Blockchain has unleashed a firestorm of activity in an alternative investment world. Excited by hyperinflated prices for the technology’s first child – the cryptocurrency – driven by fear of being left behind and emboldened by not a little ‘get rich quick’ bravado, ICO (initial coin offering) investors and miners of all sizes are engaged in a fury of work to create and validate what is essentially a cyber representation of value. With bitcoin trading at just over $20,000 this past December, up from just over $1,000 in March, it is easy to see how one could be swept up in the enthusiasm. But there’s another side of the coin – pun intended – a murkier side that has to do with creation of waste (by 2020, Bitcoin mining will consume more power than the world does today), and the need for tangible value (a Bitcoin now sits at under $10,000) and responsible operation (fraud and failure have dissipated investments in hundreds of cryptocurrencies).
Beyond the realm of speculative investment, Blockchain has much to offer in what is now referred to as the emerging ‘token-based economy’. A distributed database that validates and timestamps ‘blocks’ of transactions across multiple computers, Blockchain creates an immutable record of successive sets of transactions linked together in a ‘chain’ – a distributed ledger secured through cryptography contributed by miners which cannot be easily be replicated by existing security systems: according to The Economist, bitcoin miners now have 13,000 times more combined number-crunching power than the world’s 500 biggest supercomputers. Blockchain’s potential application to ID management, smart contracts and cyber security has attracted the eye of innovators in many established sectors, including government, banking and IT. But another Blockchain value proposition lies in the democratization of cyber activity; while anyone with a computer and an interest may participate in coin mining, individuals are similarly able without significant upfront investment to take advantage of other Blockchain platforms.
This democratization of access, broad investment and distributed ledger have combined in a new platform launched in December 2017 focused on the development of alternative energy markets. Based on a shared ownership model for energy assets, Indeco has leveraged Ethereum’s Blockchain technology to deliver crypto backed by solar energy generation, battery storage, microgrids, sensors and controllers, and the supporting compute and demand response systems that contribute to the creation of smarter, less energy-intense environments. Calling itself an “independent ecosystem” Indeco has partnered with Smart City Works, a business accelerator aimed at transforming the way cities are designed, built and operated. By providing a platform that can introduce the liquidity needed to stimulate investment in alternative energy initiatives, Indeco is looking to improve environmental management in cities, homes and businesses.
Beyond the benefits that cleaner, greener energy can bring, the company has also taken steps to ensure this value by aligning its crypto token with the ownership of real assets, creating a new denomination with a standard valuation. Unlike arbitrary pricing based on supply and demand that is built into the Blockchain protocol of many coins, the indecoin (INDE) is backed by the equivalent of one watt of solar power capacity that identifies tangible value in an energy transaction. Funds raised in the company’s ICO will be used to support installment of generation that can improve energy efficiency. As more assets are deployed, the value of crypto assets will increase, providing increased value and dividends for token holders: as new revenue is generated, a new distributed source of investment for renewable projects is also created. Indeco believes this approach will establish fundamental asset value, and hence a stable, high-growth crypto asset. And in a final problem-solving effort, Indeco has complied with rules introduced by the SEC that now treat crypto assets as securities, becoming the first issuer of tokens to do so. In the company’s view, regulatory compliance serves as one additional means to support the long-term viability of the its platform.
As Blockchain works to revolutionize transaction processing, Indeco believes that its platform can advantage individuals, paving the way for broad, decentralized investment in our energy future, which in turn will drive social and economic change. To learn more, InsightaaS spoke with Indeco CEO David Levine about rules, regulations, tokens, platforms and an evolving energy ecosystem. An edited version of that conversation follows.
Mary Allen, chief content officer, InsightaaS: I’m intrigued by your alignment of distributed energy, distributed investment (crowdfunding), and distributed ledger platform, but why use crypto assets rather than money to support this?
David Levine, CEO, Indeco: The first reason is to eliminate as much waste in the system as is possible, which is typically created by tracking contracts and payments related to contracts. A solar company, for example, would use installers that had work orders and master agreements, who would be paid different amounts based on the installation, and there would be work orders for the equipment companies, and customer payments in various denominations to pay the utility company and the [solar] company. There is just an extraordinary amount of overhead in paperwork which is unnecessary. What’s nice about Blockchain is that the payment system is fully integrated with the agreement. When a supplier agrees to do something, it is all public, all transparent because it’s part of the Blockchain community of smart contracts, and payment delivery is also encompassed in that same token, as is payment from the customer. So we can set up the entire system and run it without a lot of accounts payable people, or accounts receivable and accountants, lawyers, and other waste in the system which is unnecessary.
Allen: Contracts typically cover a range of agreements between two parties – how can all of these be represented in an indiecoin?
Levine: There are four roles in the platform. For the investor in the system, the indiecoin itself is ERC20 compliant, which means that it is designed to be traded. This provides the upfront capital in the system. There are other kinds of tokens that are not exchangeable – there is no monetary asset related to them – for the customer, the supplier and the partner, who is really a distributor or an affiliate. But because this is all on the Blockchain, and communicated and tracked through our platform, the initial investor who buys tokens at the ICO, would receive dividends based on the activities that are occurring between the other parties. So even though there are four contracts, there’s really only one that is tradeable and really designed to gain value.
Allen: How can the system be successful if there isn’t viral adoption of your platform? There are many different kinds of contracts with many different kinds of people and companies within an industry ecosystem. How can a user of the Indeco system realize true value unless there is broad scale adoption of the platform?
Levine: The platform is designed for broad scale adoption and our experience back at Geostellar [Indeco is a spinout from this online solar energy marketplace founded in 2010] was in developing various channel partnerships that really created an explosion of solar adoption. One channel was the multi-level network marketing company, which helped us achieve tremendous growth. Now we are working with influencers and affiliate marketing. Partners can range from a local Best Buy that puts a tag with a QR code on the shelf which you scan with your phone to subscribe to goods and services, to a real estate agent or local mortgage broker.
There are all kinds of partnerships, but we assumed from the very beginning that individuals would want to be represented and we baked a place for them into the platform. This resembles the gig economy, much like Uber and Airbnb, where individuals can be representatives, get training, and distribute services – potentially separating the distribution from the supply. What we found in many of the markets we investigated is that people who sell smart dwellings systems and controls are the same people who install them. These are very often very capable technical companies with software engineers and programmers and electrical engineers, but who are more challenged by marketing. So we have come up with a method where the distributors will be trained to understand the system, delivering much like ADT Security does; they have thousands of engineers that show up across the country as your alarm provider, but most of them are independent contractors or organizations. The idea is that these people are going to work mostly online (though also available in person) for deployments in homes, municipalities and businesses.
Allen: How exactly does Blockchain support your schema? Can you describe your architectural approach? Where does the Blockchain reside?
Levine: We’re on Ethereum. The four contracts are smart contracts as defined by the Ethereum Project, which has become very robust – it’s easy to solve problems on it, and easy to collaborate. With the Blockchain itself, all of the transactions and contracts are fully distributed, but it’s also fairly expensive to use all those resources. You need what’s called “gas” within the Ethereum system – you pay people for managing all of the transactions, and the more complicated your contract is, the more expensive it is. The system itself becomes centralized – so yes, cloud-based resources on AWS is a big component of what we are doing – and there are communications between the platform itself and the Blockchain through a technology that is called The Oracle. This is becoming a fairly standard architectural choice – where most of the heavy lifting, in terms of describing the asset and describing the users, happens within the platform as opposed to on the Blockchain. To run analytics on the data, to help determine value and prices and costs, a traditional computing stack is still needed, even if the transactions live in the Ethereum network.
Allen: What is the benefit of releasing your coin under SEC regulation? [On October 30, 2015, the SEC adopted the rules implementing Title III of the 2012 JOBS Act, which regulates the crowdfunding of securities. Indeco is the first company to offer crypto-assets under the SEC’s Regulation Crowdfunding (“Reg CF”) rules enacted to protect investors. Under Reg CF, anyone can invest, regardless of their income level or net worth.]
Levine: I’ve been involved in a number of startups – my last company did a Reg CF financing and we found that there’s an incredible energy when your customers and partners are also your investors, and everybody is pulling together in the same direction. We also found that there are many ICOs that appear to be ‘pump and dump’ schemes; some really ended up being scams like Confido [raised $375,000 from investors before disappearing] or Tezos, which collapsed after raising $235 million. After investigating an ICO from investment vehicle called The DAO (Distributed Autonomous Organization), the SEC determined that the crypto asset was a security and therefore subject to federal security laws. In its report, the regulator said they were going to look on a case by case basis at these kinds of platforms as securities – and we just decided to try and get ahead of this. We said, “we want to do what’s right by our investors; if we’re going to do that, let’s start with Reg CF, which allows a company to raise up to $1.07 million each year, and then use that money to file for an ICO under Regulation A +, which allows $50 million to be raised each year without the company becoming a public entity. The JOBS Act regulations seemed a really good fit for the cryptocurrencies. We figured, let’s be the first to really do it right so we don’t have to worry about the SEC coming down on us with a bunch of problems later.
Allen: Did you have to alter your platform to ensure compliance?
Levine: The process to comply with regulations started in a fairly simple way with an initial filing under Reg CF, where we filed a form C, creating disclosures about our activities: what we are trying to do and how we are trying to do it. Then we released on a Title III compliant platform, StartEngine. For the token pre-sale, we are simply not allowed to disclose any of the terms for the offering. Applying for Reg A + could be much more complicated. We have to submit form 1 A, put in our source code which describes the security and how it all works, and the SEC will have 30 days to respond to that. Will do our best to get something qualified by March 2018. Once that happens, and the tokens are issued, we will break more new ground because no one has ever traded a compliant security on the secondary market – the current exchanges – Bittrex and GDAX and others - aren’t set up for them. Some, like tZERO are forming, but no one has really done it, so part of the fun of this is really being the trail blazer. We believe that other people will follow our model and participate on our platform because it is going to be the very first one.
Allen: The INDE represents a single watt of solar capacity. Is everybody going to be able to translate their product or service to that kind of metric?
Levine: That’s what’s interesting about the platform. We characterize the watt of solar power according to four axes: energy, which is either generated or consumed; environmental benefits, in terms of what carbon emission is displaced; the economic benefits – how much do you sell electricity for, and potentially, how will environmental attributes be monetized; and enjoyment, which OECD countries take for granted but should not because though electricity is critical across a range of human activities not all countries enjoy reliable power delivery. Those four aspects can be applied to anything. In the future, I believe people will get an ingrained, fundamental sense of the value of a watt of power even more clearly than a dollar or a bitcoin.
Allen: In the environmental movement, one of the big challenges has always been that we have no way of placing monetary value on the societal benefits of responsible generation, and we have had no way of making the polluters pay. Polluters should pay a carbon emissions penalty, but so far, there is no global way of assessing that. The carbon markets that do exist are not widespread and may not talk to each other: there’s a lot of disagreement on how things are measured. One of the broader societal benefits that a platform like this could bring is to assign a standard value to transactions that produce carbon savings – or not. But how would this benefit the investors in your platform? Would social benefits translate to an increase in the value of the INDE?
Levine: Over the past decade, I have read a lot about the True Cost Economic movement, where you include environmental impact into the cost of the good or service. With our platform you have something similar, where the point is to surface the environmental benefits and deliver the opportunity to monetize them when they are available. For example, if you buy electricity, you could buy environmental attributes with that or you could sell these attributes and essentially monetize them. We do see real potential to take our totally fragmented offsets market and clarify it for everybody so that everyone knows what’s behind their decisions. So, if people were buying groceries through this platform, they would know the environmental impact of the meat they were buying and could compare this to the impact from buying vegetables. This is an extreme example, but it explains how we might place the environmental attributes on equal footing with the economic attributes in the display. I think this kind of platform can bring about a shift in consciousness. All things being equal, people do not want to destroy our planet; they just don’t know what to do and how to do it.
Allen: The broad social benefit in terms of increased environmental awareness is clear, and the coin owner sees return on his/her investment as the INDE increases in value. But what about the green asset owner, what do they look forward to? Investment in their green initiative?
Levine: The platform essentially brings liquidity to all these markets, so for an installer of solar panels, the model is shared ownership. Today, you would pay cash, take out a loan or take advantage of some power purchase agreement with the utility – but with the platform, you create shared ownership of your system; all of the people who bought tokens would share your system and you would pay for electricity and potentially realize some returns on this. It’s almost like a reverse mortgage, but this will happen on a much larger scale, as people post larger, megawatt arrays. But I think most of the investment will be for new developments, where you would host the project, and pay some kind of subscription fee, but the system would be owned from the outset by the token holders.
Allen: This solves a lot of the problems that communities across North America and beyond are having as they try to modernize city and regional systems. Development is not simply a “top down” administrative plan, but rather involves innovation from below as well. But citizens, as well as many city administrations, are having a hard time financing the platforms and advanced applications, such as IoT, that they need to update infrastructure or invest in renewables.
Levine: We also think in terms of “community.” When you look at our StartEngine page, you will see that we talk a lot about communities, as well as the smart planet, including cities, towns, neighbourhoods, and dwellings. We want people to think about this not necessarily as a huge project, but more as lots and lots of small, interconnected projects.
Allen: Any final thoughts?
Levine: We’re planning on leveraging our experience in compliance and crypto assets to help other organizations either become suppliers on this network and be rewarded by having another business channel, or potentially release their own crypto asset. We’re looking to help small and larger businesses consider crypto assets as one more leg of the stool. To the extent that these might have loans or investors who have bought equity, crypto assets represent a new, very flexible form of financing available on the Blockchain and we want to make that safe and easy for businesses of all sizes.