second public allotment, lifting the cryptocurrency's market cap to more than USD 1.5 billion.

Much more than a measure and store of monetary value, the digital tokens authenticate the identity of their owners, opening network gateways for individuals, groups and organizations to enter into, monitor and account for online transactions with one another directly, without any intermediaries, and at no cost, IOTA Foundation asserts.

IOTA Tangle

Underlying IOTA tokens is the Tangle, a “blockless” P2P digital transaction networking platform IOTA Foundation says creates seamless, fast, virtually “frictionless” and impregnable electronic trading and transaction management platforms open to as many, or as few, participants as adopters care to include.

An early pioneer and widely recognized expert when it comes to distributed computing, communications and smart energy systems, I caught up with David A. Cohen last week. During our interview, he explained how IOTA and the Tangle can be applied to great value and society-wide benefit by dramatically improving the reach, as well as the efficiency and scalability, of direct P2P exchanges and sharing of distributed energy resources as compared to blockchain-based solutions.

Cohen pointed out that IOTA Tangle can add substantial impetus to the trends of energy decentralization, “digitization” and “decarbonization – the three principal factors Frost & Sullivan recently singled out as driving global deployment and use of cost-competive, environmentally friendly zero and low-carbon energy resources, both on and off the grid.

Overcoming Obstacles of Blockchain Speed, Scalability and Cost

Bitcoin and other blockchain-based trading systems process P2P transactions sequentially. Achieving what’s known as “system consensus” unlocks the door to the processing of “blocks” of transactions, as well as the creation a digital instrument that measures and conveys transactions’ monetary value. Bitcoin uses a so-called “proof of work” methodology that awards the right to process a block of transactions to a special class of Bitcoin “miners” that compete for those rights by solving compute-intensive cryptography problems. 

Achieving P2P system consensus based on blockchain’s “proof of work” protocol and mining for the right to process transaction blocks not only takes time, it requires a lot in the way of energy and computing power. That can slow transaction processing speeds and distributed ledger updating down to a point where they do not meet the transaction processing and record-keeping needs of high-frequency, high-volume electronic trading exchanges that exist in major financial markets, or those that are expected to emerge in a highly decentralized energy system. 

Also of major import, it means that blockchain P2P transaction processing costs do not scale as processing transaction volumes achieve economies of scale, Cohen highlighted. It also poses problems when seeking to scale blockchain-based trading platforms and networks up to such levels.

According to Cohen: “IOTA provides a robust infrastructure that can integrate both centralized and emerging decentralized power systems with Internet of Things (IoT) networks to be safely aggregated into diverse transactive energy business models. As well, IOTA is the only technology that will support peer-to-peer energy sharing and transactive energy with zero transaction fees”

Read part two here.