[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
__________
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Printed for the use of the
Committee on Energy and Natural Resources
Available via the World Wide Web: http://www.govinfo.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
31-319 WASHINGTON : 2019
--------------------------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Publishing Office,
http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center,
U.S. Government Publishing Office. Phone 202-512-1800, or 866-512-1800 (toll-free).
E-mail, [email protected].
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.]
APPENDIX MATERIAL SUBMITTED
----------
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]