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Incorporating a Secure Decentralized Financial Infrastructure into the Smart Grid

To transform the current power grid to an easily reconfigurable and resilient Internet-like smart grid, a decentralized, private and secure financial infrastructure should be adopted. Smart meters that can negotiate prices and trade in a decentralized environment, common electricity and emissions trading exchanges, and trading currencies offer solutions.

While significant research is invested in smart grid development, the need for a corresponding financial infrastructure if often overlooked. As experience with greenhouse gas reduction schemes such as the European Trading System (ETS) has shown, the future smart grid’s financial infrastructure should be decentralized, with interoperability between entities that support electricity and emissions trading at the optimal price.

From simple to more complex transactions, advanced smart meters should be able to trade without reliance on a centrally determined price, hardwiring to a particular smart grid or disclosure of trading history and pricing. On that basis, both the smart grid and carbon emissions marketplaces can evolve in tandem. What is needed is research examining the challenges we face in providing for smart grid financial infrastructure, from developing smart meters that can effectively trade and negotiate prices in a decentralized environment to creating common exchanges and trading currencies like carbon emission or renewable energy credits.

The solution should be based on a platform that supports a variety of currencies, from traditional to domain-specific, providing for decentralization, privacy and security. In the energy domain, these could be the currencies that are linked to renewable energy production, general energy production, measured emissions reduction and so on. Bitcoin, a distributed digital currency, could serve as a basis for development of such domain-specific currencies.

In the Strategic Requirements and Systems Security Group at the Masdar Institute of Science and Technology, United Arab Emirates, we are currently working on a decentralized service-oriented architecture for the smart grid financial infrastructure with high privacy and security built in at the architectural level. The project includes a number of major elements, including: a new currency design based on Bitcoin; enabling smart meters to perform necessary price discovery without reliance on a central price signal; bidding and trading; and specification of other entities like smart grid currency exchanges and banks, which will be necessary for the overall smart grid financial infrastructure to function. We plan to link the new currency to carbon emissions trading as an incentive to its adoption.

Our first step has been to develop a related carbon emissions reduction credit trading infrastructure, which will allow trading agents to register their earned carbon emission reduction credits, trade them and keep track of all trading agent transactions through a distributed chain of exchange records (or block chain) and digital pseudonymous contracts. The distributed chain manages credit validations and registrations. Trading activities are initiated and managed through decentralized systems that support untraceable digital transactions. The systems carry out all functions without revealing trading agent identities or relying on a central authority to store transactions and oversee infrastructure. The decentralized infrastructure provides an open platform for developing necessary market tools without having to store carbon emission credits or their transfer history. As such, the decentralization and built-in privacy and security help the infrastructure facilitate anonymous carbon emissions trading.

There are two main challenges facing our research. The first is to design a proper carbon emissions credit generation protocol, or ideally, multiple protocols that might lead to multiple competing carbon emission trading currencies. The second challenge is smart meter computation power and sufficient trading intelligence that will allow for automated bidding, buying and selling in a decentralized infrastructure. The smart meters should be able to obtain or calculate appropriate carbon emission trading prices without relying on a centralized price signal, which might be achieved through carbon emission credit exchanges. Once specified, the carbon emissions trading infrastructure and smart grid financial infrastructure can be integrated. Energy and services trading will be tightly coupled with the carbon emissions trading, thus achieving seamless integration, transparency, privacy and security.

To work as we envision the new system, the currency and financial infrastructure must satisfy the following requirements:

No central point of trust/failure, so as to facilitate easier integration and interoperability of smart grid components in the smart grid financial infrastructure, and to ensure reliability and privacy of the transactions. For example, a future smart car from Canada should be able to integrate, consume and supply power to a microgrid in the United States, without a need for currency exchange, centralized price signal and so on.

Proper incentives and an economic system, so as to motivate users to participate. For example, if a currency unit generation is linked to the renewable power generation, it could help lead to more power production from renewable sources.

Predictable money supply, divisibility and fungibility, versatility, openness, and vibrancy, so as to allow for wider currency acceptance and more complex smart grid financial transactions and services development. Fulfilling these goals will also ensure easier smart grid expandability and interoperability with other systems such as web services.

Transactions scripting, which will allow advanced smart meters to embed additional scripts into transactions, enabling more semantically complex contracts and transaction mechanisms.

Transaction irreversibility, low fees and friction and readily available implementations, which can be developed and supported by a domain-specific currency, which will further facilitate currency adoption and make it attractive to small-scale power consumers and producers.

Meeting these goals will ensure privacy and security necessary for the smart grid financial system’s resilience and reliability, and the smart grid itself. Furthermore, it will allow for development of the competing smart grid and emission trading financial infrastructures that will not incur the costs and drawbacks of traditional financial systems.


  • Davor SvetinovicDavor Svetinovic is an assistant professor at Masdar Institute of Science and Technology in the United Arab Emirates and an affiliated researcher at the Massachusetts Institute of Technology. His current research interests include strategic requirements engineering, systems architecture with emphasis on software and smart grids and sustainable development from the systems security perspective.

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About the Smart Grid Newsletter

A monthly publication, the IEEE Smart Grid Newsletter features practical and timely technical information and forward-looking commentary on smart grid developments and deployments around the world. Designed to foster greater understanding and collaboration between diverse stakeholders, the newsletter brings together experts, thought-leaders, and decision-makers to exchange information and discuss issues affecting the evolution of the smart grid.


Joseph PaladinoJoseph Paladino is Senior Advisor in the Department of Energy’s Office of Electricity Delivery and Energy Reliability.

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Shalinee KishoreShalinee Kishore is an associate professor in the Department of Electrical and Computer Engineering at Lehigh University in Bethlehem, Pa.
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Larry SnyderLarry Snyder is an associate professor of industrial and systems engineering at Lehigh University in Bethlehem, Pa.

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Parth PradhanParth Pradhan obtained his B.Tech degree in electronics and instrumentation engineering from the National Institute of Technology, Rourkela, India.
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Zubair Md. FadlullahZubair Md. Fadlullah, a member of IEEE, is an assistant professor in the Graduate School of Information Sciences, Tohoku University, Japan.
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Nei KatoNei Kato , an IEEE Fellow, has been a full professor at the Graduate School of Information Sciences at Tohoku University since 2003.
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Davor Svetinovic Davor Svetinovic is an assistant professor at Masdar Institute of Science and Technology in the United Arab Emirates.

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