Cryptocurrency, Solar, and Resiliency: An Emerging Watt Based Currency
By: Dan Schmidt
Tags: Energy Storage, Microgrid, Blockchain, Cryptocurrency, Solar Energy

Cryptocurrency, Solar, and Resiliency:

An Emerging Watt Based Currency

The existing system of a world economy dominated by the US Dollar and fossil fuels is giving way to something new. To understand where we are headed we should first look at how our current system operates and how we got here. We live in the era of the petrodollar. Before the petrodollar, we had a gold backed currency. People trusted that they could convert their currency into something of tangible value in the gold backed system. Gold had a fixed value tied to US Dollars under this system, so the US Dollar benefited from this by being the standardized international trading unit between their native currency and the gold standard set in units of US Dollars. Nixon and Kissinger ended the gold standard and for a time there was nothing backing the US Dollar at all. We are taught in school that this is a fiat currency, backed by our trust in the system and nothing more. I do not remember learning the next part in school but if you do your research you will find the same thing. Nixon and Kissinger struck a deal with Saudi Arabia that ensured they would only accept US Dollars in exchange for their oil. Thus began the era of the petrodollar. This developed into a trade triangle that continues to this day and is enforced by opec and US defense spending. All nations must convert their currency into US Dollars in order to purchase oil. Opec Nations use this huge influx of US Dollars to buy US backed debt securities. The third leg of the triangle is that the US uses the largest military defense budget in world history to give military aid and equipment to Saudi Arabia and opec nations to defend their oil fields. Since any nation buying oil must first convert their currency to US Dollars this creates an artificial demand for US Dollars and maintains the US Dollar as the dominant international currency. The maintenance of the US Dollar by the federal reserve helps to regulate it’s relative value through setting interest rates but the value of the US Dollar is largely a function of this interdependent relationship of oil, dollars, and debt. The fact that the US government borrows money without limit to fund defense spending that is promptly given away to “allies” is a house of cards that simply cannot sustain itself. Something new is needed but how do we dismantle the existing system without sparking war, hyperinflation, famine or all of the above?

That is where cryptocurrency offers a solution. We do not need to dismantle the existing system at all. Cryptocurrency has already grown to a worldwide level of acceptance and accessibility. It may not be dominant or even widely used for actual purchases, but it has a foothold that is not likely to diminish. This means that if we have a sudden crisis of currencies, it is available to offset the impact of hyperinflation or economic instability. An economy of dollars could give way to an economy of bitcoin or ethereum with an existing infrastructure that has already been built. The fact that cryptocurrency has grown within the existing economic system is proof of what is possible through decentralized technologies. There is resiliency inherent to diversity and renewables are the key to take this resiliency to the next level.

Solar, wind, and batteries will replace coal, oil, and natural gas. It is just a matter of time. The existing utility system is based on centralized power producers selling energy to the public utility transmission company who then sells the kwhs to the end user. This system of producers and consumers separated by a public transmission utility is being uprooted by decentralized power production. A new term, the prosumer, encapsulates the concept of a producer who is also a consumer. The challenge for the transmission utility is to accommodate this new structure of multiple streams of decentralized production intertwined with a more complex relationship between supply, demand, production and consumption. In Illinois we have a flat rate cost per kwh. That means a kwh during a time of high demand is the same cost as a kwh at a time of low demand. Illinois also has a policy for solar production known as net metering. This allows for a home or business PV system to produce more than it uses at any given time to build up credits that will be used to offset the total consumption for a monthly period. This means that daytime production can be used to offset night time demands. In reality, it is the total amount of consumption minus the total amount of production throughout the month that a consumer is billed for. If there is more production than consumption for a given month the customer accumulates credits to be applied to the next month.

In California there is a time of use billing system. That means that the cost of electricity changes throughout the day. Times of high demand have a higher cost and in times of low demand electricity is cheaper. That makes the value of solar production much more complicated, but probably does a more accurate cost benefit analysis for the value of each kwh. With this structure there is an incentive to get batteries independent from a solar system. Batteries could be charged at times of low demand and they could be discharged during times of high demand. The difference in cost for times of high and low demand gives an opportunity for profit using batteries to take advantage of this margin. This incentive is a natural consequence of the cost of producing power in real time. The true cost of producing power varies throughout the day depending on many factors. The greatest factor influencing the true cost of electricity is ramping up and down power plants to meet a fluctuating demand. If we were to run our fossil fuel plants at a constant rate while charging and discharging batteries to meet a fluctuating demand, we would burn far fewer fossil fuels while building the infrastructure needed for a fully renewable electric grid in the process.

Cryptocurrency and the technology behind it offers solutions to this complex web of prosumers and the highly fluid variable units of energy with fluctuating values. Blockchain is the underriding technology that makes cryptocurrency possible. The basic idea of blockchain is that there is a ledger of all transactions that can be verified by multiple computers. It’s like there is a copy of every receipt for every purchase on every computer in the network. So if every computer is continuously cross referencing every other computer when it authorizes a transaction, everyone can trust that each exchange is verified. Cryptocurrencies are generated number sequences that represent a unit of value and these number sequences are exchanged on the ledger system as currency. However, all sorts of units could be exchanged using this verifiable ledger system, including digital contracts that are kinda like if/then agreements. There are already pilot projects for solar production to be traded on peer to peer networks using this technology.

During this process of revolutionizing our electric grid we have the opportunity or perhaps there is the inevitability of revolutionizing our economic system. We currently have an oil based dollar and we will likely end up with a watt based dollar. There are two main ways that the value of electricity can become the foundation of the value of a watt based currency. The process of “mining” for cryptocurrency involves using computers to crunch numbers to verify the integrity of the blockchain system. This mining process uses a large amount of electricity. Mining operations are profitable by the difference in cost between the electricity used to run the computers and the units of cryptocurrency they produce. This simple relationship is foundational to an ecosystem of currency and value generation using cryptocurrency. There is a lot of controversy surrounding cryptocurrencies for this exact reason. Burning fossil fuels to power artificial currencies systems that are abstract at best in their actual value is difficult to justify. The other main way that the value of electricity can become the foundation for a watt based currency is through the peer to peer sale of electricity. Decentralized power producers and energy storage can earn a credit for their energy production that is valued at the time of use demand rate for electricity. These credits can be exchanged for the local currency, US Dollars, or a cryptocurrency. This process of exchange between power production and currency on a widespread and decentralized scale would create an entire different economic structure. It has the power to give power back to individuals and communities.

Whereas now we have little to no way to intercede in the relationship between the value of the dollar, oil prices, war in the middle east, the rate of inflation and the role of the federal reserve, we all use electricity. Rather than determine the value of our currency through a complex set of relationships that fund and fuel war and scarcity, we could create a system of value generation based on local and regional electricity production. A watt is literally a unit of work being performed. It is tautological for an economy to have at its foundation a unit of work being performed.

So what are the implications of a watt based currency? The biggest benefit of an alternative to the petrodollar system is that there is an alternative to the mutually assured destruction inherent to the petrodollar system. The current economy is built around consuming finite resources fueled by debt all while destroying the environment. So the concept of tying the value of the kwh to a mutually agreed upon medium of exchange as an alternative to tying the value of the dollar to the oil economy is if nothing else, one piece of a larger solution that is needed.

It is also not an institution. This concept relies on the simple economics of supply and demand that are well understood and agreed upon among academics and those in the workforce alike. The simple and effective policy known as net metering already creates a one for one exchange for a kwh and a credit on an electric bill. A time of use valuation and net metering system together create incentives to produce power when the demand for it is at it’s highest as well as for the much needed energy storage capabilities of a smart electric grid. The bare bones of this system already exist, albeit in jeopardy in some regions where powerful utilities and “special interest groups” are aimed at regressing. In order to bring this concept to its full potential and expedite the formation of a socially and environmentally sustainable economy, it really needs to be embraced. That means the ability to produce power and receive an exchangeable credit for the value of that power needs to be made more accessible in an equitable and formally structured way. Residents and businesses should be allowed to produce more power than they consume and be paid for their excess production. Community solar should also be allowed without any red tape. Community, state, and federal policies should be aimed at empowering individuals and business entities to build solar, wind, and energy storage projects on all levels. Illinois has a lottery system for determining who has access to the incentives to build a large portion of the solar projects in the state. This lottery system creates uncertainty, stifles investment, and raises suspicions of corruption and favoritism. Opening up access to build community solar projects empowers local and regional entities to produce power in their own communities and be compensated at a fair market rate.

It is difficult to legislate our way out of a problem we have legislated our way into. The simple mechanics of this type of structure cuts through the vagaries of a carbon cap and trade type policy or a well intentioned radical demand. The need for radical change is apparent. The exact method of achieving those goals is what we need. Is a watt based currency the one answer to all our societal problems? I actually think it kinda is. Our current system is founded on debt to the federal reserve and the petrodollar triad of evil. There has got to be a better way.

With a watt based currency the foundation of the economy is the generation of value. A watt is a unit of work being performed. You can rest assured that each watt will be put to use. There would be a permanent incentive to produce the most fundamental unit of work. This unit is ubiquitous, everpresent, and impossible to monopolize. Why haven’t we revolutionized our economy like this before now? We didn’t have the technology. Nicola Tesla envisioned a world of limitless electricity transmitted wirelessly. This scared the bejeezus out of JP Morgan and Thomas Edison who sought to make hordes of money through their ownership of the capital and copyrights required to build the equipment and infrastructure needed to electrify the world. The technology Tesla promised never came to fruition. Unless some laws of physics need to be revised, we will be waiting a very long time for his limitless electricity machines. However, solar is now so affordable that it pays for itself in a reasonable period of time. Solar will continue to be more efficient and cheaper as it has for the past 60 years in a similar fashion to Moore’s law driving the exponential advancement in computing cost and efficiency. Individuals can now own the means of production of the most fundamental unit of work on the roof of their own homes. You could design a home to be fully self-sufficient like a spacecraft supplying all the essential needs of its occupants as the Earthship biotecture design of Michael Reynolds has demonstrated. Even more tantalizing is the idea that all of society can become self-sufficient. Building microgrids is the next level. Self contained grids, still connected to the main grid can provide services and income on top of their internal businesses. Whether a microgrid serves a hospital, a vertical farm, or a cryptocurrency mine, it could provides additional services to the grid while being capable of operating independently from it if need be. With the increasing population density of urban landscapes, it is possible to develop vertical agriculture powered by renewable energy with surrounding countryside developed into rich permaculture. There is a huge amount of open spaces in North America and around the world that could be returned to vibrant ecosystems. In order for the Earth’s human civilization to survive without massive disruptions and thrive we need to employ carbon sequestration on a massive scale.

An economy is like an ecosystem. The exchange of goods and services that is an economy exists within the larger exchange of energy and organic material that is the world’s ecosystems. The foundation of our world’s ecosystems is the tiniest creatures. Lichen and algae materialize organic matter out of air, water, and stone. This simple process generates essentially all life on earth. Our future economy could thrive in harmony with nature fueled by the simple and abundant energy from the sun.