Making energy payments cheaper using Bitcoin technology startup Synota
The average consumer pays around 10 percent more than necessary on their energy bill because of inefficiencies in energy payment systems. One out of six households in the U.S. is behind on their utility bills. Synota, a Bitcoin technology startup run by CEO and co-founder Austin Mitchell has a solution.
While the infrastructure and technology that brings electrons or molecules of gas to your house are very efficient, the financial aspect is not as streamlined. Money must move from the consumer to maybe five to 10 energy companies that supply energy, and each of those companies pay other firms. That convoluted flow of money creates a massive lag in the chain.
Moreover, when someone pays an energy bill, they typically pay for energy used 60 days ago. Every transaction is done on credit, and credit isn’t free. The difference in time between paying an energy bill and consuming that energy makes the consumer a credit risk to energy suppliers. With the cost of credit and other overhead costs, the average consumer overpays by 10 percent on average, said Mitchell during his talk hosted by CMU Blockchain on Jan. 25.
When paying, users are likely to use a payment processor — a third party that collects information, contacts banks and does general backend work. An ideal solution, instead, would be to pay companies directly and automatically. Synota replaces what is normally a financial transaction separate from physical consumption with one seamless transaction. The goal is to eliminate inefficiencies by consumers paying more frequently for their energy. Companies can offer a better price if customers are willing to pay more frequently because they would no longer be a credit risk.
How it works
A user creates an account by giving Synota their email address and state, for tax purposes, where it is stored in a decentralized database. The energy supplier creates a contract with a bank account to send funds to while the consumer creates a contract with their source of funds. The consumer’s energy meter calculates the overall energy movement from supplier to consumer, and a payment flow is created using Bitcoin’s Lightning Network. The supplier provides electricity to the consumer and the consumer pays for electricity automatically. Synota software automates a recurring payment on the lightning network based on outside price feeds and some pre-prescribed contractual terms.
For example, at a time, say 4 p.m., the software reads the energy reading, generates an invoice and checks to see if the consumer’s data matches the invoice. If the consumer’s data matches the energy’s data, then a payment in Bitcoin comes back to the supplier. If the customer wants dollars, the software has a third-party integration that, within the same payment window, will deposit Bitcoin and withdraw U.S. dollars.
What makes Synota different?
Being a blockchain company separates Synota from much of the competition. Mitchell was in the role of managing risk during his corporate days and handled personally identifiable information for four million current and past customers. He notes that the decentralization of data is a huge opportunity that the energy industry hasn't even considered. Data management is a pain because things are not where they should be, or they're out of compliance with regulatory requirements, Mitchell explained.
Other companies can achieve Synota’s goal without using the blockchain, but their solution is analogous to a prepayment. Users pay for their electricity in advance, and their account is credited. Over the month, the money in a user’s account is moved to other accounts. Many solutions rely on banks, custodians, and intermediaries, which are all heavily regulated entities just to provide a simple service. Moreover, other services don’t address second order opportunities like paying multiple parties at the same time.
Differentiating from other blockchain startups
Today, there are dozens of blockchain startups like Synota that want to break into the energy industry. Those companies have more sophisticated uses of blockchain technology, but energy companies don’t want to deal with unnecessarily complicated tech, Mitchell mentioned. That’s why Synota uses Bitcoin’s Lightning Network and Mitchell envisions a network effect that will separate his company from the rest. As energy companies use Synota, especially suppliers to large consumers of energy such as data centers or Bitcoin miners, they will get a better cash flow from the reduced operating costs. Because the energy industry is very connected, other companies will say “Hey, you're getting better cash flow, can I get some of that too?” Mitchell explained. By reaching a large enough scale, other companies nearby will also want to participate.
That’s why Synota uses Bitcoin. Bitcoin miners already use a lot of energy and they're already at a meaningful scale. Mitchell said if he can get 40 percent of Bitcoin miners to adopt his software, he has already exceeded all of the other blockchain startups in the energy space combined. Essentially, you can do enough damage with the Bitcoin Lightning Network without needing to get fancy with the technology. A company can then have that momentum carry it into other markets — nobody else has been able to reach that breakthrough velocity, Mitchell explained.
The future of Synota
Mitchell doesn't think his work will be done for at least 20 years. He sees an immediate impact on the industrial use case because of high costs and scalability, but retail will take somewhere around five years to be fully implemented. Mitchell and his company Synota want to make their product work with current systems. No one should have to be into cryptocurrencies to use the software, Mitchell said. By making energy bills cheaper and still remaining accessible to the general population, it seems like Synota can pave the way for a more efficient future.