Researchers at the Lawrence Livermore National Laboratory (LLNL) have developed a new cryptocurrency that is based on physics and creates a novel connection between electrical energy and blockchain technology. Without the need for linking cables or a transmission system based on a grid, this innovative blockchain idea, which has been given the name “E-Stablecoin,” may make it possible for power to be distributed between users located in different parts of the globe. This work solves critical issues with the stability of digital assets and is the first design for a cryptocurrency token that is both fully decentralized and collateralized by a physical asset because it is secured by the laws of statistical mechanics. The work also solves critical problems with the stability of digital assets.
The findings of the study were published in the peer-reviewed journal Cryptoeconomic Systems. Since its debut in 2009, digital assets and cryptocurrencies (such as Bitcoin) have seen phenomenal growth, which prompted President Biden to issue an executive order on guaranteeing the appropriate development of digital assets. The executive order makes note of the fact that digital assets have profound implications in a variety of domains, such as “data privacy and security,” “financial stability and systemic risk,” “crime,” “national security,” “the ability to exercise human rights,” “financial inclusion and equity,” and “energy demand and climate change.” As a result, the presidential order mandates the coordination of efforts among various government agencies on the development of digital assets in a responsible manner. This includes the introduction of innovative payment methods and technical advances.
The new cryptocurrency idea developed at LLNL is a step toward the implementation of responsible digital assets that extend beyond the realm of the digital world alone and are instead connected to the real world in more concrete ways. E-Stablecoin is a cryptocurrency that uses recent developments in the field of thermodynamics to facilitate the transfer of information in the form of energy. The “Maxwell’s Demon” thought experiment, which was asked by James Clerk Maxwell in 1867, is where the germs of this concept were first planted. In this hypothetical scenario, a “neat-fingered demon” is said to be able to circumvent the second law of thermodynamics at the nanoscale. This assertion sparked a firestorm of debate over the course of a century and, in the end, helped shed light on the profound relationship that exists between energy and information.
Researchers Maxwell Murialdo and Jon Belof from Lawrence Livermore have published a new paper in which they detail how the connection between energy and information makes it possible to create a cryptocurrency token that is directly backed by one kilowatt-hour of electricity and that can be converted into that amount of electricity. Although the production of an E-Stablecoin token involves the use of one kilowatt-hour of power, it is possible for that digital token to be destroyed in the future in order to retrieve one kilowatt-hour of electricity that may be used. Therefore, the value of one E-Stablecoin token is fixed at the cost of one kilowatt-hour of power in a way that is reliable, trustworthy, and decentralized (a system that does not depend on an institution or third party for a network or payment system to function).
As Murialdo has previously explained: “An E-Stablecoin token may be mined by any unidentified entity with the expenditure of about one kilowatt-hour worth of electrical power. After that, they are able to conduct transactions with the digital token just like they would with any other cryptocurrency, and they can even convert it back into electricity that can be used. All of this can be done without the need for electrical power companies, electrical transmission lines, permissions, or authorities. It is not possible to have faith in any part of the system.”
The potential for huge variations to appear in the value of a cryptocurrency’s exchange price is a fundamental issue that affects numerous cryptocurrencies (including Bitcoin), including Bitcoin. These wild price swings exacerbate risks and hinder consumer transactions, long-term smart contracts, and other applications based on blockchain technology.
The production of “stablecoins,” which are digital currency tokens that are intended to maintain a constant value in relation to other assets, is one possible approach to this problem. By making the token directly exchangeable for the asset, such as one US dollar or one gram of gold, stablecoins are able to “peg” the value of their token to the value of an external asset such as that asset’s value. To date, however, in order to tie the value of a cryptocurrency token to the value of a tangible item, it has been necessary to place one’s faith in a centralized authority (who can maintain and disburse the physical asset). Because cryptocurrencies are designed to operate without a central supervisory body, it is against to their spirit to make trusting a centralized authority a prerequisite for using them.
E-Stablecoin is the first design for a stablecoin that eliminates this failure point. This accomplishment was made feasible by making use of the interaction between thermodynamics and information theory. In the future, E-Stablecoin may be used to help combat climate change by enabling intermittent, renewable energy to be transmitted to locations where it is needed the most for efficiency, or it may be used to help distribute electricity to remote locations that are not connected by an electrical grid system. Either of these uses could be beneficial.
“Through thermodynamic reversibility,” said co-author Belof, “we envision a future blockchain that is not only rooted in real-life assets like energy usage, but also is a more responsible steward of our natural resources in support of the economy.” This is possible, to the extent that it is allowed by a modern understanding of statistical mechanics. “We envision a future blockchain that is not only rooted in real-life assets like energy usage,” said co-author Belof.
