    [Senate Hearing 115-527]
    [From the U.S. Government Publishing Office]

                                                         S. Hrg. 115-527

                      THE ENERGY EFFICIENCY OF BLOCKCHAIN
                          AND SIMILAR TECHNOLOGIES AND
                        THE CYBERSECURITY POSSIBILITIES
                            OF SUCH TECHNOLOGIES FOR
                          ENERGY INDUSTRY APPLICATIONS

    =======================================================================

                                    HEARING

                                   BEFORE THE

                                  COMMITTEE ON
                          ENERGY AND NATURAL RESOURCES
                              UNITED STATES SENATE

                         ONE HUNDRED FIFTEENTH CONGRESS

                                 SECOND SESSION

                                   __________

                                AUGUST 21, 2018

                                   __________

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                           Printed for the use of the
                   Committee on Energy and Natural Resources

            Available via the World Wide Web: http://www.govinfo.gov

                                  __________

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                  COMMITTEE ON ENERGY AND NATURAL RESOURCES

                        LISA MURKOWSKI, Alaska, Chairman
    JOHN BARRASSO, Wyoming               MARIA CANTWELL, Washington
    JAMES E. RISCH, Idaho                RON WYDEN, Oregon
    MIKE LEE, Utah                       BERNARD SANDERS, Vermont
    JEFF FLAKE, Arizona                  DEBBIE STABENOW, Michigan
    STEVE DAINES, Montana                JOE MANCHIN III, West Virginia
    CORY GARDNER, Colorado               MARTIN HEINRICH, New Mexico
    LAMAR ALEXANDER, Tennessee           MAZIE K. HIRONO, Hawaii
    JOHN HOEVEN, North Dakota            ANGUS S. KING, JR., Maine
    BILL CASSIDY, Louisiana              TAMMY DUCKWORTH, Illinois
    ROB PORTMAN, Ohio                    CATHERINE CORTEZ MASTO, Nevada
    SHELLEY MOORE CAPITO, West Virginia  TINA SMITH, Minnesota

                          Brian Hughes, Staff Director
                         Kellie Donnelly, Chief Counsel
                         Isaac Edwards, Special Counsel
                        Robert Ivanauskas, FERC Detailee
                 Mary Louise Wagner, Democratic Staff Director
                    Sam E. Fowler, Democratic Chief Counsel
                   John Richards, Democratic General Counsel
                   Elisabeth Olson, Democratic FERC Detailee

                                C O N T E N T S

                                  ----------

                               OPENING STATEMENTS

                                                                       Page
    Murkowski, Hon. Lisa, Chairman and a U.S. Senator from Alaska....     1
    Cantwell, Hon. Maria, Ranking Member and a U.S. Senator from
      Washington.....................................................     2

                                   WITNESSES

    Skare, Paul, Chief Cyber Security Program Manager, Pacific
      Northwest National Laboratory..................................    18
    Golden, Thomas A., Program Manager, Technology Innovation,
      Electric Power Research Institute..............................    42
    Henly, Claire, Managing Director, Energy Web Foundation..........    72
    Narayanan, Dr. Arvind, Associate Professor of Computer Science,
      Princeton University...........................................    77
    Kahn, Dr. Robert E., President and CEO, Corporation for National
      Research Initiatives...........................................    86

              ALPHABETICAL LISTING AND APPENDIX MATERIAL SUBMITTED

    Cantwell, Hon. Maria:
        Opening Statement............................................     2
    Golden, Thomas A.:
        Opening Statement............................................    42
        Written Testimony............................................    44
        Responses to Questions for the Record........................   172
    Henly, Claire:
        Opening Statement............................................    72
        Written Testimony............................................    74
        Responses to Questions for the Record........................   175
    Kahn, Dr. Robert E.:
        Opening Statement............................................    86
        Written Testimony............................................    89
        Responses to Questions for the Record........................   181
    Murkowski, Hon. Lisa:
        Opening Statement............................................     1
    Narayanan, Dr. Arvind:
        Opening Statement............................................    77
        Written Testimony............................................    79
        Responses to Questions for the Record........................   177
    Public Utility District No. 1 of Chelan County (Washington):
        Statement for the Record.....................................     4
    Skare, Paul:
        Opening Statement............................................    18
        Written Testimony............................................    20
        Responses to Questions for the Record........................   168

      THE ENERGY EFFICIENCY OF BLOCKCHAIN AND SIMILAR TECHNOLOGIES
       AND THE CYBERSECURITY POSSIBILITIES OF SUCH TECHNOLOGIES FOR
                          ENERGY INDUSTRY APPLICATIONS

                                  ----------

                            TUESDAY, AUGUST 21, 2018

                                           U.S. Senate,
                     Committee on Energy and Natural Resources,
                                                        Washington, DC.
        The Committee met, pursuant to notice, at 10:08 a.m. in
    Room SD-366, Dirksen Senate Office Building, Hon. Lisa
    Murkowski, Chairman of the Committee, presiding.

               OPENING STATEMENT OF HON. LISA MURKOWSKI,
                        U.S. SENATOR FROM ALASKA

        The Chairman. Good morning. The Committee will come to
    order.
        We welcome everyone. Back here in August, back for another
    week of work. We have a hearing today, a Subcommittee hearing
    tomorrow and hopefully a business meeting sometime this week.
    So we are working.
        This morning, a topic that I think has generated a great
    deal of interest, not necessarily within this Committee, but
    certainly when you think about the implication to our energy
    grid overall and just energy more broadly, the topic this
    morning is one of considerable interest. We are going to delve
    into whether or not blockchain and related technologies will
    soon have a transformative impact on energy infrastructure.
        While not everyone knows what `blockchain' is, I think most
    people have heard of cryptocurrencies, like bitcoin. Blockchain
    is the way the bitcoin system stores data.
        I feel like I am doing a little bit of Introductory 101,
    but having had this conversation with my family members at
    Christmas a couple years ago where it was confirmed that none
    of us knew what we were talking about----
        [Laughter.]
        ----I think it is helpful to give a little bit of
    background.
        Senator Cantwell. Are you sure your sons did not know what
    they were talking about?
        [Laughter.]
        The Chairman. They professed to. They claim to be the
    experts. And in fairness, I listened to them more than any of
    the more mature adults in the conversation.
        Electronic transactions are stored as blocks that are
    linked together to form a chain. The more transactions
    recorded, the longer the chain. The chain is stored in numerous
    locations simultaneous so the system is decentralized.
        The verification needed for this data has created an entire
    new industry. So-called `miners' are paid by some blockchain
    applications to verify data blocks as trustworthy. As a result,
    entire warehouses of computers have been set up to verify this
    kind of data.
        Now obviously, this type of computer-driven industry needs
    electricity and a lot of it. Miners have flocked to places with
    the cheapest electric rates. I know, Senator Cantwell, you have
    certainly seen the impact in your state, but an overnight
    demand for more power can cause serious stress on a local
    utility and impact the grid. There is also the question of how
    long this new load will need to be served.
        Some areas are starting to respond. The State of New York
    recently authorized its municipal utilities to charge
    cryptocurrency miners higher electric rates than other
    consumers. Hydro Quebec has proposed new rules that would
    require cryptocurrency miners to bid for electricity and
    quantify their community impact in terms of jobs and
    investments.
        At the same time, utilities are looking at blockchain as a
    way to boost both consumer engagement and grid efficiency
    through secure energy transaction platforms. Puerto Rico is
    looking at this very concept, where the effort to rebuild in a
    more resilient way has focused on microgrids, and the use of
    blockchain technology to trade power among the companies that
    operate the microgrids.
        Now finally, our hearing will examine any cybersecurity
    advantages that blockchain and similar technologies might offer
    over other ways of securing our energy infrastructure. That is
    something that is always at the forefront of the minds of many
    of us on this Committee.
        We are fortunate this morning to have a very impressive
    panel of experts who are here today to help us understand these
    issues.
        Including Dr. Arvind Narayanan, am I pronouncing that
    right? Narayanan? He is an Associate Professor at Princeton who
    literally wrote the book on bitcoin.
        As well as Dr. Robert Kahn, who invented the fundamental
    communications protocols which are at the heart of the
    internet. It is truly a pleasure to have you here. I think it
    is recognized that Dr. Kahn is called one of the true ``fathers
    of the internet.'' We are very fortunate that he is here to
    discuss this technology and the issues surrounding its
    deployment, along with the other esteemed members of our panel
    this morning.
        I am looking forward to today's testimony and the
    opportunity to have an exchange with you on this important
    issue.
        Senator Cantwell, I welcome your remarks this morning.

                   STATEMENT OF HON. MARIA CANTWELL,
                      U.S. SENATOR FROM WASHINGTON

        Senator Cantwell. Thank you, Madam Chair, and thanks for
    scheduling this hearing on the emerging technology in the
    energy sector of blockchain.
        When many people hear blockchain, as you just mentioned,
    they think of bitcoin, but it is important to note at the
    outset that these two terms are not synonymous. The
    cryptocurrency bitcoin is one application of blockchain
    technology, and bitcoin mining is an issue of significant
    importance to the State of Washington and one which I will
    address shortly.
        Nevertheless, I see great potential in blockchain
    technology to have a dramatic impact on the development of a
    more clean energy economy. At its most basic level, blockchain
    refers to the ability of individual actors to use independent
    computers to record and verify digital transactions without the
    involvement of centralized authority and with very low risk of
    alteration of that data.
        In the energy sector, these attributes of blockchain enable
    peer-to-peer energy transactions using data-brokered calls that
    resist manipulation by bad actors which allow electricity
    consumers to purchase power from specific preferred sources.
    For instance, neighbor A could buy excess electricity generated
    by neighbor B's solar PV cells at a preset price. Obviously all
    the implications for distributed energy and driving down costs
    are great.
        Blockchain technology will handle the transaction, verify
    the validity of the terms, accurately report to both parties
    and regulators without the need for a third party. A private
    investor interested in expanding electric vehicle deployment
    can install charging infrastructure using blockchain technology
    to enter into contracts with EV owners for payments for
    electrons used without having to negotiate into a business
    relationship. So these are very interesting applications.
        Blockchain technology does present other challenges though.
    For instance, in the State of Washington we are experiencing a
    tremendous increase in electricity demand attributed to mining
    of bitcoin. These activities using blockchain processes to earn
    increments of cryptocurrency is, let's just say, very popular
    right now. It means that computers and servers churn around the
    clock and these server farms need a constantly increasing
    amount of electricity to run and cool the processors.
        Because of inexpensive hydropower in Washington, we find
    ourselves at the forefront of dealing with this issue as our
    utilities deal with it. To protect against miners driving up
    the cost and negatively impacting reliability, the central
    Washington utilities are taking matters into their own hand. I
    would like to enter into the record a statement from Chelan
    Public Utility District, so we can have that as part of today's
    hearing.
        The Chairman. It will be included.
        [The information referred to follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Senator Cantwell. To put this into context, a recent
    estimate found that a single bitcoin transaction uses as much
    electricity as an average household in the Netherlands uses in
    a month. Needless to say, there are some issues here that I
    think our state is sorting through.
        But we also know that blockchain has other great
    applications. We know that the grid is under near constant
    cyberattack, and blockchain technology which is relatively
    resistant to hacking could provide higher levels of
    cybersecurity than other means in our current electricity
    system. Blockchain applications may help accelerate clean
    energy and utility investment, and a recent report by the
    Energies Future Initiative estimates that the global investment
    in digital power sector infrastructure has increased 20 percent
    since 2014 and reached $47 billion.
        We know that clean energy innovators are expanding the use
    of blockchain applications across multiple sectors. I mentioned
    electric vehicles, where blockchain providers are developing
    incentive to bring more charging stations online, microgrid
    applications, enabling homeowners to use excessive power from
    other sources and grid edge technologies for blockchain
    transactions, optimizing smart technologies like meters,
    thermostats, and appliances that will allow most of these
    technologies to help develop with third parties.
        So I find this hearing of great contrast, Madam Chair, to
    the President's continued insistence on trying to make coal the
    only reliable source of electricity. I guarantee you that what
    we need to be doing is upgrading our cybersecurity and making
    sure that we are not going to charge consumers more. This is
    the kind of technology that could help drive down costs for the
    future.
        I look forward to hearing what the witnesses have to say in
    today's discussion. Thanks for scheduling this hearing.
        The Chairman. Thank you, Senator Cantwell.
        We will now turn to our panel.
        We will ask that you try to limit your comments to about
    five minutes. Your full statements will be incorporated into
    the record.
        We will start with you, Mr. Skare. Scar?
        Mr. Skare. Scaree, thank you.
        The Chairman. Mr. Skare, I'm sorry.
        Mr. Skare is the Chief Cyber Security and Technical Group
    Manager at the Pacific Northwest National Laboratory (PNNL). We
    welcome you to the Committee.
        He will be followed by Mr. Thomas Golden who is the Program
    Manager for the Electric Power Research Institute, EPRI.
    Welcome.
        Ms. Claire Henly is before the Committee this morning. She
    is the Managing Director for the Energy Web Foundation. We
    thank you for being here.
        I mentioned Dr. Arvind Narayanan earlier. He is Associate
    Professor, Department of Computer Science at Princeton
    University. We welcome you.
        And of course, Dr. Robert Kahn, who is the President and
    CEO at the Corporation for National Research Initiatives.
        We welcome you all.
        Mr. Skare, if you would like to lead off.

    STATEMENT OF PAUL SKARE, CHIEF CYBER SECURITY PROGRAM MANAGER,
                 PACIFIC NORTHWEST NATIONAL LABORATORY

        Mr. Skare. Good morning.
        Thank you, Chairman Murkowski, Ranking Member Cantwell and
    members of the Committee for this opportunity to appear before
    you today to discuss blockchain as it relates to U.S. electric
    infrastructure.
        My name is Paul Skare, and I lead the grid cybersecurity
    research at DOE's Pacific Northwest National Laboratory,
    located in Richland, Washington. I worked in grid cybersecurity
    for over 20 years both in private industry and at PNNL.
        In my written testimony I've included more complete
    descriptions of these issues that we're discussing today. But
    for now, I'd like to cover the following points.
        First of all, cryptocurrency mining. One particular
    application that includes blockchain technology is the general
    ledger. This is having localized impacts on the U.S. power
    grid, especially where energy costs are low. But most of our
    understanding of mining's impact remains anecdotal. It's
    unclear how long-term and widespread this issue will be for
    U.S. electric infrastructure, but blockchain is just one tool
    that PNNL and others are exploring to help secure the grid.
        First, I'd like to get into the difference between
    blockchain and cryptocurrency and the associated energy
    intensive computing. Blockchain technology is essentially a
    business ledger, electronically distributed that securely
    captures transactions of value without the need for a
    centralized authority or intermediary. Computers in a
    blockchain's network all evaluate the transactions in parallel
    and entries in the ledger cannot be altered without getting
    consensus of the computers in the network. Cryptocurrencies are
    an example of an application that uses public blockchains which
    are open to anyone but require volunteers to serve complex
    digital puzzles to support new blocks being added to the chain.
    Volunteers are rewarded for their contribution of computational
    work with small amounts of cryptocurrency, a process known as
    mining.
        The energy used in cryptocurrency mining has been compared
    to the total energy usage of states and even countries. Miners
    require increasing amounts of computational power and
    therefore, energy, to capture their cryptocurrency rewards.
    Thus, the practice is most profitable wherever electricity
    prices are low such as central and eastern Washington.
        While there have been media coverage of the impact that
    large cryptocurrency mining loads can have on local utilities,
    including some utilities declaring moratoriums on this
    activity, I'm not aware of any quantitative studies
    specifically on cryptocurrency mining impacts on the grid.
        Furthermore, it's unclear how the demand for cryptocurrency
    in this energy use for mining will respond to the fluctuating
    value of cryptocurrencies themselves. Bitcoin alone has dropped
    more than 50 percent in value this year.
        While cryptocurrency use is a public blockchain and mining
    to control access and verify blocks, one can also use a private
    blockchain which is not open and does not use mining, and thus
    does not require energy intensive computation.
        At PNNL we're exploring the application of blockchain to
    grid cybersecurity with support from the Cybersecurity for
    Energy Delivery Systems program within the DOE Office of
    Cybersecurity, Energy Security, and Emergency Response.
        At PNNL we take a holistic approach to securing the power
    grid, from stewarding operational capabilities, like the cyber
    threat monitoring program called CRISP, the Cybersecurity Risk
    Information Sharing Program, to developing entirely new
    technologies that keep our defenses at the forefront.
        At PNNL's blockchain project, we're applying private
    blockchain solutions to a variety of use cases, including
    maintaining supply chain, chain of custody, ensuring integrity
    of control signals and managing distribution of software
    patches, among others.
        Using a private blockchain has the potential for power
    system applications to add items to the blockchain every second
    and verify data upon the blockchain within the next second to
    alt scale. This quick update in capability is essential to
    handling increasing data requirements of a modern power grid
    and much more difficult to achieve with public blockchain
    approaches.
        Blockchain and other distributed ledger of technologies, in
    fact, have many properties that make them well suited to
    facilitate more efficient and decentralized energy transactions
    but these properties also come with some potential challenges.
        My written testimony discusses many of these challenges,
    but one I'd like to highlight here is endpoint security. No
    matter how secure the blockchain aspects of the solution are,
    the endpoints, those parts of the solution on either end of the
    blockchain, remains open to vulnerabilities as any other
    software.
        Realizing the potential of blockchain for the grid, we're
    requiring studying in addressing these challenges in applying
    blockchain to the grid, alongside other technologies within a
    broader cybersecurity framework.
        With all the potential for security and control systems
    that industry and DOE are working toward, it is important to
    keep in mind that blockchain is just one of a broad set of
    tools we must develop as we work to secure our power grid.
        I appreciate the opportunity to discuss this important
    issue with you today and I'm happy to answer your questions.
        Thank you.
        [The prepared statement of Mr. Skare follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        The Chairman. Thank you, Mr. Skare.
        Mr. Golden, welcome.

      STATEMENT OF THOMAS A. GOLDEN, PROGRAM MANAGER, TECHNOLOGY
             INNOVATION, ELECTRIC POWER RESEARCH INSTITUTE

        Mr. Golden. Thank you and good morning.
        Chair Murkowski, Ranking Member Cantwell and members of the
    Committee, thank you for inviting me here today to discuss
    energy efficiency of blockchain and other similar technologies,
    as well as the cybersecurity possibilities of such technologies
    for energy industry applications.
        My name is Thomas Golden, Program Manager for Technology
    Innovation, appearing before you on behalf of the Electric
    Power Research Institute, also known as EPRI.
        The goal of both my written testimony as well as my
    testimony today is to provide this Committee with objective
    research findings to help inform your discussions regarding
    this potentially important technology.
        As you know, many times there is a desire to think of
    blockchain and bitcoin as one and the same; however, bitcoin is
    not blockchain. Rather, it uses blockchain as the underlying
    technology platform. That being said, it is also important to
    note that much of the relevant early research to date has been
    conducted on bitcoin because of the relatively wide adoption of
    volatile value and popularity in the press.
        There are several different types of blockchain
    architecture currently in use, including the proof of work,
    proof of stake, proof of authority, and tangle. Each of these
    architectures require varying levels of energy.
        Bitcoin uses the proof of work architecture which is often
    most energy intensive. For that reason, combined with the
    Committee's hearing topic, I would like to share a few thoughts
    regarding the mining process for bitcoin.
        Mining is a process of using computing power to solve
    cryptographic puzzles to validate new transactions in the
    blockchain. When bitcoin was first established mining was
    possible using a standard desktop PC; however, the
    cryptographic puzzle is made more difficult every 10 days to
    maintain an average of 10 minutes of solving new transactions.
    As these cryptographic puzzles become more difficult, the
    amount of computing power required to solve these puzzles
    increases, resulting in an increase in energy usage based on
    the computing power and cooling requirements.
        Much like gold miners of the past traded their pans for
    pickaxes and their pickaxes for front end loaders, blockchain
    miners are constantly looking to gain efficiencies in both
    processes and energy requirements. There has been a transition
    from the standard desktop PC to something called the graphic
    processing unit and finally to the application-specific
    integrated circuit. Each transition has resulted in increasing
    efficiencies by either one or two orders of magnitude.
        Similar to the mining route times of the past where miners
    congregated geographically, bitcoin miners have sought to
    locate themselves with unused high capacity electric grid
    connections, relatively inexpensive electricity and a cold, dry
    climate. This is all intended to reduce their energy costs
    which have been estimated to be as high as 32 percent of
    overall operating costs.
        When bitcoin prices hit record highs, many began to enter
    this new market and establish mining operations. Although the
    mining operations have become more sophisticated, this surge of
    new participants helped to drive up overall energy consumption.
        Today, worldwide bitcoin energy usage is estimated between
    two to three gigawatts of power. To put that in perspective,
    this is approximately 0.1 percent of the total worldwide
    generating capacity, or more simply put, equivalent to the
    power required for nearly two million residential homes. This
    power consumption can be thought of as somewhat small in a
    global context but can be seen as very large in concentrated
    areas that are experiencing bitcoin boom towns.
        EPRI is working with its members to understand the
    potential challenges associated with blockchain mining
    operations, including potential cost to customers. Our research
    will continue to examine a wide array of potential impacts this
    technology may impress upon the electric grid.
        Additionally, EPRI has recently convened a member group
    called the Utility Blockchain Interest Group. This group of
    nearly 40 energy companies has been chartered to discuss
    research findings, level set technology intelligence and share
    results of early pilots.
        Finally, it is important to state that bitcoin is not the
    only use for blockchain technology. Any transaction that
    requires trust and currently uses a third party to deliver that
    trust, will most likely be looked upon as a place where bitcoin
    can add value.
        Many changes are underway in the electric grid. Gone are
    the days where consumers simply buy their electricity from
    their local trusted utility. Today we continue to see the
    installation of distributed energy resources such as solar
    panels on commercial and residential roofs. This presents an
    opportunity for what many are calling transactive energy.
    Rather than simply buying electricity from a utility, there
    exists a possibility where in the future you could buy and sell
    electricity in an open market with your neighbors and your
    utility. Many have theorized that blockchain technology may
    solve many of the challenges associated with setting up such a
    market. Additional research and testing is required before this
    theory can be truly vetted. EPRI is committed to this research
    and has created an initial version of the blockchain energy
    market simulator to test this theory.
        In closing, I thank you again for the opportunity to
    testify before the Committee today. I look forward to
    discussing many of the nuances and potential use cases for this
    technology in the energy industry and the potential
    applications regarding cybersecurity.
        Thank you.
        [The prepared statement of Mr. Golden follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        The Chairman. Thank you, Mr. Golden.
        Ms. Henly, welcome.

       STATEMENT OF CLAIRE HENLY, MANAGING DIRECTOR, ENERGY WEB
                               FOUNDATION

        Ms. Henly. Good morning, Madam Chair Murkowski, Ranking
    Member Cantwell, Senators. Thank you for inviting me to speak
    today on this exciting and important topic.
        My name is Claire Henly. I'm a Managing Director at the
    Energy Web Foundation which is the brainchild of a German
    technology start-up, Grid Singularity and a U.S. energy non-
    profit, Rocky Mountain Institute. Many of you will be familiar
    with Rocky Mountain Institute's founder, Amory Lovins, who sat
    in this chair often. The Energy Web Foundation builds open-
    sourced blockchain tools and technology for the energy sector
    in collaboration with our more than 80 affiliate companies, the
    likes of Duke, PG&E, Exelon, Sempra and many more globally.
        Today I would like to leave you with three messages. First,
    leading blockchains are replacing energy intensive bitcoin
    mining practices with efficient alternatives. Second,
    blockchain presents a valuable opportunity for the U.S.
    electricity grid to improve security, increase efficiency and
    lower costs. And third, the U.S. is behind both Europe and Asia
    in advancing the frontier of blockchain research and
    development.
        First, bitcoin uses significant electricity, as we've
    heard, roughly 10 to 20 terawatt hours per year in our median
    estimates which is enough to power one to two million U.S.
    homes. Bitcoin's electricity use is required by its security
    mechanism, proof of work, in which block validators, known as
    miners, work expending computing power and electricity to add
    blocks to the bitcoin chain. Bitcoin's energy use is a
    substantial concern, not only for you, Senators, but also for
    the industry. We know energy consumption on this scale will
    limit the potential of the technology to expand into and create
    value in energy and other sectors.
        As a result, there are several alternatives that are under
    development. Two are leading the pack. One called proof of
    stake requires validators to deposit value on chain that is
    seized in the case of bad behavior. The other, called proof of
    authority, requires known, trusted and regulated entities to
    validate transactions. These alternatives have drawbacks,
    respectively, cost of capital and increased centralization, but
    they both also have the important benefit of using many orders
    of magnitude, less electricity which would lead to bitcoin
    consumption on the scale of a small office building, not a
    small country.
        I don't mean to suggest that blockchain's electricity use
    will disappear overnight. There's currently little momentum in
    the bitcoin community to move away from proof of work. However,
    other leading blockchains are adopting the alternatives.
    Actually, the most widely-used blockchain, Ethereum, is in the
    process of switching to proof of stake and the Energy Web
    Foundation's blockchain is launching next year using proof of
    authority.
        Second, beyond bitcoin blockchain presents a valuable
    opportunity for the U.S. energy sector. Bitcoin created a
    secure, distributed currency ledger, but blockchain has become,
    as we've heard, more than just bitcoin.
        Subsequent innovations in blockchain have added the ability
    to execute code, turning the distributive ledger into a
    distributed computer. Features of this computer include
    automatic contract execution, no single point of failure, full
    data traceability and selective data permissioning and perhaps,
    most importantly, a common record of the state of the network
    held by all users.
        What could this mean for the U.S. energy sector? It means a
    grid that is no longer only centrally controlled and vulnerable
    to grid operator attack; it means an energy market where
    customers can choose where they buy their electricity without
    fear of providence uncertainty or high broker fees; it means a
    grid where households, like large generators, can be accurately
    compensated for self-generation and efficiency; and it means an
    electricity system that is no longer unidirectional, but
    instead it supports local energy exchange, making for an
    overall network that is more dynamic, resilient and efficient.
    These are just a few examples. In the growing energy blockchain
    ecosystem there are dozens of companies who are actively
    working to develop applications, specifically for the energy
    sector.
        Last, the technology is at an early stage. Important for
    you to know is that the U.S. is behind both Europe and Asia on
    research and development and the global hub for blockchain is
    not in San Francisco, as you might expect, but is in Berlin.
    The DOE's funding to explore blockchain's cybersecurity
    benefits is one good example of how the U.S. Government can
    support the technology but more is needed.
        The path to the genesis of the internet, the fusing of
    Arpanet and TCP/IP in 1983 was not straightforward or without
    problems. Similarly and perhaps unsurprisingly, the first
    blockchains have flaws. But as an industry we are actively
    working to implement solutions.
        Also, as in the early days of the internet, the current
    benefits of blockchain are not simple to grasp. Before email
    many believed the internet would have purely military
    applications. No one was dreaming of Amazon. But while the
    internet has allowed unprecedented information sharing,
    blockchain can create secure information agreement leading to
    open markets, distributed ownership and transformed
    institutions.
        On behalf of everyone at the Energy Web Foundation, thank
    you again for inviting me to speak to you today. I welcome your
    questions.
        [The prepared statement of Ms. Henly follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        The Chairman. Thank you, Ms. Henly.
        Mr. Narayanan, I had it right the first time.
        [Laughter.]
        Mr. Narayanan. Good morning. Thank you.
        The Chairman. Good morning, Mr. Narayanan.

       STATEMENT OF DR. ARVIND NARAYANAN, ASSOCIATE PROFESSOR OF
                 COMPUTER SCIENCE, PRINCETON UNIVERSITY

        Dr. Narayanan. Chairman Murkowski, Ranking Member Cantwell,
    members of the Committee, thank you for the opportunity to
    testify about blockchain technology and its implications.
        I'm an Associate Professor at Princeton University. I'm a
    computer scientist. I've been researching cryptocurrency and
    blockchain technology since 2013. I'm the lead author of a
    textbook on this topic that's been used in over a hundred
    courses around the country and worldwide.
        I'll address two topics today. I'll offer a view on what we
    can expect in terms of the energy consumption of certain
    blockchains, then I'll discuss potential applications of the
    blockchain technology in the energy industry.
        I'd like to begin by highlighting an important distinction
    that's already been raised here today which is between public
    and private blockchains. Public blockchains are open for anyone
    to participate in. They were the foundation of
    cryptocurrencies, and the majority of public blockchains today
    are based on mining which involves the computation of a large
    number of mathematical calculations.
        Private blockchains, on the other hand, are operated by a
    limited set of entities, such as a consortium of banks or a
    consortium of energy companies. They don't involve mining,
    they're not tied to cryptocurrencies and the applications in
    energy trading that we've heard about mostly involve private
    blockchains. This distinction is important when we talk about
    the energy consumption of cryptocurrency mining.
        Mining today is carried out in large scale, commercial
    operations using purposed built computing devices that are
    specialized to the task of mining and nothing else. At present,
    the miners of bitcoin, the original blockchain-based
    cryptocurrency, are collectively calculating about 50 billion
    billion of these computations every second. That's a 20-digit
    number. This rate of calculation requires a large amount of
    power.
        It's hard to estimate precisely. We've heard some estimates
    today. I've included my own estimate in my written testimony
    which is about five gigawatts for bitcoin mining alone today.
    Other blockchains also consume a substantial, but still lower
    amount of energy.
        Now, as we've heard, mining-free blockchain technology is
    being developed. How will this affect the future of blockchain
    energy consumption? Let me offer a few points on this.
        First, it's easy to design private blockchains that don't
    require mining, but it's proven much harder to get rid of
    mining in public blockchains that support cryptocurrencies.
    There are many technical challenges even if those are solved.
    The question remains as to whether all the existing mining-
    based cryptocurrencies will switch to a mining free model. My
    view is that this is unlikely.
        So how will mining energy consumption evolve in the future?
    The main factor that governs the economics of mining is the
    exchange rate between cryptocurrencies and dollars. Roughly
    speaking, if the price of a cryptocurrency goes up, it will
    become more valuable to mine, more miners will enter the market
    and more energy will be used in mining it. If the exchange rate
    goes down, then less energy will be used.
        So, what are the policy levers that can be used to
    influence mining? It's important to note that miners are very
    cost sensitive. That means that taxes and other policy
    incentives and disincentives could have a big impact in terms
    of where they locate their operations geographically.
        Now let me turn to the implications of blockchains for the
    energy industry. Many exciting applications have been proposed:
    blockchains that underpin existing energy markets; new markets,
    such as the peer-to-peer trading of rooftop solar power; smart
    devices that adjust their operation based on dynamic price
    signals, et cetera. Blockchains are one possible technology
    platform among many for implementing these applications. Many
    of these applications inherently require the use of blockchain
    technology, and we should pick the best tool for the job on a
    case-by-case basis. Blockchain-based recordkeeping systems can
    be more efficient compared to paper-based records, but at the
    same time, compared to other types of electronic databases and
    platforms, blockchains are often less efficient.
        Finally, let me turn to cybersecurity. Our electric grid
    and energy systems are becoming more computerized and more
    networked. That leads to new cybersecurity risks. If foreign
    adversaries are able to exploit digital vulnerabilities to
    penetrate these networks, that means they might be able to
    interfere with the grid's operation.
        Now technology for improving the security and fault
    tolerance of computing systems has been developed for several
    decades. Cryptography is a key element of these defenses. For
    example, digital signatures help to ensure that a control
    command on the grid, for instance, was sent by an authorized
    person rather than an intruder. Other key cybersecurity
    technologies include things like consensus protocols and
    firewalls.
        In some scenarios blockchains could augment the
    cybersecurity benefits of these classical technologies, and
    I've mentioned some examples in my written statement, but
    blockchain technology is not a necessary or core component of
    cybersecurity. It brings potential benefits, as well as new
    cybersecurity risks, and policymakers should view it as one
    tool among many.
        Thank you again for the opportunity to testify and I look
    forward to your questions.
        [The prepared statement of Dr. Narayanan follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        The Chairman. Thank you, Doctor.
        Dr. Kahn, welcome.

    STATEMENT OF DR. ROBERT E. KAHN, PRESIDENT AND CEO, CORPORATION
                   FOR NATIONAL RESEARCH INITIATIVES

        Dr. Kahn. Thank you, Chairman Murkowski, Ranking Member
    Cantwell and members of the Committee, I appreciate your
    invitation to testify before you today at this hearing.
        I'd like to summarize a few points for you from my written
    testimony today.
        When invited to testify at this hearing, I was specifically
    asked to focus my remarks on the more general topic of digital
    objects (DO). As Senator Cantwell just mentioned, bitcoin is a
    specific example of a distributed ledger technology and, in my
    view, distributed ledger technology and blockchains are
    specific examples of the more general topic of digital objects.
    So that's where my focus will be.
        What I want to address also is what I call the digital
    object architecture which we've been developing at my
    organization, Corporation for National Research Initiatives, to
    manage digital information structured as digital objects. This
    architecture was created, initially, with U.S. Government
    support, is non-proprietary, it's in the public domain and it
    has been implemented by many parties over many years.
        The architecture is a logical extension of the internet
    with a focus on simplifying the task of managing information in
    digital form in the internet or other computational
    environments. So I think this is pretty important. It offers
    users great flexibility in determining how to structure their
    digital information and how to manage it with a degree of
    cybersecurity protection previously unavailable.
        The initial internet protocols we developed enabled
    networks and computer facilities to work together,
    interdependent of what the components actually were. That's why
    the internet keeps working today, even though the underlying
    technologies have scaled by a factor of, perhaps, ten million
    over the years. And the most essential aspects of those
    internet protocols remain unchanged, even though other aspects
    have evolved quite a bit over time. This same basic design
    approach for evolution and scaling have been taken in the
    development of the digital object architecture so that it will
    continue to work with the new and yet-to-be-developed
    technologies of the future.
        Simply put, a digital object is a sequence of bits or a set
    of such sequences with a unique, persistent identifier and
    which incorporates a work or other information in which a party
    has rights or interests or in which there is value. This is
    certainly relevant in the energy space as well.
        The DO architecture enables one to structure this digital
    information in a way though that it's self-describing with its
    own integrated metadata so that if a digital object were to
    show up on your computer, the software on that machine would
    know how to interpret the arriving bits. And digital objects
    can also be linked together as has been the case with
    blockchains.
        As far as trust in the digital object is concerned, it has
    to come primarily from the use of strong cryptography. If you
    trust the cryptography, that should be sufficient for many
    reasons, but often both belt and suspenders are used, perhaps
    just because one doesn't fully trust the cryptography.
        The digital object architecture enables each digital object
    to be separately encrypted and enables users to interact
    directly with the objects through the protocol for secure
    operation. Its utility is potentially quite large in both
    normal as well as abnormal situations.
        In particular, a troubling situation would exist, for
    example, if the energy grid were compromised and no one in a
    position of responsibility knew anything about it. This might
    be an area where an implementation of the DO architecture could
    help to reliably detect such intrusions, either before they
    happen or afterwards.
        A user seeking information needs to be able to securely and
    accurately identify the information of interest. They need to
    rely on the strong cryptography it uses, perhaps for
    authentication, perhaps for encryption. And then, it has to
    trust that the system provider can defend against the systemic
    attacks that may be instigated, perhaps even, surreptitiously.
        On this later point, I've included with my testimony a
    paper that I wrote entitled, ``The Role of Architecture in
    Internet Defense.'' It describes an alternative approach to the
    never-ending task of defending against threats in the form of
    harmful bit patterns.
        We don't defend our borders by looking for photons and
    electrons, specific patterns. Yet, that's what we do on the
    internet today. But because of a technique known as data
    typing, digital objects can be structured to enable harmful
    inputs to be flagged ahead of time with a degree of granularity
    not previously available.
        On the issue of value, I've also included with my
    testimony, a paper entitled, ``Representing Value as Digital
    Objects,'' with a focus on being able to transfer such objects
    and to do so with anonymity while enabling the object to retain
    its value. This, of course, is the essence of cryptocurrencies.
        Finally, I'd like to comment on how one may reasonably
    expect to bring about social change as well as technological
    change when the value of the new approach is not yet widely
    understood or demonstrated in the industry. This was the
    challenge we had with the internet.
        Fundamentally, one needs to identify an area that requires
    assistance for which a new and novel approach seems to make
    sense and, if possible, find one or more early adopters to
    apply that approach without the need to require them or need
    any commercial provider to make substantial changes to their
    existing technology and/or services. Sometimes, only small
    changes are needed, maybe even no changes are needed if you can
    augment those existing capabilities to demonstrate the new
    approach. Eventually, if the new approach has enough added
    value, industry will likely adopt it and then integrate it by
    themselves. This was the approach taken in deploying the early
    internet. This is also how progress can be achieved in
    advancing and protecting our energy infrastructure, in my view,
    while at the same time, enhancing our ability to manage the
    infrastructure and better understanding what is happening with
    it.
        I would be pleased to share with you more detailed
    information on aspects of the digital object architecture or
    its implementation if you think it may further assist the
    Committee in its deliberations.
        In closing, I appreciate the opportunity to testify and I'd
    be happy to answer any questions you may have.
        Thank you.
        [The prepared statement of Dr. Kahn follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        The Chairman. Dr. Kahn, thank you. I appreciate what you
    have shared with us and look forward to reading these various
    papers as well.
        And to the other members of the panel, thank you. Very
    informative this morning.
        Dr. Kahn, I am going to come back to you on the issue of
    trust, because I think that is something that is so integral to
    what we are talking about here.
        But before I do that, I would like to ask several of you to
    touch further on the impact that we might anticipate, just from
    a consumer perspective, on electricity rates and the concern
    that some might have that, I am not, my family and I might not
    be ones that benefit from blockchain or bitcoin, and yet I am
    wondering am I, through my rates, going to be expected to pay
    for this infrastructure?
        Can we have a little bit of discussion about, again,
    expected impacts on electricity rates? How we deal with
    consumers who are concerned about what they may consider to be
    paying or helping to effectively subsidize some of the costs
    that we build out of infrastructure?
        Mr. Skare? Mr. Golden?
        Mr. Skare. Yeah, I think that you're hitting upon a
    fundamental aspect of how the power grid works. So anytime load
    increases, the only choice the utility has is either to
    generate more electricity or to import more electricity from
    its neighbors.
        So when you're looking at a situation like this with the
    cryptocurrency mining is increasing the loads, while that would
    be at a very localized level in the distribution part of the
    power system, it still will lead to increasing the need for the
    generation.
        Now whether the utility itself hits its limits of
    generation that it can provide, that determines typically and
    economically whether they should buy electricity from their
    neighbors.
        I think if you take a look at the written testimony from
    the Chelan Public Utility District, they chronicle some of
    their interesting issues that they've had where they've
    declared some moratoriums on cryptocurrency mining and then
    look at the process of what is the impact on their grid and
    since they're a public utility, understanding what's the right
    way for them to address the issue to get to a policy that
    works. They thought they had it at one point and then they had
    to re-apply the moratorium when they found out their policy
    wasn't quite complete enough.
        The Chairman. I think this is part of the complication here
    is understanding how you prepare for this short-term, mid-term,
    long-term. I mean, what is the long-term future here? Do the
    utilities build out for that or is this a shorter-term interval
    but you have an aggressive investment up front and then several
    years from now you might not necessarily need it?
        I think these are some of the fears that I am hearing in
    terms of how do you address the demand, right now, but not
    knowing what this may look like in the years ahead, and in the
    very, very short-term.
        Mr. Golden, do you want to or care to comment?
        Mr. Golden. Yes, Senator.
        I think, like Paul mentioned, Mr. Skare mentioned, it's
    fundamentally, it's a supply and demand question, right? If
    obviously demand goes up then and supply doesn't keep up with
    it then you have a possibility of increased rates.
        But I think it's important to note that utilities also have
    pretty robust planning processes in place to ensure that they
    can, sort of, understand where the grid is going, how much
    excess capacity in energy they have to serve new customers and
    work in partnership with new customers to determine, you know,
    how much load they're going to actually be generating for the
    grid. I think, so, fundamentally, I think there will be a
    chance for utilities to have that conversation.
        And you mentioned building infrastructure at the beginning.
    I think many utilities will have, or power providers will have,
    the ability to have that discussion at the early outset of the
    load coming into their territory and talk about having them
    help pay for some of the costs associated with actually
    building out the infrastructure required. So I think making
    that smart decision and having those early discussions up front
    will help to alleviate some of the concerns when it comes to
    cost, some of the costs that may occur if the technology were
    to leave town.
        The Chairman. Ms. Henly has mentioned that the United
    States is behind Asia, behind Europe in terms of just how we
    are approaching cryptocurrency.
        There are some out there that would suggest oh, this is
    just the latest fad. It is a hype. It is going to be here
    today, gone tomorrow. It sounds like you all believe that this
    is very much a part of the future going forward. Is that a fair
    statement?
        Shaking heads yes or no? I know Ms. Henly is a yes, for
    sure.
        Mr. Kahn, you have been around for a long time observing
    this. Is this here to stay?
        Dr. Kahn. As I said in my testimony and I strongly believe,
    this is one of the options that one ought to look at, just like
    when we did with the original internet there were all kinds of
    options from networking and computing. People should make their
    choices based on what's available.
        This may be one that lasts. It may not be. I certainly
    would not argue either for or against it other than to say it's
    an option on the table. Figure out whether it works for you.
        The Chairman. Very good.
        Dr. Kahn. We'll see.
        The Chairman. Very good.
        Ms. Henly. And just to add one more point on this.
        I think it's definitely an option on the table, and I think
    what we are excited about is the potential. But I think right
    now it's so early that what, you know, we're seeing is that
    it's deserving of more research but as Mr. Kahn mentioned, it
    is, you know, in the grand scheme of investments in the
    electricity sector and cybersecurity, only one tool in the
    toolbox.
        The Chairman. Very good.
        Senator Cantwell.
        Senator Cantwell. Thank you, Madam Chair.
        I really didn't think it was possible to thank you for a
    hearing in August----
        [Laughter.]
        ----but thank you, thank you. Thank you for this hearing. I
    think the witnesses have done an excellent job of outlining the
    options here.
        I would like to hone in on the security aspect, because I
    think that's one of the most interesting just because it is
    also one of our biggest challenges today.
        Mr. Skare, you mentioned patch management which I am very
    intrigued with given the Equifax situation. My head just
    explodes when I think about the fact that they had an Apache
    patch but somebody in the organization just didn't apply it.
    And the notion that this technology could help us with the
    architecture on patching which is a lot more frequent than
    everybody thinks, right? How would that work?
        Mr. Skare. Well, one of the challenges with patches is you
    want to understand and be able to validate the provenance of a
    patch to make sure that the patch hasn't been altered from the
    time it was created until you're the person applying the patch.
        So this is a way to provide a chain of custody, as it were,
    for that patch as it leaves the manufacturer until it gets to
    the asset owner who will be applying the patch. And I think
    that's one of the interesting things to help validate that no
    one has tampered with the patch is an important piece of this.
        Senator Cantwell. But would that also help us get patches
    implemented faster and more efficiently?
        Mr. Skare. No, this is a way of getting them implemented
    more securely.
        Senator Cantwell. Just to authenticate, you are saying.
    Just authenticated?
        Mr. Skare. Yes.
        Senator Cantwell. Interesting.
        Which could cut down on the posers who are online posing as
    patches, right?
        Mr. Skare. Yes.
        Senator Cantwell. So, okay, I definitely think this is
    something to consider after the Equifax breach, just the amount
    of software that is going to be in our system, the amount that
    people are going to depend on and then the amount of updates
    and patches. Obviously, figuring that out, leaving that many
    people exposed just because a patch was not fixed at Equifax,
    is just mind blowing.
        Ms. Henly, I think your testimony was quite helpful in the
    sense that it just reminded me of the 1980s when Microsoft said
    ``a computer on every desk.'' Obviously we have come a long way
    since that motto from a company, but the notion that you are
    all discussing a digital ledger, you know, the computer as a
    digital ledger is really something, I think, for us. I think
    what we have to do is not overregulate here and make sure that
    we are continuing to invest in what those technology
    applications are, the level of efficiency that you could get
    from that, particularly on the energy side of peer-to-peer is
    very interesting.
        What do you think we need to do to keep moving forward?
        Ms. Henly. I think that you make a great point.
        There is a lot of promise for this technology. Some of the
    funding has already gone in to explore the cybersecurity
    benefits with PNNL and the DOE, I think it's a really good
    start.
        I think that there are other programs that the U.S.
    Government can support--research, in particular--to answer some
    of these questions around energy use, but not only energy use,
    cybersecurity and not only cybersecurity, other applications of
    the technology in the energy sector. So what I would recommend
    is increased research and development, and coordinated research
    and development is a sign that the government and DOE is
    interested in the technology and wants to see the promise of it
    in this sector.
        Senator Cantwell. Mr. Kahn, have you heard about aviation
    applications for digital objects that work in blockchain?
        Dr. Kahn. If they're applicable, I think they're applicable
    almost anywhere, so sure in the area of aviation. But you know
    also, autonomous vehicles on the ground, in the air, linkages
    between them, interoperability.
        Some of the biggest challenges that we have in dealing with
    information systems is getting interoperability with other
    information systems. So we need a sound basis. The internet was
    all about getting interoperability between information systems.
        Senator Cantwell. Well----
        Dr. Kahn. The computers.
        Senator Cantwell. I think one of the things we're
    interested in, obviously post 9/11, is making sure that people
    don't take over aircraft. One of the applications is to have
    this network be able to help with aviation if somebody is
    trying to hijack or take control of a plane, to have this kind
    of secure system that would have the plane land with this kind
    of architecture.
        I think there are lots of applications, as you said, but I
    think there are some very specific ones that we should look
    into.
        Dr. Kahn. And security is particularly important. I really
    think that by dealing with information at this large a level of
    granularity than we have before rather than just worrying about
    bits floating around the internet, we have all kinds of
    potential at our fingertips for doing a better job on managing
    security.
        Senator Cantwell. Thank you for saying that, very well put.
        Thank you, Madam Chair.
        The Chairman. Thank you, Senator Cantwell.
        Senator Cassidy.
        Senator Cassidy. Thank you, Madam Chair.
        Congratulations to you all in making something very
    technical something I can understand.
        I am going to take this conversation a little bit afar from
    energy but remain with the blockchain technology.
        I am interested in trade-based money laundering. Now trade-
    based money laundering, ideally, would be combated by having
    the people on both sides of the transaction. For example, I
    learned of a transaction in which the goods went from the
    United States to Guatemala but the invoice to Panama and then
    back to Guatemala and that interlude in Panama substantially
    changed the invoice so that they were able to misinvoice and,
    therefore, transfer dollars. Everybody with me so far?
        I am gathering, and I will direct this to you, Mr.
    Narayanan, that blockchain, a public blockchain, could be
    maintained by the parties but with a central authority, I think
    Ms. Henly referred to, it would be a transparent blockchain.
    People could be looking at it, a central authority, to make
    sure it is not changing between Panama and Guatemala and you
    could trace this transaction throughout, ideally of course, to
    combat misinvoicing. Is that a correct assumption?
        Dr. Narayanan. With public blockchains, there has been a
    tension between the transparency of the blockchain that is all
    of the data being out there for anybody to look at and trace as
    well as the anonymity or pseudonymity of the system which is
    that for participants to trade, using these blockchains they
    don't have to put their real name out there.
        And so, in my----
        Senator Cassidy. Now let me stop you.
        That may be current, but could you set up a system, as Mr.
    Kahn suggested, with preexisting rules that when it comes to
    international trade, yes, you would have to say that it is Rob
    Portman, Inc. sending a good to Guatemala and there would be
    some sort of bar code scan that uploads the manifest. But
    nonetheless, a central authority in each government could look
    and make sure that the invoice remained constant throughout.
        Dr. Narayanan. Yes, Senator, you're absolutely correct.
    That system would be set up.
        It would have to be accompanied by legislation and
    enforcement to make sure that people are using those regulated
    blockchains instead of ones that are harder to----
        Senator Cassidy. Now let me ask you again. I am directing
    this to you, but anyone can weigh in. How difficult would this
    be because I think Ms. Henly spoke, or one of you spoke, about
    what we are looking at now is beta chain, beta versions, but it
    continues to evolve. If we wish to put in that system now,
    could we put in that system now or no, the technology is still
    evolving?
        Dr. Narayanan. If I may answer that?
        I think technologically we're at a point where we can
    deploy those systems. I think----
        Senator Cassidy. Then let me ask, because obviously
    Guatemala would not have the resources of the United States
    but, is it possible to cloud base this so that we would, if you
    will, distribute, the U.S. could distribute this system to our
    trading partners and they could have authority? You would
    absolutely have to have authority, but nonetheless, they could
    participate in this function?
        Dr. Narayanan. Senator, I think that's the challenging part
    which is not the technology side of things but instead how do
    we interface with our partners? How do we get everybody on the
    same table? I'm not the expert to speak about that, but what I
    will say is that the technology is not the hard part. It's all
    of these other things.
        Senator Cassidy. Ms. Henly?
        Ms. Henly. Just to add.
        I think one of the great innovations of bitcoin was
    creating an incentive structure that aligned everybody's
    incentives around reinforcing the security of the system.
        And so, while it's possible to create a structure and an
    application that you're describing that, you know, you'd have
    to essentially mandate or control or regulate every step of the
    way and ensure everybody is acting correctly.
        But it's possible with a public blockchain network is to
    create a system of incentives so that everyone is incentivized
    to act and verify----
        Senator Cassidy. Let me ask because, theoretically, the
    incentive is one, to cut down on trade-based money laundering.
        Ms. Henly. Yup.
        Senator Cassidy. But also, to include tax revenue, for
    example, the government of Guatemala, this invoicing deprives
    them.
        Ms. Henly. True.
        Senator Cassidy. But can you prevent the enterprising
    programmer from being paid off and messing with it because this
    is the attraction? It seems like the folks in the U.S. or
    Panama would be able to look at some corrupt programmer, not to
    accuse programmers of corruption. But you see where I am going
    with this.
        Ms. Henly. Absolutely.
        And this gets back to the protocol design of how do you set
    up a system where every party is bought in, sometimes
    literally, to the foundation of the blockchain where, you know,
    if the network is corrupted, everybody loses some, you know----
        Senator Cassidy. I thought I gathered from your testimony
    or your collective testimony that you can actually look and see
    if somebody corrupts.
        Ms. Henly. Yes.
        Senator Cassidy. And so it, kind of, flags.
        I think you, Mr. Kahn, mentioned it flags.
        Dr. Kahn. Yeah.
        Senator Cassidy. The code that has now been interpolated.
    Is that correct?
        Ms. Henly. Absolutely. The only question there is on
    endpoint security. So, how can you guarantee that the physical
    actions are being reflected in the digital ledger? And that's
    where you want to create a system of incentives so the physical
    actions, each person, is incentivized to contribute to the
    robustness of the network.
        Senator Cassidy. I am over time.
        Thank you all, very stimulating.
        The Chairman. Thank you, Senator Cassidy.
        Senator Smith.
        Senator Smith. Thank you, Madam Chair.
        And thanks to all of you, though I will only claim to have
    understood a fraction of what you described today. I appreciate
    the conversation very much and especially how the applications,
    how this can apply to everything from trade-based money
    laundering to cybersecurity and autonomous vehicles and so
    forth.
        But I would like to just hone in particularly on an area
    that I am really interested in in Minnesota. It is very
    important in Minnesota which is the area of energy efficiency
    and renewables.
        I would like you to just talk a little bit more. You know,
    in Minnesota we get about 25 percent of our energy from wind
    and solar, and I think while sometimes the challenges of
    incorporating that kind of energy into the grid are overstated,
    they still are challenges around reliability and also storage.
        Maybe starting with Ms. Henly, could you just talk a little
    bit about how this application might help us solve some of
    those problems around reliability and also storage? And then I
    am also really interested to hear from all of you about the
    kind of additional research that we need, particularly in that
    sector, that we ought to be putting our attention to.
        Ms. Henly. Absolutely, thank you for the question.
        So, one of the ways in which, one of the reasons we're
    excited about blockchain is because there is an ever
    increasing, in the electricity sector, set of distributed
    energy resources that have the capacity to contribute
    productively to the grid, whether it's, you know, second-on-
    second demand response, whether it's long-term efficiency, that
    can contribute to balancing some of the intermittency of
    renewable energy.
        But there are challenges in the electricity sector at the
    moment of leveraging those assets to productively contribute.
    And one of the things we're excited about with blockchain
    technology and that is very deserving of more research is the
    ability for blockchain given its distributed nature, given its
    potential to create low cost transactions with those devices,
    to coordinate, aggregate and leverage those devices to balance
    some of the intermittency of renewable energy. So we absolutely
    are excited about that. It is an early stage idea but deserving
    of more work.
        Senator Smith. Thank you.
        I would be interested in what others on the panel think
    about this. Yes?
        Mr. Golden. So I would agree that distributed energy
    resources, when you think about solar or wind or others and
    even smaller, maybe home-based or maybe a hospital has a
    combined heat and power generation facility.
        Today or in the past the way that it's been set up is you
    have centralized generation that's, sort of, a command and a
    control and how you command the generation to supply the demand
    that's out there on the grid.
        With the advent of these distributed energy resources, they
    could very much help toward the grid, provide reliability,
    stability, resiliency, but it's hard to tap into. If you think
    of having, maybe, ten nodes today of generation and then expand
    it to three million or something, how does the one central,
    sort of, utility manage all that chaos?
        So blockchain might be one of those technologies where you
    could use it the way that it works to basically help utilities
    and others manage the grid and be able to have those resources
    participate in a more meaningful way.
        Senator Smith. Go ahead, Doctor, please go ahead.
        Dr. Narayanan. Thank you.
        Let me address briefly the second part of your question
    which is how can we incentivize this kind of research and
    development.
        As a researcher what I see is there is certainly a vigorous
    amount of research going on in the United States on these
    topics but perhaps what we could have more of is researchers
    from very different areas working together about the
    applications of one kind of technology in a different sector,
    such as blockchain technology or other computing technologies
    in the energy sector. So perhaps funding that is strategically
    directed in route to incentivize these types of collaborations
    could be very fruitful.
        Senator Smith. What would be an example of that kind of
    collaboration that you are envisioning?
        Dr. Narayanan. A collaboration between computer scientists
    and technologists and experts in the energy sector who know
    what are the most important problems that need solving. And so,
    when you bring those two types of expertise together that's
    when we can build actually useful technology solutions.
        Senator Smith. Okay.
        Yes, Mr. Skare, my fellow Minnesotan.
        Mr. Skare. Yes.
        I think another area of research that would be very
    beneficial here is expanding upon transactive control and
    trying to see if demand response can also apply to the
    cryptocurrency mining. That might be a way to provide financial
    incentives to the miners themselves to back off on their mining
    during a time of heavy load for the grid.
        Senator Smith. Yes, Dr. Kahn?
        Dr. Kahn. So one of the areas it might be useful at a
    policy level might be to have people look into visibility
    strategies.
        I mean, it's very clear to me that the main interest in the
    cryptocurrencies is going to ultimately depend upon the
    visibility of the currency flows. That's the only thing that's
    going to make governments really comfortable with what's going
    on. I think you can upscale that discussion to visibility and
    information flows more generally, and I think that was alluded
    to by the Senator's comment.
        And so, I think one of the questions that could be raised
    is what is the right, appropriate way to develop public
    visibility into these kinds of flows when they are intended to
    be public. But there are going to be some that are non-public.
    And one of the best ways to do that, maybe in the energy world,
    there's a lot of information that needs to be visible, but not
    to the public. So, I think this whole area of the policies that
    should apply to visibility, what should be visibility and to
    whom.
        Senator Smith. Right.
        Dr. Kahn. And what technologies should apply is really
    going to be important. Blockchain may or may not be part of
    that solution.
        Senator Smith. Thank you very much.
        Thank you, Madam Chair.
        The Chairman. Thank you, Senator Smith.
        Senator Gardner.
        Senator Gardner. Thank you, Madam Chair.
        Thanks to all of you for your time and testimony this
    morning.
        Mr. Skare, I will start with you, if you don't mind.
        In your testimony you talk about vulnerabilities to 51
    percent of the nodes and the importance of endpoint security.
    How can we address issues such as security for Internet of
    Things, devices, that are going to be the backbone of, sort of,
    this peer-to-peer energy trading network?
        Mr. Skare. Thank you, Senator.
        I think that that's a key question to be talking about for
    this whole space because what we're finding is that there's a
    lot of standards on how to build secure systems and run them
    from an operational point of view, but not just from a building
    point of view. So there's a lack of expertise and best
    practices as far as, how, if I was a vendor, when I was going
    to build products, how do I build them securely? So that way,
    we'll have less need for patches once they're operational.
    That's an area we've been doing research on at PNNL but in the
    bigger sense is missing in the industry right now.
        Senator Gardner. Senator Warner and I have legislation that
    tries to address this, not through a prescriptive mandate type
    of view or approach, but sort of a, if the U.S. Government is
    buying Internet of Things devices, can we use our purchasing
    power to influence industry standards?
        Now we are buying billions of devices, billions of dollars'
    worth of devices. Can we set standards that when the U.S.
    Government purchases these things and patchable devices, no
    default or hard coded password from the factory that you have
    to have segmentation, I guess, and other provisions that would
    make sure that we have Internet of Things device securities? Is
    that the right approach, do you think, or are we barking up the
    right tree, so to speak?
        Mr. Skare. I think--I did some work with the Department of
    Energy on guidance on how to procure systems with, by adding
    cybersecurity requirements during the procurement process. I
    think that is a very valuable approach to help. It's one of the
    ways to influence the market as a major market participant.
        Senator Gardner. Thank you.
        You also have received a DOE CESER funded project. Can you
    talk a little bit more about any other blockchain research
    going on at PNNL or the other labs that you are aware of?
        Mr. Skare. Yeah, so I think a number of the labs are
    putting internal investments into understanding how blockchain
    works and how it can be applied to problems in this space.
        The current project that we have that's funded through
    CESER is really focusing on helping to flesh out and understand
    a number of use cases as well as, you know, both the pros and
    the cons of the issues.
        And the example of trying to influence, you know, the
    voting nodes within a blockchain solution if you were to be
    able to gain control of 51 percent of those voting members. You
    could theoretically then alter the outcome of the blockchain.
    And so, it's just an example of one of the issues that we're
    looking into right now.
        Senator Gardner. Mr. Golden, your testimony talked about
    transactive energy. You talked about the possibility of two
    utility customers talking to each other, trying to sell power
    to each other.
        Assuming the regulatory barriers to this were removed, it
    seems like a blockchain system could capture the accounting
    aspects and other aspects, but is that enough? Do you need
    more? Are there other things that we ought to be looking at?
    Would other systems or rules be required to ensure that the
    power transfer, it was safe for the buyer, the seller, the
    distribution system? How would that work? What needs to be
    done?
        Mr. Golden. Yeah, Senator, I think there's a ton of
    unanswered questions in that space. I mean this is very
    aspirational to have that, sort of, free market that allows for
    customers to buy and sell and then interact with the utility.
        Lots of things could come into play about how the grid is
    actually operated--how to understand where that power is
    flowing and when it's flowing to make sure they maintain
    reliability and resiliency for the customers. So I think
    there's a tremendous amount of research that's required in this
    area to really move that from, you know, sort of an idea or
    hypothesis into actual, into an action item.
        Senator Gardner. Could you talk a little bit about the
    research that is being done right now, both in the private
    sector and the federal R&D, that is taking place and what needs
    to happen at the federal R&D level to further this research?
        Mr. Golden. Yeah, today, I mean, we've set up, sort of, a
    bench lab test of what does that technology look like if you
    were to set up several nodes and see the interaction between,
    sort of, the buyers and the sellers in the market. It's very
    small scale.
        So I think additional funding to, sort of, support that
    research. It's one of those things where lots of times you're
    trying to figure out what's in the next couple years and this
    is maybe five to seven years out. You have to spend the money
    today to get to that, sort of, five- to seven-year future. And
    so I think that it's hard to get a huge amount of investment
    today, but it's something that's very much needed in order to
    get those technologies to move forward.
        Senator Gardner. The Secretary of Energy and I were out at
    NREL this past week where we talked about some of the grid work
    that they are doing in some of the facilities and opportunities
    that they have to do a lot of this research and development,
    the testing there with the power coming into the system from
    wind energy, gas turbine energy, solar energy, traditional
    energy, other traditional energy sources. I think that is the
    kind of approach that we need to continue to utilize, the
    expertise with the private sector and Federal Government
    researchers.
        I commend you all for your work and thanks for trying to
    help us understand some of the great technologies that we are
    on the cusp of achieving.
        Thanks.
        The Chairman. Thank you, Senator Gardner.
        Senator Heinrich.
        Senator Heinrich. So a couple of you have mentioned this
    potential for peer-to-peer trading using blockchain technology.
    How much do we know about how and whether that works well?
        Mr. Skare, I think you have worked a little bit on the
    Brooklyn project. Can you just maybe elaborate on is this
    working? Is this the right architecture to facilitate that kind
    of market?
        Mr. Skare. I think that's a really great question because
    what we're trying to understand is, you know, where are all the
    best use cases for this technology. I think it's in the
    Brooklyn microgrid transactive control type of scenario. It's a
    good place to try it out.
        I think additional use cases should look for other
    opportunities to do that early stage, kind of a demonstration
    of how each use case applies.
        Senator Heinrich. If this proves to be a good application
    for peer-to-peer trading, do any of you think that you could
    similarly, could you take blockchain and use it to facilitate
    participation of aggregated, behind the meter generation and
    storage assets to even go so far as potentially participate in
    bulk power markets?
        Ms. Henly. That is one application that we're quite excited
    about at Energy Web Foundation, and I know many of our
    affiliate companies are interested in specifically that type of
    aggregation.
        To the point around is blockchain the solution or one of
    the technologies that might be useful? It's really one of the
    technologies. And in order to realize an application like that,
    you're going to have to not only invest in the blockchain
    technology itself but also other technologies that will connect
    with devices and be able to realize something along those
    lines. But definitely a key part of the puzzle.
        Senator Heinrich. Ms. Henly, you said that the U.S. is
    behind in dealing with this architecture. Can you elaborate a
    little bit and, specifically, can you comment on how Congress,
    PUCs, FERC, et cetera, ought to be crafting regulation with
    these protocols in mind?
        Ms. Henly. Absolutely.
        So there is really valuable and excellent research
    happening in the U.S. I don't mean to suggest that there isn't
    any research happening. However, what we're seeing from the
    industry perspective is that most of the development,
    especially in the energy sector around blockchain, is happening
    in Europe and some of the key core developers are based in
    Berlin and a lot of the demonstration projects around energy
    applications are also in Europe.
        I think there's a real opportunity for the U.S. to put
    together additional programs, funding sources, perhaps the DOE,
    perhaps more broadly on blockchain and related technologies
    that would support foundational and fundamental research also
    in the U.S. and, in addition, demonstration projects that could
    be showing the value of peer-to-peer and other applications.
        Senator Heinrich. So energy related blockchain transactions
    are going to need to be energy efficient, unlike the bitcoin
    example. They will need to be scalable. They will need to have
    reasonable transaction costs if they are going to be
    implemented.
        Would any of you like to, sort of, talk about the different
    security protocol architectures that you mentioned, the proof
    of work, the proof of authority, proof of stake, even
    alternative architectures like tangle and what some of the
    positives and negatives of those different architectures are
    proving to be and how you think that is going to apply,
    specifically, to energy transactions?
        Ms. Henly. I'll jump in quickly, but then others should
    comment.
        In the energy sector we realize this is an issue and, for
    example, one of the reasons Energy Web Foundation was created
    was to address this issue and to create a blockchain that did
    not use bitcoin's energy intensive mining practices.
        And so, that's why we are launching our blockchain next
    year with proof of authority. Ethereum currently processes 1.3
    million transactions per day on average and has announced, the
    Ethereum Foundation has announced, a move to proof of stake,
    also uses orders of magnitude less energy. We expect those to
    be the transactive foundations for applications in the energy
    sector and in other sectors.
        Mr. Golden. I would say that I think transaction speed is
    obviously very important. We think about instantaneously
    balancing supply and demand. On the grid, you can't have
    latency that's going to not really, sort of, make sense of
    what's happening in making real-time decisions on how to
    balance everything.
        So, I would say that the proof of stake, like you
    mentioned, there's other protections that, sort of, are
    pointing toward being faster in their transaction speed.
        Senator Heinrich. Great.
        Thank you, Madam Chair.
        The Chairman. Thank you.
        Senator Portman.
        Senator Portman. Thank you, Madam Chair. I appreciate the
    witnesses being here today to talk about blockchain and energy
    and also some of the cybersecurity threats.
        As you may know in my home State of Ohio, blockchain has
    gained a little momentum recently. The Governor, John Kasich,
    recently signed legislation saying that blockchain was an
    electronic record like other electronic records and that, in
    turn, gives blockchain the same legal protections as other
    types of electronic records.
        Cleveland, in particular, and other parts of Ohio are
    becoming a home to some of the innovations going on here and
    have big interest in the Cleveland business community in
    developing blockchain thinking it is going to be a big part of
    the future.
        And what I've heard today is probably, maybe, who knows
    what the next great technology is, but it looks like it is very
    promising for a lot of applications.
        In the National Defense Authorization bill last year and
    again in the Homeland Security--which is a law now--and the
    Homeland Security bill which is out of Committee this year, I
    worked with colleagues to put in measures to have the
    government do more studying about blockchain, its opportunities
    and challenges in particular. Again, this focuses on how do we
    get our hands around cybersecurity threats that are proposed.
        On energy efficiency this Committee has done a lot of work
    in this area and passed legislation. Not all was passed by the
    Congress, some that has energy efficiency legislation that
    Senator Shaheen and I introduced, for instance, would be
    equivalent of taking 22 million cars off the road in terms of
    emissions and then you have blockchain. According to one of
    your studies on, particularly, the use of mining and some of
    the transactions.
        Dr. Narayanan, in your testimony you cited your work in
    determining the amount of energy required for bitcoin mining
    alone is slightly more than the electricity consumption of my
    entire State of Ohio. Is that accurate?
        Dr. Narayanan. That is my best estimate based on the data
    available at this point. There can be some uncertainty in that
    estimate, but the order of magnitude, I think, is very clear.
        Senator Portman. And the order of magnitude is enormous
    and, you know, concerning.
        What ways do we have to verify the methods of blockchain
    transactions that are less energy intensive than others and how
    can we get our hands around this issue?
        Dr. Narayanan. Senator, I think that is one of the key
    areas where we need more research. We've had some discussion
    today already about alternative mining for any blockchain
    technology.
        So far, it's proven tricky to apply those to public
    blockchains which support cryptocurrencies. That doesn't mean
    it's impossible. We're just not quite there yet in my view in
    terms of the technology and more research, more funding, more
    encouragement for the development of alternative technologies
    can certainly help.
        Senator Portman. Yet there have been some discussions
    already in terms of limiting the amount of mining--and any of
    you jump in here and Ms. Henly, maybe you have a thought on
    this--is that a practical solution?
        Ms. Henly. I would say our strong recommendation is to
    invest in researching alternatives to energy intensive bitcoin
    mining practices. I think that Mr. Skare, excuse me, mentioned
    some other approaches to time of use pricing or demand response
    that could be offered to miners as an incentive to not mine at
    peak times.
        Senator Portman. Creating incentives?
        Ms. Henly. Yes, exactly.
        Senator Portman. My time is coming to an end so let me just
    get to the opportunities now because the challenges are clear.
    Again, it would be ironic if all this work on energy efficiency
    was countered by this great new technology that does consume
    even more energy because the idea is to use it to be more
    energy efficient, to, as my colleague from New Mexico, Mr.
    Heinrich said, make it scalable and practical and timely, to be
    able to take distributed energy and make it work more
    practically. And all those opportunities are out there.
        What do you see as the best near-term applications of
    blockchain to improve energy efficiency?
        Open it up, Mr. Skare, maybe you can give a thought on
    that.
        Mr. Skare. Well----
        Senator Portman. Short-term, now.
        Mr. Skare. Short-term, I think the key is that blockchain
    is a technology as well as a number of other parallel
    technologies that can achieve the same goals.
        I think that energy efficiency can be tackled with or
    without blockchain and that the speed of getting energy
    efficiency gained is kind of a separate, separate orthogonal
    problem from blockchain technology.
        I think the big opportunity right now for blockchain is the
    fact that there is not a standardized definition of blockchain
    so we can continue to work on the research on how to make it
    more energy efficient and private blockchains. And that's
    probably the single most, immediate thing.
        And as we work toward cryptocurrency mining, figuring out
    ways to maintain the needs there in less energy intensive ways
    is also a----
        Senator Portman. How about tracking individual energy use?
    Is that a short-term application that could be helpful? Mr.
    Golden? Ms. Henly?
        Ms. Henly. To the tracking point?
        Senator Portman. Yes.
        Ms. Henly. The Energy Web Foundation is building a
    reference application that tracks renewable energy credits that
    we've launched in Alpha earlier this year.
        To the point around energy efficiency, one of our
    affiliates, Elia, which is a TSO in Belgium, is currently
    building a blockchain application to run their demand response
    program. So there are present day applications for energy
    efficiency, for tracking of blockchain that can be supported by
    the technology at this current stage.
        Senator Portman. Mr. Golden?
        Mr. Golden. Senator, I think you'll continue to see, if you
    look at data centers and that first, sort of, came to the
    front, people were worried about the amount of energy usage.
    And those data centers continued to drive down with energy
    efficiency so that they can, sort of, arrive at a lower amount
    of energy used.
        I think, if you look at blockchain mining and proof of work
    mining, as price drops, for instance, you might see them get a
    little bit tighter with the way that they want to spend their
    money. They're at $19,000 which it doesn't make a whole lot of
    sense to look at energy efficiency plays because you're making
    so much money. Whereas, if that does drop you might start to
    look at how do you make this operation more efficient.
        And then as larger plays come in, I think, there will be
    another opportunity for them to, sort of, consolidate and look
    at how they can make their operations more efficient maybe
    through the data centers.
        Senator Portman. So, we incentivize the business, not the
    market side of--my time has expired but any other thoughts you
    guys have, I would love to hear them as a matter of the record.
        But I think it is, again, challenges with huge opportunity
    as well.
        Thank you, Madam Chair.
        The Chairman. Thank you, Senator Portman.
        Senator Cortez Masto.
        Senator Cortez Masto. Thank you and, again, thank you for
    this hearing. I think it is an exciting time for us. I thank
    all of you for the conversation and the information that you
    have provided.
        I do believe we are at the dawn of a new age with the
    potential for blockchain technology. We cannot squander it. We
    have an opportunity right now to invest in the R&D for the very
    reasons that you all have identified.
        I appreciate the conversation and will follow up with
    respect to what we can do at a federal level, but there is a
    role for the states to play as well. And we have talked a
    little bit about that.
        I am proud that Nevada is one of the leading states in the
    nation encouraging the growth of the blockchain applications.
    For instance, in Nevada, our state legislature recently passed
    a bill incentivizing blockchain start-ups to locate their
    businesses in the state and that had the support of our
    governor as well, our current governor. It is an exciting time.
        But let me talk a little bit about some of my concerns and
    how you can help us address this. We talked about the
    architecture, and we talked about the framework. And as we
    build out this framework and we do the R&D, we talked about
    cybersecurity and security in general which, I think, is an
    important guardrail that we start looking at and putting in
    place as we build out this infrastructure instead of trying to
    layer it on after the fact which is much more difficult.
        But one thing we have not talked about yet is the privacy
    component. So let me open it up to all of you. What privacy
    considerations should be examined for consumers using digital
    currency or other blockchain applications? Please.
        Dr. Narayanan. If I may speak to that, Senator.
        With cryptocurrencies consumers have, sort of, a privacy
    dilemma which is that they can interact with other individuals
    and businesses using cryptocurrencies without providing their
    real name.
        However, all of the transactions that they make are
    permanently recorded on this public database in a way that they
    cannot take back. As we've heard, you cannot go back and modify
    the blockchain records later which means that if a consumer's
    identity at any point gets associated with any one of their
    transactions on the blockchain then it can further be linked to
    all of the transactions that they have made using a
    cryptocurrency.
        This is a very new type of system. It's not like the credit
    card system. With credit cards we don't really have the danger
    that all of my credit card transactions ever are going to be
    publicly, you know, displayed with my name attached to it on
    the internet.
        We don't quite know how to manage this privacy dilemma from
    a consumer perspective. A lot of research is happening, for
    example, there are newer blockchains which try to hide all
    information from public view. However, that raises other
    questions if those blockchains get adopted how can law
    enforcement, for example, still do their job. And so, I don't
    think we've quite figured out an answer yet which is both
    technologically sound, which is useable for consumers and also
    meets the legitimate needs that we have for law enforcement and
    investigative purposes. Definitely very much a work in
    progress.
        Senator Cortez Masto. Thank you.
        Doctor?
        Dr. Kahn. Yeah, I think that we didn't really have a chance
    to get into the technology of the digital object architecture,
    but as I stated earlier, blockchain is one example of a digital
    object, but just one.
        And yet, I know the focus of this hearing is on blockchain
    and so, that's why most of the questions are about it. But I
    think if you look at this issue more broadly, for example, the
    question of managing information shows up all the time in the
    research data alliance.
        This is the something the U.S., the European Union and
    Australia set up where many people who deal with very large
    data sets are worrying about how to curate it, share it,
    protect it, secure it and the like. And within that context the
    notion of blockchain almost never shows up because it is one
    choice and as they look at their needs, they don't see that as
    the critical, initial thing.
        Within the digital object architecture every aspect of it
    can be self-identified. For example, every individual can have
    an identity, including anonymous, that could be an identity.
    Every system can have an identity, every piece of information
    can have an identity. And that's how privacy is generated.
        So, if it were a health record that you were looking for,
    part of that health record would say, the following identifier
    for people are appropriate or programmed. So whatever it took
    to access this information. Privacy is essentially, inherently,
    built in.
        But by asking a question only about blockchain, it seems to
    me, that you omit all of the other potential applications that
    might be useful in society for which blockchain may not be the
    solution.
        This is not to take a position for it or against it, as
    I've said before, but with the focus here only on blockchain, I
    think you need to understand that there's a broader universe of
    applications of which blockchain is exactly one option.
        Senator Cortez Masto. Okay. Thank you.
        I notice my time is up. Thank you again for the
    conversation.
        The Chairman. Thank you.
        Senator Daines.
        Senator Daines. Chair Murkowski, Ranking Member Cantwell,
    thank you for holding this hearing today.
        I came from a tech background, as some of you know. I was
    in the cloud computing business for 12 years before I came to
    Capitol Hill.
        I have seen the progress of blockchain technology for
    cybersecurity and other industries. It has been fascinating to
    watch what's developed here. It is also interesting from an
    energy point of view.
        For example, bitcoin mining requires an enormous amount of
    electricity, sometimes surpassing even traditional mining
    projects. In my home State of Montana, we have facilities in
    Bonner and Butte that collectively require about 80 megawatts
    of electricity. There are plans by developers of these
    facilities to increase the energy demand and news of other
    bitcoin operations planning to move to Montana. Why are they
    thinking of moving to Montana? Well, we have lower cost energy.
    One mining operation projects the next few years to expand to
    100 megawatts, making it one of the largest energy consumers in
    the state.
        Montana has cheaper electricity, we have a colder climate
    and we have less expensive real estate--not true everywhere in
    Montana, but in many places that is true.
        This activity can create a net benefit to our economy. In
    fact, we could see some changes though in the near future.
    There are Colstrip units one and two in Montana that are
    planning closure. There are threats currently to units three
    and four.
        We may see electrical prices go up and energy production in
    Montana go down. We are a net energy exporter today. If we lost
    Colstrip units one, two, three and four, we would become a net
    energy importer.
        As the demand from bitcoin miners increases and the supply
    of cheap, reliable electricity from coal generation decreases,
    this could pose a threat to the expansion of bitcoin operations
    and an even greater threat to energy supply and prices for
    Montana as a whole.
        Mr. Golden, you noted that bitcoin miners prefer to locate
    in areas that have low energy prices like Montana. They rely on
    continuous, steady streams of electricity like other data
    centers.
        I remember when I was running and hosting operations for
    our company. We had data centers all over the world. But these
    mining operations usually run 24/7 with continuous demand.
    Areas with strong baseload power are, therefore, attractive
    locations, like Montana, with robust hydro as well as coal
    generation. In fact, I recently heard of a coal-fired plant in
    Australia which is reopening to provide power to a new bitcoin
    mine.
        The question is, how do you see the increase in bitcoin
    mining and the reduction in traditional baseload generation
    resources, like the closure of Colstrip, affecting the grid in
    the cost of delivered energy, especially in places like
    Montana?
        Mr. Golden. Thank you, Senator.
        So, I think, fundamentally, for the supply and demand
    piece, if your supply is dropping and your demand is
    increasing, then obviously you could see a change in the amount
    of the pricing structure for the service territory. So, I
    think, you know, obviously, that's one thing to consider.
        But there's also the fact that utilities are consistently
    looking at what is happening on their service territory and
    making decisions on what technology or what generation to start
    up or shut down.
        So, as they look at that, I think there will be a lot of
    decisions made in their planning processes if those coal units
    do go down, what would come in to replace that so they could
    continue to, sort of, provide their charter which is least cost
    energy for their customers. So, I think it'll take a lot.
        We don't know where these bitcoin mines go. If they someday
    fold or they don't--if they're not there any longer and it's
    difficult to make those decisions, but you know, having those,
    sort of, planning tools in place and processes that utilities
    are very much used to, helps them make those decisions.
        And I think having partnerships and frank discussions with
    many of these companies at the outset is a very important thing
    for the utilities to get engaged with.
        And one of the things we've done at EPRI is we've started a
    thing called Utility Blockchain Interest Group which is simply
    to get as many of our members around the table to have these
    discussions in a frank, meaningful way so that maybe your
    utilities from Montana can talk to somebody who's had this
    problem in New York or maybe in Washington and some lessons
    learned could be passed.
        Senator Daines. Or Australia it sounds like.
        Mr. Golden. Or Australia, right.
        Senator Daines. Right.
        They brought a coal-fired plant on to supply reliable, low
    cost energy for bitcoin mining. Along that line is this need, I
    guess, for agility and responsiveness.
        In your written testimony you discuss the difficulties of
    predicting future energy consumption of bitcoin miners and the
    potential problems associated with this uncertainty. You were
    alluding to that.
        As the value of bitcoin rises and falls, so does the
    incentive, perhaps to mine more bitcoins. This could lead to
    the investment in infrastructure that might be used for a few
    short months or could extend many years. How can communities
    and energy companies be more prepared as bitcoin miners move
    into their regions?
        Mr. Golden. I think, if these operations are, sort of,
    green field sites and they're starting to build brand new, I
    think it's a great time for utilities in the area to have
    discussions about what kind of infrastructure will be required
    to be put in place and help make sure that those companies are
    providing, sort of, their fair share for providing that
    infrastructure.
        I mean, other opportunities that we've, sort of, researched
    and seen is that these companies will often look for areas that
    may be, for instance, a car wash that had a high electric load
    that could then be utilized, that that connection could then be
    utilized to, sort of, hook up to the utility. So in that case
    it's, sort of, a benefit where you're realizing infrastructure
    that maybe was defunct before that.
        I think those two areas of looking for infrastructure
    that's already in place and built out. They could look for that
    and then also, having utilities have those discussions right up
    front with new customers on how to best set that infrastructure
    up.
        Senator Daines. Chair Murkowski, as Mr. Golden has alluded
    to, uncertainty is something that's difficult to manage but
    having more optionality by having a balanced energy portfolio,
    I think, is part of helping address uncertainty going forward.
    I hope we can learn from places like Australia, like Taiwan,
    like Germany that move too fast in one direction and kind of
    lost sight of having a diversified energy portfolio.
        Thank you.
        The Chairman. Senator King.
        Senator King. Thank you, Madam Chair.
        This has been a very informative discussion. You have
    noticed that the Senators have come and gone which tells you
    that the real software challenge, forget bitcoin and
    blockchain, is scheduling Senate hearings in a rational way so
    that we do not have to be in two and three places at once.
        [Laughter.]
        That is a challenge the world has never been able to
    tackle. I will just mention that.
        I am interested in the energy consumption issue. To what
    extent do these facilities which essentially are server farms,
    is that correct? Isn't that correct? That is what they are.
        You are nodding. Could you say yes?
        Ms. Henly. Yes.
        Senator King. Nods do not get in the record.
        [Laughter.]
        Ms. Henly. Yes.
        Senator King. To what extent are they dispatchable in the
    sense of being subject to peak load pricing, to load shedding
    and is this an opportunity to rationalize the utilization of
    the grid on time of day?
        Yes, sir?
        Mr. Skare. Yeah, I think this, there is an opportunity to
    move forward there.
        Today's installations do not have that built in ability to
    regulate based on either time of day rates or other incentives.
    There are a number of places in the United States that do have
    time of day rates that can use it. And the opportunity is there
    to add that demand response or even load shed capability.
        Senator King. But as I understand it, this whole system is
    built upon incentives and this is another incentive that could
    be built in. Would that be feasible in terms of the mechanics
    of this particular business, that they could ramp up and come
    down according to the cost of the energy that they are
    consuming?
        Mr. Skare. Yeah, I mean, as you said earlier, these are
    basically like server farms, so you could really turn some of
    the mining, you know, computers off during times of difficult
    load and then run them when the load isn't as such.
        Senator King. Well, one of the realities of the grid is it
    is terribly inefficient in the sense that there is huge slack
    at night, for example. And to the extent we can shift things
    like charging electric cars or running server farms, we
    wouldn't have to build a lot of additional infrastructure
    because the infrastructure is there. The wires are there, the
    generating capacity is there and it is scaled back at night.
        On this issue of individual sharing energy transactions,
    why does it take blockchain? Why can't the ISO do that now, the
    ISOs in the business of turning on plants and turning off
    plants according to demand? I don't quite understand why that
    can't happen under the current technology with additional
    software.
        Ms. Henly?
        Ms. Henly. Well, I was just going to refer to Mr. Golden's
    comment previously about the number of devices where today we
    have maybe hundreds or thousands of devices that a central
    operator is trying to optimize.
        In, you know, as increasingly even, you know, in the last
    few years, distributed energy resources, small devices, in
    households have started to expand. We're talking millions of
    devices and that requires a different architecture in order to
    coordinate them. But perhaps----
        Mr. Golden. I would agree.
        I mean, also, you know, you think about the ISOs and they
    have, sort of, minimum barriers for entry. You might have to be
    one megawatt of generation in order to participate in the
    market. We're talking about a situation where we have
    kilowatts.
        Senator King. But there is no law that says that. I mean,
    they could alter their software in such a way to accommodate
    smaller transactions.
        Mr. Golden. Right. Then it becomes, I think, a question of
    the cost of doing business.
        If you're having these micro transactions and having to pay
    a certain percentage for all of them, it almost doesn't seem,
    sort of, worth it at some point.
        Senator King. What is worrying me is the development of a
    whole different--we have already got a system for turning power
    off and on and monitoring the grid and determining when there
    is a need. If you build a whole new system on a blockchain
    basis, it is still going to have to integrate with the ISO at
    some point. Do you see what I am saying?
        Mr. Golden. I think you're completely--I think, like we've
    been sort of saying----
        Senator King. Completely right is good. Finish that.
        [Laughter.]
        Mr. Golden. As a group I don't think that we know that
    blockchain is certainly the end-all, be-all and that's the
    right decision to go with that technology to solve that
    problem.
        I think there's, obviously, many other ways to solve that
    problem and you know, obviously, those are the things we're
    examining.
        Ms. Henly. And the only thing I would add is that there is
    a current system in place that is quite effective for operating
    the current grid.
        Senator King. Right.
        Ms. Henly. But if, as you have just, you know, reflected, I
    think, quite well, is that the slack capacity on the system
    right now is enormous and to be able to create a system that is
    better optimized, more responsive, it may be necessary to add
    additional functionality where blockchain can aggregate small
    assets to hook into an ISO or to even, eventually and this
    would be, you know, a many year type of situation, to switch
    over to a more dynamic control system that is more distributed.
        Senator King. I have often likened the grid to a church
    that is built to accommodate Christmas and Easter and on a
    Sunday morning in February there are a lot of empty pews. We
    need to, I think, think about ways to more efficiently utilize
    this enormous investment that we have.
        The best example to me is charging electric cars overnight
    which you could do without any additional infrastructure
    whatsoever. It would only be energy cost, no additional capital
    costs.
        Well, thank you very much, Madam Chair. Thank you for
    scheduling this fascinating hearing. I appreciate it.
        The Chairman. It has been very interesting. Thank you,
    Senator King.
        Just a couple more questions. I would like to follow up.
        Ms. Henly, you were asked, I don't know, maybe it was by
    Senator Cortez Masto, on the issue of just privacy from a
    broader perspective and recognizing that if using blockchain
    for energy transactions, you might not, perhaps you don't need
    the same level of anonymity, I guess. But a question would be,
    how do you ensure then if you have this anonymity that is, we
    are saying okay, this identification is not required. How do
    you ensure that you are not selling a product that might be
    subject to sanction?
        Ms. Henly. Thank you for the question, Senator.
        I think that this is an area which deserves a lot of
    attention and interest and actually, engagement from regulators
    because, I think Dr. Narayanan stated it very well that privacy
    functionality is being developed by the industry, but it is not
    robust enough at this stage and is still in an early phase of
    development and needs to be developed, in particular, with
    specific use cases in mind.
        What is it that regulators care about in terms of privacy?
    What is necessary to require? There is a productive
    collaboration there between technologists in continuing to work
    on the technology and regulators in, you know, setting
    specifications and requirements for the direction the
    technology and privacy, in particular, moves in.
        The Chairman. Let me ask about the issue of regulation,
    because that is what we do up here is we advance legislation.
        Is it too early for us to be discussing the potential for
    legislation in this space?
        Mr. Golden, you mention in your testimony that regulatory
    barriers exist that restrict the transactions between the
    customer and the local utility. Should we expect some kind of a
    request to adopt federal regulations? You have some interstate
    issues connected to these transactions. Speak a little bit
    about your perspective on the need for regulation at this
    point.
        Mr. Golden. Yeah, EPRI doesn't generally, sort of, get
    into, jump into the regulatory, sort of, realm, but really,
    it's about looking at the technology itself and whether or not
    the technology is ready. I think there's a lot more work that
    has to be done as far as whether or not this technology is
    ready to, sort of, participate in a transactive energy way.
        I think one area that maybe is also important for this
    transactive energy is the use of smart contracts. When we think
    about peers on a network selling electricity back and forth to
    one another there needs to be some sort of contract in place.
    And I don't know that there's any sort of recognition from a
    legal framework of whether or not those smart contracts are
    actually enforceable. So that's one thing.
        And I think one of the Senators mentioned that in Ohio they
    had looked at, sort of, allowing for that contract to be
    something that is true and real and is recognized by the legal
    system.
        So, I think those areas are areas for you to look at and
    then also just keep an eye on the technology as it develops
    like we will plan research and development.
        The Chairman. Mr. Skare?
        Mr. Skare. I'd like to just add a little bit to that in
    that I think the area of concern besides personally
    identifiable information being made part of an immutable record
    that you also have to look at anything else that the
    transaction parties might be placing within that block so that
    you can put in, you know, illegal data into these blocks and
    then they stay there. So that's another area of concern that
    should be reviewed as part of that process.
        The Chairman. Well then, that takes me back to an issue
    that I raised with you, Dr. Kahn, after your testimony and that
    was the issue of trust.
        You explained that the focus of blockchain is not creating
    blocks of data but in creating data that can be trusted and
    trust is one of those words that we don't often hear when we
    are talking about cybersecurity.
        I guess I would ask you to just speak a little bit further
    about what more can be done to ensure that we are actually
    achieving this trust. You mentioned that blockchain is just one
    option out there. But how does the trust that is created by
    this blockchain technology compare with other techniques that
    might be used in gaining that trust for the digital objects?
        Dr. Kahn. Well, that's a wonderful question. Thank you for
    that. And it's not going to be very easy to answer it directly
    because you have to get into all the ins and outs of how you
    trust blockchain and how it works and the like.
        I don't think we really have time for that right here and
    probably other people could address that equally well.
        But let me just say that in developing trust in any
    informational system and I might point out that things are not
    new, as in the Internet of Things, because when we did the
    original work on computer networking the things we connected
    were big computers. So we're really still in the business of
    connecting things, big informational systems, little ones,
    whatever.
        You need to know what information you want. That means
    you've got to have a way of describing it and it can't be
    semantics. It will be different in different languages.
        That's why the importance of unique identifiers associated
    with digital objects. You can say, the information I want is in
    the object who has this identifier, wherever it is in the
    information universe. And then you need to have some way of
    going from that identifier to actually accessing that
    information. Now it might be you can't manifest it because it's
    all encrypted, but you've got to be able to get to it.
        So let me assume that you can interpret it when it shows
    up. The next thing you want to know is can I trust that this
    information has not been tampered with. And that's, kind of, an
    interesting question that deals in authentication technologies
    of one sort or another.
        Now, often times you think you need some other set of
    records to know whether it's accurate, but in many cases you're
    dealing with information that is immutable, that is it never
    changes. And if the information never changes, then you can
    actually create an identifier for that information,
    cryptographically, based on the content of the information so
    that from the identifier you can get the information and from
    the identifier you can validate whether that information was
    accurate or not. It doesn't require anything else. It's self-
    built in to the way kind of system would operate.
        Now, if the information is changeable, you probably need to
    depend on another system. It could be a blockchain system. It
    could be many of the kinds of systems.
        But there is one that's widely used throughout the world in
    the publication industry and options trading and in managing
    building activities. It's called the Handle system, well that's
    the trademark for it. But it's an identifier resolution system
    that's very powerful and it's been on the internet for almost
    30 years, actually 25, 27 years now, widespread in the
    publications industry.
        It's hard to find any scientific journal that doesn't rely
    on this to identify references in those journals.
        So that's an important aspect of how you develop trust. You
    might develop it because the system itself is intrinsically,
    the trust level doesn't depend on anything else, anywhere else.
    It doesn't depend on other service systems or whatever.
        The question is can you get the information? This issue
    also has shown up in other areas where you have to learn to
    trust the cryptography like if you could actually send
    information over another nation's satellite system, would you
    trust the information that you got? Well, if you could get the
    bits and you believe in the strength of the cryptography, maybe
    the answer should be yes or certainly yes in times of dire
    need.
        There's also the question of how you can trust in a
    particular object that has value when it's the bitstream itself
    that purports to have value, as in cryptocurrency, when you can
    actually transfer that, perhaps even anonymously from one party
    to another. So if I transfer a bitstream that's got $100 of
    value to another party, who's got the $100 of value if I kept a
    copy of that same bitstream?
        You have to have a way of understanding which is the real
    bitstream even though they're both identical. And that can be
    done in a variety of ways, including through, if you read that
    paper I wrote on representing value with Patrice Lyons, you'll
    see that we actually go through that in detail and it's not a
    blockchain solution, but it is one that's another alternative.
        And then finally, you need to know that communication world
    that you're dealing with can actually get information through
    reliably because if you can't get the information then all of
    the trust that you might have in it will never really
    materialize.
        Cybersecurity is important in terms of maintaining the
    flows but also making sure that things can't be changed within
    the system. If I pull down an object which is, let's say, a
    piece of legislation, I'd like to know is this the real piece
    of legislation? Well, you can't tell that necessarily from
    something else, you might have to look at the object itself to
    tell. You might want to know is this the latest version? Has it
    been amended? You may want to get the prior version.
        And so, all of those things go into building trust and
    that's one of the things that we've thought through very
    seriously in the digital object architecture, but it's like a
    set of building blocks. It's not a cookie cutter, one size fits
    all and every example that we have been involved with, we've
    built probably dozens of systems of various kinds, including
    some for managing options trading around the globe, managing
    the construction of buildings and smart cities and things like
    that.
        Every one is different and there is no single solution
    that, you know, universally applies to everything. You have to
    look at the issue of trust and managing the information and
    protecting it and securing it individually in every case. There
    is no universal solution that's going to work for everything
    now and in the future.
        The Chairman. Well, I thank you for that. You are right, it
    is not something that you can respond to in a couple minutes
    blurb. This is a much broader and exceptionally important and
    very, very timely.
        Not a lot of trust that you have around the halls of
    Congress right now. Quite honestly, there is not a lot of trust
    that the American public has.
        Just think about what people get on their news, they are
    all wondering is this real? You know, we are not trusting much
    of anything nowadays. So making sure that we have architecture
    that can be trusted, I think, will be exceptionally important
    moving forward. So I appreciate you outlining that.
        Senator King, any final words?
        Senator King. No.
        The Chairman. I appreciate what you have provided to the
    Committee this morning. It has been very interesting, very
    enlightening. I think we have all learned a lot.
        This has been good to fill our heads with as we move
    forward, and I thank you for what you have contributed.
        With that, the Committee stands adjourned.
        [Whereupon, at 11:56 a.m. the hearing was adjourned.]

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