The Blockchain in Energy Industry Analysis by BIS Research projects the market to grow at a significant CAGR of 54.09% during the forecast period from 2019 to 2024. Increasing integration of renewable energy sources and increasing demand for decentralized power generation are the factors supporting the growth of blockchain in energy, globally

A blockchain is a distributed database that maintains all kinds of records. The recent transactions are stored in ‘blocks,’ and once the block gets completed, it gets stored in the blockchain. Upon block completion each time, a new block is formed. The blocks are added to the blockchain in linear and chronological order. Blocks are chained together through cryptography, which makes it nearly impossible for any individual to tamper with them without being detected. Each node, when connected to the network, gets a copy of the blockchain and is able to make new transactions or can verify the transactions.

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Proof of Work (PoW), Proof of Stake (PoS), and Proof of Authority (PoA) are the methods followed to verify the authenticity of transactions without the need for a third party and are discussed in the subsequent sections. Proof of work is the system where the probability of mining a block is dependent on the quantity of work done by the miner. Miners use vast amounts of electricity and computer data to find a solution. The miner links a new block by finding the answer to the mathematical problem given in the last block. The solution for the mathematical problem is found using the computational power of all the miners, and the solution is found every 10 minutes on average. This mechanism protects the blockchain against attacks. Bitcoin is one of the examples of cryptocurrencies that use PoW.

However, there are several concerns related to the Proof of Work mechanism. One of the major concerns is the power consumption required for mining. The World Economic Forum published a white paper in June 2017, stating that the energy consumed by bitcoins network was equivalent to the energy consumed by 700 average American homes at the low end.

Blockchain data records are linked to each other using hash pointers. Hash pointers point to the location of the previous data block and also contain the message about the content of the block. The pointer allows the programmer to locate the data block and read its content. Inside the block, all the transaction messages are organized in the form of a tree known as the Merkle Tree. Such trees summarize all the transactions in a block and provide a highly efficient process to verify the transactions. Merkle trees are constructed by using hash codes until there is only one hash node left. The last hash node is called the Root or Merkle Root.

The driving factors for the growth of decentralized power generation are the increasing demand for the supply of electricity and the focus toward generating electricity through renewable sources of energy. Decentralized power generation is defined as the generation of electricity from renewable sources through a substantial amount of small megawatt capacity units at the local level, which is connected to the grid network. Another looming concern over the stability of the grid distribution network is the low capacity utilization factor of the renewable energy sources, which has led to an increase in energy demand for end users.

As a result of the declining power quality and discontinuity in power supply, the adoption of virtual power plants has been triggered in order to deliver an uninterrupted power supply and reduce power outages. An increase in demand for decentralized power generation from industrial and commercial end-users has further aggravated the need for virtual power plants. The public utilities and leading players in the blockchain in the energy market are investing to facilitate the transition toward decentralized energy systems.

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Instability and dropping efficiency of a traditional centralized system for power generation due to outdated equipment and obsolete layout are propelling the need for a decentralized method of meeting the energy demand. With the rapid implementation of virtual power plants, the end-users are able to monitor and control energy generation from distributed energy resources effectively and improve power fluctuations by optimizing the grid network.

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