A new micro-grid project in Brooklyn is pointing the way to a new type of energy system: one based around local electricity generation, energy trading between neighbors, and less reliance on traditional utility companies.

The TransActive Grid, a joint venture between Lo3 Energy and ConsenSys, a blockchain developer, is a co-operative system. On one side of President Street, five homes with solar panels generate electricity. On the other side, five homes buy power when the opposite homes don’t need it. In the middle is a blockchain network, managing and recording transactions with little human interaction.

If a few homes on one street sounds modest, it is. But the idea is big. It shows how energy-generating homes can become part of a peer-to-peer electricity system with few intermediaries. And it shows how blockchain technology–the distributed ledger system used to transfer Bitcoin and other digital assets–could be a crucial part of the emerging “energy Internet.”

“We’re setting up a market on this street for renewable electrons to test if people are interested in buying them from each other,” says Lo3’s founder Lawrence Orsini. If successful, the transactive grid will extended to the larger micro-grid the company is building in the area. Orsini says 130 homes have expressed interest so far.

There are a lot of potential advantages in a blockchain-based micro-grid, as opposed to simply selling excess electricity back to a local utility. First, you don’t have to bring in so much power over long distances, which minimizes losses. Second, the value of the electricity generated on a rooftop stays in the community; it doesn’t end up padding some dividend check. And three, it means more resilience: micro-grids can be isolated from the larger grid during storms, ensuring some power remains available.

“If you produce energy far away, there’s a lot of losses, and you don’t get the value of those electrons,” Orsini says. “But if they’re right across the street, there’s a lot of environmental and system efficiency that’s being realized from being very close to one another.”

The homes on President Street are fitted with smart meters that track electricity generated and used in the homes. Linked to this is the blockchain network which records transactions into an immutable, decentralized log that can be viewed by anyone. In an extra ripple, Lo3 Energy and ConsenSys are using a type of blockchain called Ethereum, which builds in “smart” self-executing contracts between parties.