Epicenter - Learn about Crypto, Blockchain, Ethereum, Bitcoin and Distributed Technologies - Karl Kreder: Grid+ – Unlocking Direct Access to Wholesale Energy Markets

Episode Date: October 24, 2017

Energy markets form a complex ecosystem of actors. Wholesale energy producers create energy through various means, grid operators transport electricity over long distances and deliver it to homes and businesses, who buy it from local utility companies. The utilities act as resellers in this scheme and take on much of the financial risk associated with selling a commodity which is consumed long before payment settlement from consumers. However, utilities have high operation and marketing costs and charge a high markup on the electricity they buy from wholesalers. Karl Kreder, Co-founder of Grid+, a Consensys project, joins us to talk about how blockchain technology can help disintermediate utilities and allow consumers buy electricity directly from producers. The Grid+ Agent is a hardware device which sits in your home, is connected to your energy meter and can interact with the power grid. The Agent has built-in logic allowing it to respond to your energy needs and predict usage. It is also equipped with a Trusted Execution Environment and a wallet which keeps private keys secure and can make near real-time payments to the network. Topics covered in this episode: Karl’s background and how he became part of Consensys Energy A high-level overview of the energy market and the different players in this ecosystem Where lie the inefficiencies and how they can be improved The challenges facing the energy market today The Grid+ Agent and its functionality How the Grid+ Agent works and how it interacts with the grid Other potential applications for the Grid+ Agent The economics of the Grid+ smart contract and how it handles risk The Grid+ token sale Episode links: Grid+ Grid+ Whitepaper What is Grid+? - YouTube This episode is hosted by Meher Roy and Sébastien Couture. Show notes and listening options: epicenter.tv/206

This is Epicenter. Episode 206 with guest Carl Cretor. Hi, welcome to Epicenter. The show it talks about the technologies, projects, and startups driving decentralization and the global blockchain revolution. My name is Sebastian Puguel. And I'm Meheroy. Today we'll talk to Carl Krader, co-founder of Grid Plus. Grid Plus is a project from consensus that is seeking to reinvent the nature of how energy transactions happen on our gigs today. Carl, welcome to the show. Thanks for having you guys. So before you begin, tell us about your background and how you came to be involved in the

blockchain space. So I got involved in Bitcoin just kind of buying and as a speculator back in about 2012 timeframe. It was also the time frame that I was in grad school doing my PhD on advanced battery materials, energy storage. And I actually met Alex Miller during my PhD. He was one of my classmates. He was working on a degree in computational physics.

And he ended up graduating with a master's degree and went to work for consensus eventually. And he started working on some of their energy projects, one of which was networking together a swarm of smart batteries and having those batteries have what we call an Antonos agent, which would essentially buy an arbitrage energy with each other over time. And in that project, he needed some battery expertise, so he called me up and I did some consulting for them as kind of a subject matter expert on that project, and then eventually started working full-time for consensus in May of this year. So your LinkedIn profile says you were like director of energy for consensus.

What did you do as director of energy? So basically consensus has a couple of different business areas, one of which is what we call enterprise consulting. So it's basically doing project development with energy companies that are looking at using blockchain in some way and having consensus kind of be the technical arm for doing a proof of concept with an implementation of blockchain. So there were a couple projects, right, like the one with the smart batteries. There were also some sort of inbound interests, but most of the time that I've been at consensus, I've really been focused on Grid Plus as a project.

So what is grid plus as an overview? Yeah, so grid plus is going to hopefully be the world's first blockchain-based electrical utility. And what that means is that our customers will be able to buy, sell, and settle their energy in real time using the blockchain. So in an application like that, so when I imagine myself, like, buying electricity. Generally I have a contract with a company and I pay like a flat charge. So number of units consume multiplied by a standard rate per unit. Electricity comes, the meter records and then I pay the particular unit. What does blockchain technology have to do here? like, why is blockchain at all suited to this kind of transaction?

Well, so there's a couple sort of factors that are coming together that is making blockchain very interesting for the electricity markets. The first of which is just the sort of intrinsic nature of the markets themselves. And electricity markets are interesting because they're a commodities market. But unlike any other commodities market, which is typically contracts that are signed and then settled on a cash basis, so they're typically what we would call a futures contract. And the electricity markets, most of the contracts are what we call forward's contracts because unlike futures contracts, which are settled in cash, forest contracts are actually settled in the delivery of electricity. that's also coupled with the fact that if you look at the electrical grid,

there's not really a lot of energy storage on the grid. So production and consumption essentially happens in real time, and these two things always have to be balanced with each other. So you have this forwards commodities market where the product is being created and destroyed kind of instantaneously. So if we have a financial system that, requires us to settle not instantaneously, we need to have a process of collateralization and segmentation in the markets to essentially mitigate counterparty risk.

And that's kind of how the markets are currently set up. So when people talk about this idea of a utility that they're paying a flat rate, the utility is actually buying this energy out of a wholesale market, if we're talking about a deregulated market, they're then marking that up, paying a distribution charge, and then selling that energy at a flat rate to the customer. The whole purpose of that intermediary, in this case the utility, is to essentially collateralize the risk of their customers of payment, such that the other wholesale market participants don't have counterparty risk.

but if you take a world where the customers themselves can settle for their electricity consumption in real time, you can start to reduce the need for that collateralization by the intermediary, and in the far off future, you could actually think about a system where customers would be directly interacting with the wholesale markets. So I think a lot of people sort of take for granted the fact that they have electricity just flowing into their homes and powering their lights and stoves and computers and all these devices that we use. And I think for a lot of people that don't really fully comprehend the journey of an electron that's being produced, say in a nuclear power plant or a coal fire power plant or by some renewable energy source. and the journey of that electron to your house and like into your smartphone charging. Can you walk us through that? So say for instance, and you mentioned Texas in a deregulity market like Texas,

who are the different stakeholders or like the different players in this energy supply chain, right? Right. So the players in the energy supply chain can be segmented really into four categories. So the first one being generators, which are sort of these nuclear power play. these large coal power plants, you can also think about utility scale, say wind or solar production, and those are your generators. So they're classified as people that are generating more than a megawatt of power. That energy is created by the generators and then it's transmitted down the transmission infrastructure. And the transmission is basically the movement of electricity over these high voltage power lines.

And then that gets to what we call a distribution network, which is a lower voltage, shorter distance network that you would kind of think about like within a city. And then that goes to the consumer. And in the middle of all this, you have what we'd call a retailer. Most people would refer to them as their utility. And the utility is actually just this financial intermediary that buys the energy out of these wholesale markets, that the generators are. selling into, then repackages itself that energy to the customer and then pays a fee to the transmission and distribution network for moving the electricity. Okay. So, I mean, you could kind of compare this to, you know, some sort of a logistics

supply chain for, you know, like any kind of consumer product. You have like someone producing the product and then you have logistical, you know, distribution. And then you have retailers at the end who buy that product. That product, they have to pay for transit of that product, right, for basically the shipment. And then they sell it to consumers. In this case, we have the generators. We have different levels of distribution. So we have the high capacity lines, high voltage lines, and then the lower voltage lines, sort of in urban areas or in cities.

and then the retailers who buy that energy wholesale and then sell it to consumers and mark up and try to make a profit on that service of selling that energy. And as you say, sort of collateralize the risk. And I think it's probably important to point out as well that in most places, while generators are typically can be private actors, but also public actors. The distribution network is usually public infrastructure, correct? Yeah, so in a deregulated market, there's also one other sort of actor in the market. That's called the ISO independent system operator.

And so in Texas, it's ERCOT. And the ISO, or ERCOT, is responsible essentially for their reliability and stability of the network holistically. So they're actually the ones that are setting up these wholesale markets. And there's other markets besides just the wholesale markets. There's ancillary services markets, there's demand response markets. And they basically create these markets and set the amount of essentially needed generation at any given point in time or the amount of a needed resource such that the other actors in

the market can then respond to help keep the grid and balance on this real-time basis. So it's a little bit different than most supply chains and that most supply chains don't have this sort of instantaneous production consumption dynamic, right? There's some sort of capacitance in the network of supply. And that's a dynamic that is sort of really important when we look at the electricity markets and is one of the reasons that blockchain is particularly well suited to potentially acting as the financial settlement process in that system. Would the ISO be responsible for, I'm not sure if I'm translating this right, but what we would call energy erasement? I'm not sure what I'm.

So basically, in the, in high peak times, they would ask for large energy consumers, say, instance, industry, industrials, and even consumers, you know, to reduce their energy consumption as part of their contract and would offer retribution for that? Yes, yes. But what's the term for that in English? So there's two different ways that they do that.

So one is just through this idea of the wholesale market. So sort of the rate is determined by, the ISO basically sets the amount of energy that's needed to be produced at any given point in time. And that essentially affects the clearing price in the wholesale market. So that's one of these mechanisms that they use. Another mechanism, which I think you're more alluding to, is what we call demand response. And so in demand response, if I'm a commercial entity and I have some amount of ability to stop my consumption at a given point in time,

say I have a smelting furnace or I have a refrigerator and I can turn that off for 15 minutes or an hour. I can basically bid my services into this demand response market either independently if I'm large enough or in an aggregated way through what we call a qualified scheduling entity if I'm smaller. But essentially they'll pay me to turn off. at a given point in time to help in this achieving balance for the grid. So there's these mechanisms either through price or through these secondary markets that reward a consumer or at least large commercial and industrial consumers to essentially be somewhat responsive. Now for customers, customers don't have a really good way of getting paid to be responsive. And that's just because there hasn't been aggregators that kind of were willing to pass through the price.

So if you think about your utility or your retail energy provider, retail electricity provider, as they're called in Texas or REP, they do that. They just don't pay their customers for doing it. So they'll sell you, say, a smart thermostat and they'll turn your electricity off at peak time because they gave you a free smart thermostat. thermostat, but they won't actually pay you for it. They'll kind of keep that money, and they'll just turn your AC off whenever they feel like it. And of course, this is one area I think where blockchains could, you know, in fact, be interesting to implement to have that real-time payment. And also the traceability. So, you know, at Stratum, we've looked at this for industrial actors. And one of the problems that the ISOs have is providing, is having the real-time traceability of when the consumption was reduced in the context of an industrial actor.

And so we had been looking at ways in which you could provide that traceability with blockchain networks. One other thing I'd like to touch on, I think, again, people sometimes I think would take for granted is, And I'd like you to give your thoughts on this is this notion of green energy now and how green energy is distributed and sold on these distribution networks. So with the internet, you know, you can route it with packets. So I can send a packet from a server and have it arrive at a destination. However, that's not the case for energy. An electron on a network on a distribution network is the same. whether it came from a smelter, whether it came from a nuclear power plant,

or whether it came from a solar panel in a solar farm. Now, can you explain how then, as a consumer, I'm able to buy, for instance, green energy from a green energy retailer and benefit from, say, tax credits from the government or some other type of subsidy, knowing that we can't really differentiate where those electrons go. Yeah, so the way the green energy system currently works is you have something called a renewable energy credit. So if I have a solar panel on my home, there's an entity in the jurisdiction. It could be the ISO. Typically, I think it would be the ISO for most jurisdictions.

they basically will give you a credit for excess production for that asset. So if I produce a kilowatt hour, I put it on the grid, I get a credit for producing a kilowatt hour of green solar energy. And then that credit has some value because either individuals or organizations have a preference and or a mandate for, for using electricity from certain sources. So they'll end up buying the electricity off the grid, which is any old electron. It could come from a coal plant. It could come from a nuclear plant.

But in addition to that, they'll buy one of these renewable energy credits. And in doing that, they're essentially subsidizing or rewarding the production of the electricity from a renewable resource. So that's the mechanism of financial pass-through that exists, even though the electrons don't necessarily flow from, you know, the solar panel to the person that's paying for the solar energy. So the key idea here is that in the supply chain of like generators, the wholesale market, the retailers that are buying from the wholesale market and the final consumer is the idea of Grid Plus that, you can basically decentralize the retailer or basically remove that retailing aspect altogether from the supply chain? You're trying to minimize the lack of value add of the retailer, I suppose, and you're trying

to create a system which allows more efficient market dynamics to be reflected. So one of the interesting things when you talk about solar, particularly, is the incentive structures that exist, right? So solar is great. We all love solar, but solar creates a problem for the electrical grade. And that problem is that it's what we call an intermittent generator, right? So we can't control when solar produces. It produces when the sun shines. It stops producing when a cloud.

comes overhead or the sun goes down. So we don't have essentially control over our solar production. And so what that means is that the other actors in the grid, the base loads, the coal-fired power plants, the nuclear power plants, the ones that aren't intermittent have to respond to make up for the intermittency of solar. So there's this externality of adding solar to the grid. and in low sort of percentages, a couple percent penetration of solar, that's really not a problem. But as you get to higher and higher percentages, the ability of the other people to respond becomes much more difficult, but also the ability of those people to have operate at a financially sustainable cost point because their production is essentially being deprioritized to the green

production means that they're going to get lower utilization of their capitalized assets. Right. So you have this sort of technical control issue. You also have this sort of economic issue of getting ROI on investment. And so the incentive structures like are relatively misaligned. So for example, in Austin, if I have a solar panel and I put it up on my home, Austin energy will actually give me a penny more for my solar production than I pay them to consume electricity. So they're actually rewarding me because I'm putting this green energy out, but they're disincentivizing me to essentially make up or try to put a resource in place that balances out the intermittency of my consumption. And that resource would typically be like a battery. So if I take a

solar panel and I pair it with a battery, that battery can essentially levelize my production over time so that I'm putting that energy onto the grid when the grid needs it most, and I'm potentially pulling energy out of the grid when there's excess supply and lack of demand. So solar plus a battery is a sustainable system, but the economics that exists sort of today don't create these mechanisms of sustainability. And we're actually kind of seeing that in a lot of places. So up in Dallas, for example, there's a lot of people that have solar panels that are under the net metering. And that's fine, but the distribution operator has now added just a flat fixed charge of, I think it's $40 a month.

So even if you're essentially producing more than you're consuming in net, they still hit you with this flat rate. of 40 bucks a month to kind of offset some of these externalities that you're creating on the grid and the fact that you're using the distribution infrastructure but you're not really paying for it based off how solar places are calculated. So correct me if I'm wrong. The problem is something like this that during the day there are like hours of peak usage hours of low usage. So the demand is itself fluctuating.

And then solar itself has a fluctuating production characteristics. So some parts of the day, the sun is shining, it will produce a lot. Other parts of the day it will produce less. So if I have a home, and I have solar panels on top of my home, the problem is that I'm producing an excess of electricity. maybe when there is actually a surplus. So I might be supplying electricity to the grid, but then I might be supplying it in a time of surplus.

And at the point where I'm not supplying, maybe that is the time that the grid actually needs production. Yeah, so like at 7 a.m. and 7 p.m., you'll see kind of these peaks in demand. And with solar production, you'll see production peak midday. and then fall off, you know, outside of these, you know, it'll ramp up after the morning peak time and fall off before the evening peak time. So it's doing its most production kind of in midday where you're not getting sort of peak demand. And then it goes away when you do have peak demand.

And so that's sort of the mismatch. So basically like when I'm a solar producer, there's this mismatch. And even as somebody who's producing more energy than he or she consumes through solar panels, I still have to depend on the, on basically the grade, like the distribution grade and the power producers in order to furnish me with electricity when I need electricity, but solar is not producing that electricity. So I am charged for it. even though I'm producing like, even let's say like I'm using X kilowatt hours of electricity and producing Y and Y is greater than X, I still need to pay a charge because they are giving me the facility of consuming electricity when I need it the most and solar is not producing.

Correct. And you're also using the distribution network and you're also consuming electricity when demand is higher and you're producing it when demand is lower. So all of these factors mean that you should still be paying something to somebody. Even if X is equal to Y in your scenario, you still are using more resource than you're essentially producing. So when I couple it with a battery though, I can still save more because I can store my solar production itself in the form of a battery and then use drain from my battery when in the, in the evening when no solar is being produced, but I myself need a lot of demand.

Yeah, so the battery helps smooth out the production to better match demand, right? So if a consumer is exposed to essentially the actual rates, not flat rates, you know, but the variation in electricity prices over the day, they can then be incentivized to store their production and either use it later or sell it later. at a higher price. And so the battery helps balance supply and demand in a more sort of economically efficient way. So it appears to me that the key sort of hypothesis

behind grid plus is that today we have a system in which there's a retailer that gives me a flat rate. I'm not exposed to the actual variation of energy prices during the day. So that's like the current. the current system and your hypothesis appears to be that if you move to a system where the consumer and consumer is actually exposed to the fluctuation in energy prices during the day, then automatically that consumer will end up putting a solar panel and a battery and participating

in this market and this can sort of lead the switch to lead a switch in the market from a current large-scale utility to a solar-based sort of local energy economy. Yeah, so it's doing a couple of things. One, I think that's a pretty good summary, right? And so it's basically putting the financial mechanisms in place and the incentives in place to allow us to incrementally move towards this idea of renewable, distributed electricity electrical grids. And that's kind of like what we see it at. So Grid Plus is trying to bring efficiencies today just through better price points from a retail perspective, but then also sort of create the infrastructure necessary to allow better sort of economic remuneration of market participants based off the actual sort of resources that they're providing, which if you look at, solar panels and batteries, they're arguably one of the most efficient mechanisms for producing

energy. So over time in most markets, you're going to incentivize more and more green energy, and then you're giving a mechanism for consumers to actually get return on investment and monetize those investments over time. So before we get into the specifics of Grid Plus, could you just give us a few minutes talking about consensus energy and what kind of projects have been pushed under this this sort of subgroup within consensus. Yeah, so consensus has been working on energy projects for more than two years. The first one was called the Brooklyn Microgrid.

It was a partnership with a company called L3, and Consensus was essentially the technical side of the, of the project. And what the Brooklyn MicroGrid was, it was the first example or proof of concept of doing electricity exchange between consumers essentially and their neighbors. So you had this neighborhood in Brooklyn that had solar production.

And essentially those people were then directly selling that solar production to people that didn't have solar production. And the mechanism for doing the settlement was via the blockchain. So it was this kind of idea of doing peer-to-peer electricity sales. Since then, we've done the number of other projects. Another project was something called N-O-G.

It was, sorry, it was called Cautricity, which was a joint project with N-O-G, N-O-Gs, one of Germany's largest utilities, formerly RWE. But what that was was basically a similar sort of variance on the Brooklyn micrograde, but at a slightly larger scale, in that we were using Ethereum as a mechanism of exchange between this idea of this prosumer or a person that has solar panels on their house and a local business. So then the local business could buy energy from those consumers directly using the blockchain. And since then, we've done a couple more projects, one of which I kind of alluded to earlier,

with this idea of having these smart batteries network together. And the smart batteries can essentially then buy, sell, and trade, and arbitrage energy on their own using what we call an autonomous agent. So you program the battery, you give it access to the Ethereum blockchain, and then it can essentially a buy-and-sell energy based off the prevalent clearing market price and then essentially make money. So the simplest example of that is it can charge up at night when electricity is really cheap, and then it can dispatch that electricity during peak times during the day, and it can make money.

And then there's more complicated examples when you had solar panels, you can get into self-consumption, but that was another one of the projects. So there's been quite a bit of work that's been going on, mostly proof of concepts, mostly focused on this idea of to peer energy trading. And what we learn from that is that although Ethereum is technically capable of creating these peer-to-peer markets, Ethereum isn't sort of the limitation. The limitation is that we don't have sort of prolific penetration of both solar and batteries. So if you don't have batteries, you can't really make decisions.

If you can't really make decisions on this like independent distributed basis, then why do you need sort of this distributed financial infrastructure. And so we step back and we said, OK, well, we can't do this idea of peer-to-peer trading given today's infrastructure. What can we do? What efficiencies can we bring with Ethereum? And that's kind of how we arrived on this idea of operating

as a retail electricity provider, is that we can bring efficiency just on a financial basis without any additional infrastructure. But then over time, by putting that infrastructure of using the blockchain in place, we can then create economic incentives and we can create this responsive financial mechanism that can evolve over time as more and more smart, you know, assets are put online and more and more distributed energy resources are put online. Okay, very, very interesting. I mean, I knew the consensus was working on energy projects. Like, I think a lot of people have heard of transactive grid, but had no idea that there had been

so many proof of concepts coming from the company. So let's move on the Grid Plus then. And spend a bit of time talking about that product and some of the technical aspects of Grid Plus. So this is kind of unique, I guess, in the blockchain space because most projects in the blockchain space, in fact, most of the projects that we interview here on the show are software projects.

And this is a hardware project. So the Grid Plus Smart Agent is sort of this little computer. It's, you know, if, you know, people can look it up. It's like this little white. It kind of looks like an old, it looks like the very first Apple Wi-Fi hubs, like back in the, you know, early 2000s or wherever that was. And, and, and this, this computer has the capacity to, you know, obviously connect to the Ethereum blockchain. I'll let you get into the details, but talk, you know, do these computations to figure out, you know, what, you know, what price there should be, buying and selling electricity at and then also sign transactions.

I presume there's a trusted execution environment in there that protects your keys and such. So, you know, tell us about this product, what it's capable of doing, and how it will sort of play out in the secret system that you've been describing earlier. Yeah, so when we started looking, I mean, we've done a lot of work in these proof of concepts where we can interface a system with the Ethereum blockchain. You don't need sort of any specialized hardware to do it. But that's really on a proof of concept basis. If you're looking at creating a secure topology where you have this computer that has access to private keys

that can make signatures and it exists in an always online environment, it has this sort of very high attack surface. So the question is, how can you design a system? architecture where you can deploy these things sort of into the wild without, you know, technically competent people essentially managing them, but yet ensure that they can be used in a secure way over time. And so that kind of necessitates the idea of this dual software hardware stack. The key piece being, as you alluded to what we call our smart energy agent.

So the smart energy agent is this general computing environment. is where the decisions are made in terms of buying and selling energy. So we'll give it market data. It'll use data that it collects from customers' habits as well as say from their smartphone, GPS location, calendar data to help predict future energy use and then decide how to buy energy out of the wholesale markets. And then the other piece that we were talking about is that it needs access to these private keys. So it has, it will have a secure computing environment as well as a secure signing

enclave. The keys exist in the secure enclave. Essentially, account permissioning and white listing is done by the secure computing environment. And then all the sort of the macro decisions about how to buy cell and protect energy usage are done in this general computing environment. And that topology in a multi-signature wallet set up essentially a allows us to have a system that is secure from software attacks as well as hardware attacks, as well as physical attacks against essentially the private keys. And so that's sort of the function, I guess, of the agent. Is this something that someone could potentially put together?

Like, say, is the software going to be open source where, like, if I've got like a Raspberry Pi and, you know, I want to hook up like a TE on there and have my own setup. Is that feasible? So at the current stage, we haven't fully implemented the secure signing enclave in the system. That's still under development. So you can simulate an agent

on sort of any general purpose computing device, but the management of the private keys and the white listing and account permissionings and withdrawal limits like that, happening in a secure environment is really what you need to sort of ensure that this works securely over time. So there was actually a student group that got interested, and they actually kind of made a variation of a prototype that we put together and demonstrated at one of these tech demos in Dallas. last month so that you can definitely kind of like hack one of these things together.

But the production one is going to have what you wouldn't be able to hack together. And it's an offer security that you wouldn't be able to get from just having, say, a Raspberry Pi. Okay. So in the white paper, you sort of describe where this device sits within the broader, I guess, ecosystem of other devices in your home, smart meters, things like NEST thermostats, and then that device connecting to the Ethereum blockchain and to the electricity market. Can you explain sort of where this device sits in this broader ecosystem, what interactions it has with other IOT devices, the blockchain and then the electricity market? Yeah, so if we think about what we're creating,

with the agent is that you have this general computing environment and hooked up with the secure computing environment and Signing Enclave, which is one piece of this system that essentially allows this 24-7 online environment to securely interact with the Ethereum blockchain. Now, electricity in it of itself is actually just one use case. You can really think of the Smart Energy Gateway as a generic secure gateway for the network. for IoT to get to the Ethereum blockchain. It just happens that we're using the first application is electricity, and we're purposing it for that.

But over time, we could envision other applications taking advantage of it. So if you think about this idea of IoT devices using a blockchain to do machine-to-machine transactions, you don't really have a good security. security apology if you're assuming that each one of these devices will implement some form of software hardware stack and then having to sort of manage these accounts on all the individual devices and having that sort of be a reliable secure topology so what we envision is that as as we move past sort of version one of this agent

will open up our agent to an API that other devices could use so you could just have a very generic trust relationships set up with another IOT device via a simple, say, RSA signature, and that device could then request transactions from the agent. And as long as those transactions are within sort of the account limits and permissions that the user sets up that exist on the agent, the agent could then broadcast those transactions to the blockchain on behalf of the other IOT devices. So it's this like centralized gateway such that, say, in the future, you're free, if it wanted to buy milk, instead of having to have an Ethereum wallet on your fridge,

all your Ethereum wallets and permissions would exist on this device, the agent device, and then your fridge would just make a nice request to the agent saying, hey, I'd like to buy some milk, and then the agent would essentially sign and broadcast that transaction. Yeah, so it's sort of the trusted execution environment for IoT in your home. Yeah. That's the way I kind of thought of it when I first learned about. about this and like one other use case it could be it could be the other way around too you know your this device could for instance be connected to your smart locks all right

and accept payment for say like an Airbnb or something like that and if that payment hasn't been made the locks don't don't don't let the the renters in you know you could sort of build like a slocut type model on something like this yeah so I I mean, in that example, you're kind of getting to this other use case that in some ways the agent can be thought of as secure in-home crypto banking. Because the system architecture actually isn't just the agent itself. It has to do it. It's one piece in what we call two of three blind key multi-signature security. So there's actually only one key that's on the agent device, and it's what we call a blind key, which means it's unknown and it's not discoverable.

even the user. And then the other two keys exist, one with Grid Plus, one in a smartphone app. And what that basically allows is that there's no single point of software failure, but there's also no single point of hardware failure and there's no single point of physical attack. So somebody comes into your house and says, wants to try to steal your funds, they can't just steal the agent, they can't just steal the smartphone, they have to steal the agent, a smartphone, and, more importantly, they have to get a pin. So they would actually have to say, coerce a pin from you as well as stealing one or multiple devices and backups.

So it creates sort of a robust architecture for all these things, which means that it would actually be a good way to, you know, store more money in an accessible way in your home. And that's kind of where you're going with this idea of Slok-It and that I could have my generalized accounts beyond that agent. It can then programmatically be responsive to say a lock and it can sort of manage and adjudicate payments and then control that lock in some way.

So all of these things. Okay, so coming back to the energy use case, can you talk about the interactions? So, you know, when you buy energy with this thing, where is it gathering data from what types of devices in your home is it gathering data or producing into whom? is sending data. How does that play out?

So, and its most generic sort of implementation, or the simplest implementation, all that the agent does is it reads data from your smart meter, it gets market data from us, it basically looks at your consumption, looks at that market data, and then creates a payment

based off the amount of usage that's happened, in the last 15 minutes, and then it will initiate a transaction by sending a transaction to us with its key, and then we'd co-sign that transaction with our key, and then we would get paid. And then we can do the reverse if, say, the person's producing electricity, we get smart meter data through the ISO via the GSM network, so we also have smart meter data, so then we could put together a payment, sign it, and then sent it to the agent, they could co-sign it and finalize it. And so there's this two-way flow that can exist. Now, I do have to mention that

we're going to be leveraging state channels. So we won't actually be broadcasting all these payments to the Ethereum chain as they're happening. Instead, the topology would look like the agent opens up a state channel on a periodic basis, say, you know, once every few weeks, once every month. And then it basically, instead of having to broadcast the transactions every time, we can essentially sign or sign messages and send them back and forth, basically as many as we want for literally zero cost. At any point in time, either one of either us or them could decide to close the state channel.

And then at that point, we can broadcast the most senior transaction message to the chain and get our funds so we don't have this sort of like open counter party risk because any one of us can collapse the state channel at any point in time. So what that means then is from essentially like gas fees, you know, maybe 20 cents a month in having to actually pay fees on the Ethereum network. So what's the current status of this hardware device? Do you already have it made? So we have a prototype of the device and you can kind of see that in our wiping. paper, we're in the process of implementing the secure signing environment. So that's still ongoing.

But the generic hardware in computing environment and the software and the software and the state channels, we actually had a demo, Alex Miller set that up to show kind of what a virtualized agent does. And that can be done on the current hardware device. It's just the signing enclave isn't fully implemented. So it's not in a secure production state of deployment at this point. But that's what we're hoping to finish up in the next six months or so. And like what does your roadmap look like? You have these three different eras, right?

Like Edison era, Tesla era, and Musk era. So tell us like how this process. is going to evolve post-token-say. So the different epochs, as we call them, are essentially us putting this into, you know, production and kind of getting it ramped up to what you would call scale and then scaling it, right? So the Edison era is basically us getting to the point of a production agent, getting through the process of getting a license as a retail electricity provider, and then signing up and deploying the first couple thousand of these agents with customers

and then sort of figuring out the problems that we know we're going to inevitably have over time. And then as we move from Edison onto Tesla, that's when we start kind of scaling up the roadmap in terms of increasing to sort of a general just customer base. When you say getting a license as a retailer, What kind of regulatory hurdles do you think you might run into, if any? So the whole system as we're designing it is meant to fit within the current sort of regulatory constructs that exist. So we don't think that we need any sort of changes to the rules as they exist to, one, get a license and then two, operate. as on the Ethereum blockchain.

The process for doing this should take roughly 90 days, and the biggest issues besides, you know, showing the team, showing the experience is collateralization of assets. So there's a couple million bucks that has to be put up, essentially to be able to interact with the wholesale markets. So we don't anticipate issues, but, you know, we have been working with a number of law firms. So if those do come up, we'll hope to work through them. So, I mean, so basically, like, once this smart agent prototype is sort of ready,

and you'll sell these agents in retail, right? like people like me can go and buy it. And presumably like I can go and buy this smart agent and like hook it up to a solar panel. And is it like, is that enough? Is it like plug and play out of the box? I have a solar panel. I have this agent and I start participating in this economy

or do I need to be in a specific place? Yeah. So there's the initial functionality of, of the smart agent will be, you know, it's going to expand over time. So the initial functionality is that it will be able to buy your electricity on the Ethereum blockchain in real time. So from a customer standpoint, what that looks like is that when you sign up with Grid Plus, you'll get a box, you'll have the agent in it, you plug the agent in, you've got up to your Wi-Fi, you download a smartphone app, and then you just basically fund your

account and then it'll start buying and selling energy for you. As you have more devices and we start supporting more devices, the ones that we're most focused on right now just from prevalence and sort of cost of entry point are the Nest and the Tesla Chargers. We'll be able to, we'll add the functionality of be able to interact with those devices. And then as more time goes on, then we'll look to add devices for commonly used solar inverters and batteries such that you can have better internal control of your home as sort of this generalized energy management system. So it's an incremental roadmap. But in terms of region, initially we'll be operating in the competitive markets of Texas, which are about 85% of the households in Texas.

And that's pretty much the only place we plan to operate for next year. We're just kind of focusing on that one market. There's a number of conversations we've been having with some large utilities around the world. I don't know if you guys saw the Coin Desk article last week. We have an MOU with TEPCO, which is Japan's largest electricity company. And we're basically working with them them as we're developing this agent and the software stack such that hopefully once we prove it out next year in the Texas market and get it to that production scale, that they

would be interested in potentially licensing it in their home markets. So we would be looking at expanding in other markets throughout the world, hopefully through this idea of licensing and potentially addressing other competitive markets in the US, either by ourselves or through licensing. So what is the first utility that I get when I have this device? So if I'm in Texas, I'm a homeowner and I have a solar panel, I get this device. So it's even simpler than that. You're in Texas, you're a homeowner, you have no solar panel, you get this device.

Your electricity bill gets cheaper. And so we think we can save 30 to 40% over a comparative retail electricity provider. So that's your first utility, is just cheaper electricity straight away. And then also straight away, you also have this idea of you also have secure crypto banking and you can pay for your electricity using Ethereum if you want to. So that's pretty cool too. Then sort of the next sort of incremental thing, again as we're focusing on as this support the nest in the Tesla. So if you get your nest, now this agent is responsive to market

pricing and can control your house in a smart way based off where you are, where you're going to be. It can predict your energy usage better. And that's part of what plays into getting you cheaper electricity is that it knows more than a normal retail electricity provider. Because it's essentially predicting and buying on a bespoke individual basis, not this sort of generalized aggregate predictive basis. So that's to your initial benefit. Then as we add functionality over time, and then you get into your solar panels and you get in your batteries, you have the utility of essentially getting proper financial remuneration for having those assets. Cool, cool. That sounds interesting. So I think one of the final things we would like to cover

is that you have in your system multiple different tokens, right? So like walk us through, walk us through these, the bold token, the grid token. Yeah, so one of the issues that we came up with when we were trying to address, how do you bring efficiencies at scale, like how do you do blockchain at scale, is that you have to be able to do it with naive users, right? So the whole idea is most of our customers won't even know that they're using a blockchain. That's kind of why we had to design the system the way we designed it in terms of the smart energy agent, the signing enclave, the two of three key multisig, and so on. But one of the issues that still exists is that you have four X risk with Ethereum, right?

So if you hold Ethereum relative to the dollars that most people think in currently, you have to understand that there's a foreign exchange risk with that, right? The price of Ethereum goes up, the price of Ethereum goes down. So if we're going to create a system that the average person doesn't need to know anything about cryptocurrencies, we have to have a token that doesn't have that Forex risk. And so for customers that don't want to know anything about blockchain or use it, we have what we call the bolt token. And essentially what that is is a customer makes a deposit with us.

We create the bolt token and then send it to them. So we're essentially selling them the bolt token. And then that bull token then sits on their agent and then it's spent down over time. So the bolt token is a $1 USD stable token that's backed by the deposits, which we use to create the bolt. And then when they send us the bolt back, we then destroy it. and we move that money from the deposit account into essentially the payments account that we need to go pay off the wholesale

and the distribution guys. And so that's the Bolt token. The other token that exists is what we call the grid token. And the grid token is going to be redeemable to remove markup on 500 kilowatt hours of electricity. So if you think about, about the cost to us, say average wholesale cost

plus distribution cost is six and a half cents. For a customer that doesn't redeem grid, we'll charge them around a 30% markup on that. So maybe they'll pay 7.8 to 8 cents or something like that. And so that's kind of like our markup to operate as a retail electricity provider, but if you redeem a grid, instead of paying markup, you would just pay

cost so you would get your energy for 500 kilowatt hours at the wholesale plus distribution cost rate so instead of paying like the 8 cents you pay the 6 cents and so that's essentially the value of the grid token and so we're doing a token sale we've done a pre-sale already that closed earlier this month and we're doing a public token sale on October 30th for the remainder of the grid token Cool. So for each grid token, you can basically save on the markup cost, which might be like, like, two cents a kilowatt hour. And you can save them on like 50, 500 kilowatt hours. Correct. So, so yeah, so maybe, so each token can give you, say, 10 or 15 dollars worth of benefit once you're operating in this grid plus system.

Yeah. So, I mean, the, that's, that's, that's, that's really. roughly, I would say, a fair assessment. It depends, again, on the price of electricity. It depends on the regions we're operating in, at least initially in Texas, using the current average price. That's roughly a fair assessment. So when does a token sale? October 30th.

Okay. And how long will it run for? Hopefully two blocks. So it's time limited to two weeks. but either when it sells out or two weeks. All right. Well, good luck with the crowd sale and also looking forward to the smart agent being available. Do we have a price point for this device approximately?

So initially we're focusing on delivering it to our customers, and we're looking at doing that at cost. And in small volumes, we're targeting a $50 cost point. We think we can drive that down over time, but we haven't kind of like figured out what we would sell it to outside of the customer base. Because it has, the agent itself has utility beyond just being an electricity customer.

So at some point, if we get ahead of the production curve, we would just sell them kind of generally as these hardware wallet systems. Yeah, and so I wonder if, you know, if this could become, you know, in this age of Amazon Alexa and all these, you know, smart devices in your home, if this could become sort of the, you know, the transactional device that sort of powers your entire connected home. That's, I guess, our long-term vision would be that that's what that is. Fascinating. Well, thank you very much for coming on the show.

I look forward to hearing more about Grid Plus and look forward to, well, hopefully a successful crowd sale in a few weeks. Well, cool. Thanks, Sebastian. Thanks, Mayor. Appreciate it. And thank you to our listeners for once again tuning in. Epicenter is part of the Let's Stock Bitcoin Network. You can find this show and lots of other great shows at let's talk bitcoin.com.

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