Grid innovation around blockchain is continuing apace. Numerous organizations, companies, and foundations around the world are applying the technology to solve long-intransigent problems. But it’s not one technology, and it’s often difficult to figure out the applicability of particular approaches to blockchain. This article, which I expect to update every few months, lists the major technologies and characterizes them. Each has its own strengths, weaknesses and wrinkles, but they are all changing rapidly.
I started my exploration of how blockchain will impact electricity’s transmission, distribution and sale in Bitcoin’s Hot But Blockchain For Cleantech Is Interesting, and continued with several articles which are gathered in CleanTechnica’s Cleantech Blockchain section.
The blockchain and related technologies assessed in this article are:
- Ethereum Casper
- IBM Blockchain (Hyperledger)
Criteria of evaluation
Each technology has its own radar chart showing its strengths and weaknesses on a simple scale of 1-5, with 5 being generally good and 1 being generally weak. In addition a general discussion of each one will be included. The criteria are:
Settlement flexibility: Some of these approaches only recognize and effectively work with their own internal coins or tokens. Others intentionally externalize all payments to get around the inherent limitations of smart contract escrow contracts. One allows both. Depending on your application, this is useful or not, but more flexibility inherent to the platform will mean less to build on top of it. And, of course, people on the outside of the cryptocurrency world still want to transact in fiat currencies.
Efficient Blockchain: Two of the major challenges of blockchain approaches have been the slow speed and high cost of transactions. In order to fulfill the promise of the distributed, immutable ledger, these have to be overcome.
Effective smart contracts: Smart contracts and distributed applications are effectively the same thing. They’ve been implemented in both specially designed and existing languages. Conceptually, they have a learning curve and toolkits are weak right now. Some are better than others, however.
Regulatory ready: A large portion of the cryptocurrency world wants to avoid regulation, but for blockchain solutions to be useful in the real world of today, they have to be able to play well with existing regulations. Some of that is trivial, as audit-ability of an immutable, distributed ledger is a baked in part of the solution. Other elements, such as identifiable transactors are tougher and indeed often intentionally obfuscated. And obfuscation of sensitive data to align with regulatory requirements can challenge many implementations.
Maturity: This is a rapidly evolving space. Some of these technologies are still effectively in alpha and none are older than 10 years. Most are under 5 years old in their current versions. There are a couple with intriguing promise which I’ve included, but I wouldn’t bet the farm on either of them right now if I were attempting to solve a problem today.
Generalized applicability: Some of these technologies were implemented to solve very specific problems. RIPL, for example, is intentionally a foreign-exchange settlement system with no intention to be anything else, although I’m sure someone is using the approach elsewhere. Some are broadly useful. As those who have been following along with this overarching series of grid innovation articles might remember, it kicked off with 7 elements which helped identify eventual winners in the innovation space. One of them was fungibility, which can be translated as broad applicability.
Security: It’s important to remember that blockchain is only a component of an architected solution to most problems. It doesn’t exist in a vacuum. While most implementations make the data itself immutable, that isn’t the same as secure. And some solutions have experienced sufficient hacks over the past three years that it’s difficult to consider them inherently secure.
Used in Cleantech: Not all of these technologies have direct applications today, but for completeness all of the major ones are included. Some are the workhorses in cleantech, especially Ethereum today. Others have significant promise and I’ll try to identify that.
Bitcoin is the grandfather of this space and it’s showing its age. It’s the slowest, most expensive to transact, and least flexible blockchain implementation.
Bitcoin set a fairly standard approach for most of these technologies in that it first published a whitepaper describing the approach and intent, then set up an opensource project to build the solution.
Bitcoin was established specifically as a store of value and to a lesser extent as a currency for transaction. No attempt was made to optimize it for performance, but instead to optimize it for anonymity and lack of transparency to regulators and authorities. It uses the proof-of-work approach to assuring integrity.
While it’s possible to execute smart contracts on Bitcoin’s underpinning blockchain and at least one organization has done so, the only value proposition for this is if you must transact in Bitcoin itself. Even then, new solutions like NEO and currency bridges allow easier and more performant solutions.
Bitcoin is completely generalized, in that it’s specifically intended as fungible currency. It has no target market although it does have natural users in Libertarians, survivalists and criminals.
In cleantech, the only use identified for Bitcoin is payment for electricity, something Bas Nederland started allowing in 2014.
Ethereum is much more dominant in blockchain than many people realize. Most non-Bitcoin cryptocurrencies and applications are actually running on the Ethereum approach, either directly or indirectly.
It’s achieved substantial maturity, but in the world of blockchain it’s starting to be a little long in the tooth as well. It’s much faster and cheaper to transact in than Bitcoin, but it’s still slow and expensive for a lot of purposes.
Ethereum’s main innovation was the introduction of smart contracts. Its use of the Turing complete Solidity as a language which effectively compiles into the blockchain itself allows distributed applications to be built. And due to its dominance as a platform, there are a lot more Solidity programmers and resources out there than there were a handful of years ago.
From a settlement perspective, while there are lots of equivalents to foreign exchange offices out there, Solidity smart contracts and applications really only understand Ethereum (or tokens built on the Ethereum protocol inside that implementation). Settlement is fairly restricted to the cryptocurrency without a lot of bolt-ons.
At present, Ethereum uses the slow, computationally expensive and arguably now obsolete proof-of-work mechanism for assuring integrity.
Like Bitcoin, Ethereum isn’t architected for regulatory compliance, but it’s not quite as intentionally unfriendly to it as Bitcoin. As a platform, it might inhibit some applications in regulated domains without special attention and extra work.
From a cleantech perspective, Ethereum is the dominant platform for grid-related tokens and other use cases.
Ethereum is about to undergo a hard fork, which isn’t an instrument for eating tough food, but a non-reversible alteration to its code and approaches. It’s called Casper — yes, after the friendly ghost — and it shifts from Ethereum’s proof-of-work protocol to the more efficient proof-of-stake approach.
This should increase its speed substantially while also dropping the underlying costs of transactions. Whether this alters the $0.50 to $1.50 average price of transactions remains to be seen.
This should make the Ethereum platform and technology an arguably more dominant player than it already is. However, competition is arising, and settlement is still relatively inflexible.
Hyperledger is a different beast than Ethereum or Bitcoin. It’s an organization-to-organization collaboration technology with no cryptocurrency. It’s intended to automate aspects of human-negotiated legal contracts, not to be a contractual vehicle by itself.
All payment mechanisms are externalized and there is no means to automatically trigger payment within and from Hyperledger. It’s such a non-currency platform that only one cryptocurrency appears to have been built on it, VIVA.
Use cases include sharing common metadata between organizations, metadata and security, with a heavy focus on financial services, government, supply chain, and health.
Its efficiency comes from centralizing the block creation into a single computing cloud resource rather than competing for the resource. Blocks are validated by the other organizations that are participating. This means that the computationally intensive portions run only once and can be scaled appropriately for performance.
From a cleantech perspective, most of the examples appear to be on IBM’s implementation, so they will be covered in the next section.
Unsurprisingly, given the corporate heavyweights involved in creation of Hyperledger, the whitepaper comes in volumes.
IBM Blockchain (Hyperledger)
IBM is a core member of the Hyperledger opensource group and a significant contributor to the opensource code base. Further, it hosts enterprise-scale Hyperledger on its IBM Cloud platform, both in public cloud test environments and in highly-secure dedicated Hyperledger environments.
And it charges for it. Unlike most of the rest of the blockchain technologies, this isn’t roll-your-own opensource, but an enterprise component, hosted and managed by an enterprise service provider which is global in scope.
But IBM understands the security that governments and corporation need and understands the sensitivity of data better than most organizations are capable of. And it understands it in most countries in the world.
Right now, IBM and its Blockchain is somewhat a leader in the cleantech space, used by European utilities in proofs-of-concept on managing the electricity grid in Germany and the Netherlands and managing carbon markets in China. IBM’s Hyperledger is also being used by just-out-of-stealth Xage to manage industrial IOT endpoint security with an initiative with grid heavyweight ABB underway. The architecture isn’t entirely clear as initial public information indicates that there are also Ethereum components in the mix.
NEO is an emerging platform designed from the ground up for regulatory compliance. This means that it has solved for the challenges regulatory compliance brings to blockchains and cryptocurrencies.
This is a major part of the reason why ProjectICO has shifted to it and off of Ethereum for US initial coin offerings.
NEO is also very interesting in that it arguably has the most flexible settlement mechanism of any of the current crop of offerings. NEO smart contracts can resolve using its own NEO coins or hook to 3rd party payment solutions. This gets rid of a number of the challenges of the smart contract escrow model, allowing a greater variety of uses. I’d argue that this is more flexible than the Hyperledger model, which solely uses 3rd party and the Ripple model which doesn’t do smart contracts at all.
It’s intended to be highly performant as well, using a delegated proof-of-stake solution which is arguably a lot like Ethereum Casper’s, at least externally.
The combination makes this a very promising blockchain platform. It’s the closest to a Swiss army knife and with Ripple and Hyperledger, grounded in business and regulatory reality, not a Libertarian fever dream of an unregulated world.
NEO does have a specific challenge however. It is a Chinese national company, which means that it’s quite probable that it would not be in compliance with federal procurement policies as a part of a solution. If the target use is federal in the USA or Canada at minimum, NEO need not apply. And of course the core documentation and technical team are much better if you read and speak Mandarin, but there are high-quality translations and translators.
There are no use cases in cleantech for NEO yet that I’m aware of.
This is another outlier, as it isn’t really blockchain at all. IOTA is focused on providing a distributed, secure ledger and cryptocurrency for micropayments and data interchange between IOT devices. They have something they call the tangle, which is a forking tree instead of a chain of blocks.
Assuring integrity of the transaction set doesn’t use proof-of-work, proof-of-stake, or one of the delegation or centralization patterns, but instead has each IOT device validate two other transactions somewhat randomly as it adds a transaction to the edge of the tangle. The transactions it validates don’t have to be upstream of it, so it does create validation pointers between branches, hence the tangle. Other than that, however, it’s a directed acyclical graph, which is a painful way of saying it’s a tree that never loops back on itself.
As a result of the approach, there are no server nodes in the architecture, just a bunch of edge devices rapidly building out the tangle. As the validation mechanisms are encoded in firmware and only validate or create three transactions, performance is high, and initial testing is seeing fairly high transaction volumes already.
That said, this is definitely a work-in-progress and it’s unclear if it is really solving a problem effectively or appropriately. I agree with a point-of-view by Nick Johnson published in September of 2017. They have made some seriously questionable choices which smell like personal obsessions rather than good architecture. Johnson points out something that scared me when I saw it separately, which is that they have rolled their own cryptography algorithms. This is a fundamental fail of security, so much so that it’s a basic precept that you don’t do it. He goes on to point out that they have implemented ternary instead of binary algorithms to only academic benefit.
Unsurprisingly, they’ve had at least two major security failures that I’m aware of and they aren’t in production yet. It’s not ready for prime time and won’t be as long as they continue to roll their own crypto in my opinion.
From a usage perspective, it’s important to enable communication between IOT devices, but it’s deeply unclear why they need payment between IOT devices. The use cases I’ve seen written up don’t understand the business domains that they are talking about, for example transit fare payment. And it’s unclear that IOT devices need a distributed ledger for sharing information. To my eyes it appears to be an overly complex technology solution in search of a problem.
However, Microsoft and others are working with them, so others have faith, even though I don’t see the value proposition yet.
Another interesting thing about IOTA is that it isn’t a distributed application program. There’s no real mechanism for it. Among other major challenges, figuring out the order of transactions which equates to the order of programmatic instructions is really tough in the tangle. It’s possible to approximate the order through time, but it’s not inherently present in the solution.
IOTA is also behaving oddly with the opensource community, which might challenge it in the future. With the major security problem last year, at one point they announced that it was intentional so that they could backdoor projects that they didn’t approve of. Once again, a security red flag as well as a red flag to the opensource community.
There are no cleantech use cases that have emerged, but IOT includes lots and lots of cleantech devices from smart meters to wind turbines, so if they find a strong value proposition, they may show up in the space.
Ripple is a highly performant blockchain implementation with its own internal currency, but it’s very specifically targeted at international bank monetary exchanges.
Unsurprisingly, fintech is a huge focus of a distributed ledger. Ripple’s solution is very clean, in that it uses the Ripple currency only as an interim value store between two foreign currencies. This means that the Herstatt risk isn’t present due to the rapidity of moving into and out of Ripple.
It’s also not a smart contract or distributed application platform. It’s architected to moving money between two different currencies as efficiently as possible across geographic boundaries.
It’s fully aligned with Sarbanes Oxley II and the principals and their advisors have deep financial industry backgrounds. They know the space and picked a high-value target. They aren’t alone in the space of course. IBM, unsurprisingly, is in this space and partnered with Stellar.
There are no cleantech specific applications of Ripple, but cleantech is fundamentally a business, which means that its very likely that a fairly high amount of cleantech money has already transited Ripple.
The last of the major players I’ll cover is EOS. This project is working to build an operating system for blockchain, not just a blockchain itself. They want to displace Ethereum as the primary platform for other coins and applications completely.
It’s hard to judge what they will actually deliver out of this project, but its goal is highly effective smart contracts, strong generalization, and good scalability with the other benefits of blockchain.
Ethereum delivers the Ethereum Virtual Machine, but it’s relatively limited in what it does. EOS wants to recreate its capabilities but add a bunch of built-in, well-architected support for data structures, roles and responsibilities and the like. Right now people building applications on Ethereum have to create all of that from scratch or add it externally from libraries. This adds complexity and time to the process.
There are a couple of red flags around EOS, of course. One is that it is quite open about being a Cayman Islands entity. The company isn’t interested in abiding by tax laws or global regulation. The company has promised to use the money it’s raising to build the infrastructure that they’ve defined and release the source code to opensource when it’s ‘done’ but this is not a traditional opensource or closed source project. And they make no bones about keeping all of the money they raise and using it for whatever they want. They aren’t creating and funding a foundation to persist EOS as most of the rest of the examples have done.
EOS barely exists at present, so there are no cleantech use cases yet either. But if it achieves its promise, it could become a major blockchain operating system which accelerates innovation in this space.
Blockchain and cryptocurrencies for cleantech are a rapidly evolving space. This is a snapshot of a moment in time. As stated at the beginning, I intend to return to this regularly to improve it, to identify more use cases and to declare winners and losers as they emerge.
It’s safe to say that cleantech is going to involve blockchain and similar distributed ledger approaches. And it’s also safe to say that each of the technologies and approaches represented here have better and worse uses. If someone tells you that the answer is only one of these, then you can be pretty sure that they are enthusiasts, not architects.
As always, I’ll be paying attention to the comments. If there’s a technology or use case I’ve missed, or if you see an error I’ve made, let me know.