Ross Rambles

Part 3 of a series on Abundance and Decentralization. View part 1 here and part 2 here.

Energy generation and food production are next

The revolution will be decentralized. This has been the rallying cry among technology’s early adopters since bitcoin first exploded into the mainstream consciousness in early 2013, and it is the guiding principle for those building “Web 3.0”, the next generation of web services that intends to use the technological insights underpinning the decentralized, open-source nature of bitcoin and other cryptocurrencies.

With the rapid proliferation of decentralized platforms and applications — computing power (Ethereum), decentralized storage (Filecoin), decentralized asset exchanges (0x Protocol, Airswap), decentralized social media (Numa, Peepeth), decentralized room-sharing (CryptoCribs) and more — new web services promise to empower individuals to own their own data, confidently exchange with third parties without a “trusted” intermediary, and participate in a resilient web less susceptible to hacking, censorship, and fake news.

But this revolution is not limiting itself to web services.

Two of the economy’s largest subsectors, energy generation & transmission and food production & distribution, are ripe for a decentralized revolution. Around the US (and across the world), products and services are beginning to emerge and make their way to market, with much of the infrastructure now in place for these aspirational disruptors to grow exponentially over the next decade or so.

Tesla, Power Ledger and LO3 Energy are leading a wave of companies working to bring this decentralization revolution to the electrical energy that powers our homes and cars through the development of systems where energy is primarily generated, traded, and consumed in our own neighborhood.

Square Roots, Bright Farms and Plenty are similarly building a future in which the majority of the fruits and vegetables we consume are harvested by the local millennial farmer at the neighborhood hydroponic farm, just hours before consumption.

It may sound like a return to a pre-globalization era in which everything was local by necessity, but the decentralization movement promises to leverage technology to provide all the benefits of being local (and there are many) while outperforming the industrial, centralized systems that have been built over the past 100 years in the most metric that matters the most for a new system to achieve mass adoption — cost.

Decentralization vs. Centralization

Decentralization, almost by definition, is inefficient in comparison to centralization when measured in terms of the resources required to produce a desired unit of output. As the industrial revolution has made abundantly clear over the past 250 years, economies of scale are real, and as industry after industry has matured we have seen fragmented markets succumb to waves of consolidation in an attempt to achieve ever greater economies of scale. This is why almost all mature industries are dominated by no more than 5–10 companies who control a plurality or majority of the market share.

In today’s world power and profits continues to accrue to centralized companies and platforms, but the main driver of productivity growth is no longer economies of scale (ie. making systems bigger) but rather unlocking new value by making existing systems smarter through the use of software and narrow Artificial Intelligence (which is essentially software that can learn and evolve to perform better at the task for which it has been designed). Software’s greatest characteristic is that, once developed, it is infinitely scalable with effectively zero marginal costs and it can be continuously iterated and improved upon with no meaningful costs to upgrade.

This is why software and internet-based industries are even more concentrated than traditional industrials: small groups of people can build products accessible by billions of internet users and establish industry dominance through the virtue of powerful network effects, creating products and services that are more centralized than ever before.

The flaws with centralized systems

Centralized companies have created incredible amounts of value for both users and shareholders, but society as a whole needs to reckon not only with the upside but also the downside to centralization, and as centralized companies have grown in size, the negative externalities and unintended consequences of their growth are becoming much more visible:

• Web services — increased vulnerability to wide-spread disruption of critical services with the hack of a single company; the outsized influence of a select number of algorithms that influence our information flow and potentially accentuate pre-existing biases; the loss of privacy in our digital life.
• Electrical generation and transmission — centralized generation favors energy dense materials such as coal/natural gas which are non-renewable; long transmission lines from centralized generation locations increase likelihood of service disruptions (eg. from storms bringing down power lines); the distance between energy producer and energy consumer masks the true costs associated with producing this energy and reduces likelihood of consumers caring about its provenance.
• Food production and distribution — industrial food system incentivizes monoculture production which reduces biodiversity and increases the need for polluting pesticides and inorganic fertilizer; a global supply chain causes fruit and vegetables to be picked before they are ripe, shipped around the world in refrigerated containers, and force-ripened with ethylene prior to being put on shelves; the global urban population (a majority of the world) are disconnected from the farmers growing their food, and the “solutions” (farmers markets, farm-to-table movement) are either unsustainable at scale or only accessible to the wealthiest.

Historically, decentralized systems have been too expensive to sustain at scale. But by leveraging today’s software and AI decentralized systems can today perform at the same level as more “efficient” centralized systems that have been built to achieve economies of scale, while reducing or eliminating the negative externalities that plague them.

And cost-competitive decentralized systems are not only more resilient than centralized systems, but they are also usually more simple (no complicated supply chain infrastructure) and can be more responsive to changes in market conditions through the virtue of being located closer to an end user.

There are massive societal gains to be reaped if decentralized systems can flourish at scale.

Our Decentralized Energy Future

Residential solar power alone does not make the energy grid decentralized, as this energy generation still feeds into a large regional grid system operated by a centralized utility that controls distribution and pricing.

Instead, it is the the development of Microgrids — localized energy generation, transmission, storage and consumption — supported by lithium-ion battery energy storage and advances in smart microgrid management software that are finally allowing a decentralized energy movement to flourish.

David Robert’s piece for Vox is the best primer on how the microgrid will upend the electricity market:

“A single smart microgrid, aggregating diverse, distributed low-carbon resources, can provide cheap, clean, reliable power to those within it. It can also provide grid services to the larger grid around it.

What really tickles the imagination is a grid that contains dozens or hundreds of networked microgrids — even a grid that is someday composed of networked microgrids. This kind of “modular architecture,” with multiple semi-autonomous nodes operating in parallel, is more secure and efficient than a centralized system with a few, large points of failure.

Microgrids may never eliminate the need for large utilities, power plants, and transmission lines, but moving more power generation, management, and consumption under local control makes everyone less dependent on them.

And it makes the grid greener, more reliable, and resilient — a three’fer.”

Reduced dependence on centralized utilities and a new energy infrastructure organized around microgrids will unlock new opportunities for energy consumers and producers alike: freedom to choose to buy energy from either a utility or a neighbor; more information about the price of electricity and the ability to take action to arbitrage daily fluctuations in price or discrepancies between wholesale and retail prices; the choice to prioritize the lowest available price for electricity or the greenest source of generation.

It remains to be seen whether the public is interested in fully-fledged peer-to-peer decentralized energy solutions like those Power Ledger is trying to build using blockchain technology, or whether the public would rather outsource to an integrated provider like Tesla, whose potent Solar Roof + Power Wall + Smart Grid software combination should offer all the benefits of a decentralized energy system, managed by Tesla with a seamless user experience.

I have a feeling that there is room for both, although Tesla may end up as the “iOS” of the industry while Power Ledger or LO3 Energy offer a more open-source “Android” alternative. Some utilities are already partnering with LO3 Energy in an attempt to make sure they don’t lose their ability to produce and capture value in this future energy market in which individuals not only have much greater levels of choice and transparency, but can also become the competition.

Our Decentralized Food Future

Food, even more so than energy, is in need of a business model disruption. Neither industrial-scale farming nor organic farmers markets are sustainable at scale, as world-renowned chef Dan Barber notes in his wonderful book, The Third Plate:

“Large-scale agribusiness should be difficult to defend. It has helped to bring about ecological problems of unparalleled scope and significance. The costs to soil fertility alone are too great to sustain for the long term. Yet it’s hopeless and naive to argue that farmer’s markets can feed all of us. Asking every farmer to plant, harvest, drive his pickup truck to a public market, and man the cash register would be like asking chefs to cook, serve, and then wash all the dishes every night.”

Fortunately, recent market entrants like Square Roots, Bright Farms and Plenty are building networks of small but high-yielding indoor farms that allow for urban farms to produce as much as 80x the yield as an organic farm, providing the necessary density for food to be grown and sold in towns and cities (where land is exponentially more expensive) economically.

I visited the Square Roots campus in Brooklyn in April, a collection of 10 converted shipping containers located in a parking lot, where produce is grown hydroponically in a controlled environment optimized for nutrition and yield using software.

The Square Roots business model is decentralized by design— young “farmers” are recruited to act as independent operators who are responsible for growing whatever produce they desire and selling it via whatever channel they choose.

Many of the first cohort chose a direct to consumer/restaurateur model in which the leafy greens they have grown can be hand-delivered and consumed by end users just hours after harvest.

Square Roots ultimately owns the P&L of these relationships, and is working to improve the yield of their farms through the application of AI to the point where its produce is not only more local and nutritious than that found at farmers markets, but is cheaper than industrial scale farming. CEO Tobias Peggs disclosed that their “R&D” farm-in-a-box powered by AI was yielding up to 50% more produce than the other containers that themselves were software-optimized.

The Square Roots vision of the future is that urban container farms will exist in every urban neighborhood in America, eating the marketshare of the industrial farming complex while complementing traditional organic farming (as container farms will likely never be able to grow grains or large vegetables such as squash).

One of the (many) positive consequences of decentralized systems is that they become “local” enough that consumers will once again be able to put a face or a name to their source of food or energy — the local urban farmer or the neighbor who generates more power than they use. It’s somewhat ironic that it is software that is going to reinvigorate face-to-face commerce, but it will serve as an opportunity for companies and individuals operating in this space to build direct, authentic consumer relationships without much of the bureaucracy we face as consumers today.

In this world, decentralized networks of independent urban farmers can overcome the challenges Dan Barber identified as they will be located within the communities they ultimately serve, eradicating the need for the intricate supply chain that the industrial food complex has developed over the past 50 years.

Software makes decentralization possible

As these nascent decentralization efforts in the energy and food industries are illustrating, software (and especially AI) is allowing for decentralized networks to exist and compete with industrial economies of scale in industries that have seen little disruption in decades. We have known for a long time that there are costs associated with centralization, but until recently have been unable to build a viable alternative that can scale to serve hundreds of millions of people in a convenient, sustainable manner.

Decentralized energy and food production will never fully replace the centralized systems that exist today — there remains incredible value in these systems — but by creating viable alternatives we can reduce our dependence on them, and perhaps build a world in which we can reconnect with the provenance of our vital resources and support the development of a more resilient, sustainable world.