Swinging the Blockchain Hammer – Event Horizon 2018: Part 2

In my second post following the Event Horizon 2018 event, I discuss blockchain startups’ business models. I see too many startups following the peer-to-peer energy trading model, rather than pursuing business models that address utilities’ current needs.

A Hammer without a Nail Is Just Scrap Metal

Innovation in the technology industry is unrivaled. "Necessity is the mother of invention" may be the credo for utilities’ innovation efforts, but the technology industry is different: it must stay ahead of the curve through endless cycles of R&D. The output of this research has given birth to many fantastic products that have revolutionized the way we live—no one really knew they needed an iPod or smartphone until the products were brought to market.

Conversely, many fantastic technologies—from Betamax VCRs to Google Glass—fall ignominiously by the wayside. They are the proverbial hammers that failed to find a nail. Despite the hype, right now blockchain is a hammer searching for a nail. The rash of startups developing energy-focused blockchain solutions are each hoping their solution will be the one that transforms the industry. However, there is likely not enough room for all of them.

Peer-to-Peer Energy Trading Is (Probably) Not the Right Nail

However, I have concerns that the business models pursued by many startups are not optimizing the pursuit of those elusive nails. After many conversations with people across the industry and listening to several startup pitches, I am worried that too much investment is flowing into the wrong business models. Right now, the majority of energy-focused blockchain startups include some element of peer-to-peer energy trading. While I remain positive about the future of transactive energy markets, there are still significant barriers to adoption.

So why are there so many TE-related startups? The cynic in me believes that too many of the people behind these startups are following the money and copying the business models of previously successful initial coin offerings (ICOs). Rather than spending time with a utility to identify existing business needs, it’s far easier to raise a few million dollars by launching an ICO with a white paper that promises Uber-style industry disruption and bitcoin-like token inflation.

ICO Follow-the-Leader Will Consign Many Startups to the Scrapheap

There is a saying often, but incorrectly, attributed to Einstein: “The definition of insanity is doing the same thing over and over again, but expecting different results.” Unfortunately, blockchain startups seem to value short-term ICO success, not the value of their business models: too many are recycling the business models of their peers to raise seed capital rather than identifying the business pain points that blockchain can address. This is not just unoriginal; it is fraught with danger.

Potential new entrants will do well to note the following observations before deciding on their business models:

• We do not need any more peer-to-peer blockchain startups. More than enough currently exist for the world’s transactive energy requirements.
• A peer-to-peer trading platform does not address any current, pressing issue with utility industry business processes.
• The energy industry is not the taxi industry. Regulators will not permit Uber-style disruption. No startup can simply release an app and instantly sideline industry incumbents.
• Regulatory approval for peer-to-peer energy trading could easily take longer than it takes a startup to spend all its seed capital.
• No peer-to-peer energy trading model will create cryptocurrency billionaires. Startups should think twice about using any form of token. I am unconvinced regulators will permit the energy system to be priced in anything other than fiat currency.
• True peer-to-peer energy trading is a physical impossibility; some form of centralized control and pricing must be done to maintain electricity networks.