As years pass by, it seems like the blockchain technology is gradually gaining adoption in different sectors of the global economy. However, it is facing challenges in the Energy sector. More sophisticated energy infrastructure will be necessary for the diversified and intelligent electric grids of the future. However, blockchain technology, a widely promoted solution, may need a long list of challenging tradeoffs.

The power sector is constantly becoming more decarbonized and distributed. Increasing amounts of energy storage capacity, intermittent renewables, and other smart technologies are getting deployed across the grid. Dysfunctional cacophony could arise if the new energy markets cannot make a strong symphony of these varied assets.

Blockchain is a distributed ledger technology that is best known as the foundation for many cryptos like Bitcoin. It has repeatedly been proposed as a promising platform for the energy markets. The technology solves various challenging problems like enabling mistrusting parties to transact with each other securely without paying or involving a central authority.

Blockchain notably relies heavily on massive duplication of data storage and processing. All that processing is possible owing to its consensus process. The duplication may prove prohibitive since the volume of data and computation needed for the energy market processes and transactions is considerably high. Thus, duplication slows down the network resulting in inefficient use of its resources.

What Lies Between the Lines?

Blockchain may pose practical and legal risks beyond the technical challenges. Its reliance on economic incentives for ledger validators leaves the power system exposed to different malicious entities whose aim is disruption and not economic gain. Furthermore, the ledger’s immutability leaves it exposed to malicious and faulty transactions and defective smart contracts. Such problems, although infrequent, may affect the critical power sector extensively.

At a basic level, the decentralization of blockchain is misaligned with the statutory authority of state watchdogs and all the utilities they franchise. Furthermore, its inherent transparency is at odds with the sensitivity and confidentiality of financial and power system data. That factor is mainly dangerous in an era dominated by international cyber attacks.

On the flip side, selective use of blockchain may ease some concerns like efficiently and quickly processing various transactions ‘off-chain’ and then recording just the most important data on blockchains. The disintermediation of a central authority which is Blockchain’s signature strength may also prove valuable. It can be used in applications like payment systems, asset registration, managing carbon, and clean energy credits.

A majority of these most serious tradeoffs are quite structural and intrinsic to blockchains. Notably, the power market regulators will place higher premiums on platforms that are high-performing, cost-effective, and private than on those that disintermediate providers. Adding up all these facts make the current blockchain technology an unlikely choice.