Blockchain for energy markets

Blockchain overview

What is Blockchain? Is it more than the latest fad or just some technical jargon? In my opinion, it’s a technological advance that will have wide-reaching implications that will transform many industries and business, the energy business included.

A blockchain is a distributed database, i.e. there is no centralised data storage. It maintains a growing list of ordered records, called blocks. Each block has a timestamp and link to a previous block.

Blockchains are secure databases by design. Each user can only edit the parts of the blockchain that they “own”. This is ensured by Cryptography: the use of private and public keys.

The concept was introduced in 2008 by Satoshi Nakamoto in his bitcoin white paper, and then implemented for the first time in January 2009 as part of the digital bitcoin currency; the blockchain serves as the public ledger for all bitcoin transactions.

The Blockchain is revolutionary because it solves the Byzantine Generals Problem, by allowing individuals to protect their data from nefarious actors by storing it inside a “digital lock box”, the content of which can only be opened and altered with a unique private key. See this interesting article on this subject.

By using a blockchain system, bitcoin was the first digital currency to overcome the double-spending problem without the use of a central server or authoritative body.

The fact that the security is built into a blockchain system makes it excellent for recording events and transactions and also for proving provenance and identity management. It offers the potential of mass disintermediation of trade and transaction processing.

How does it actually work?

As mentioned earlier, a blockchain allows you to store information which only you can access and modify via your own private key. By giving your private key to someone else, you effectively transfer the value of whatever is stored in that section of the blockchain to them.

Looking at the bitcoin currency as an example, we can see that blockchain allows the main roles currently fulfilled by banks (verifying identities to prevent fraud and recording transactions) to be performed more quickly and more accurately.

Smart Contracts

Satoshi Nakamoto never saw the use of blockchain technology limited to Bitcoin or other cryptocurrencies. In a communication from 2010 he states:

The design supports a tremendous variety of possible transaction types that I designed years ago.  Escrow transactions, bonded contracts, third party arbitration, multi-party signature, etc.  If Bitcoin catches on in a big way, these are things we’ll want to explore in the future, but they all had to be designed at the beginning to make sure they would be possible later.

And so Blockchain 2.0 was born, which serves to distinguish between Bitcoin as an asset and “blockchain as a programmable distributed trust infrastructure”. As blockchain 2.0 is code, the new application is said to be running on a new set of protocols. A comparison with the Internet protocols illustrates the relationship between blockchain 1.0 and blockchain 2.0. The former can be viewed as the TCP/IP transport layer whereas the latter can be viewed as HTTP, SMTP, FTP etc.

It is the ability to establish contracts that extends its usefulness to many business sectors, including energy. Blockchain can be used to store any kind of digital information, including code which can be programmed to execute whenever certain parties enter their keys. This allows the creation of smart contracts that are automatically filled when certain conditions are met.

As this article highlights, however, there are legal challenges from a regulatory point of view that developers of smart contracts are going to face when bringing their applications to market.

Reinventing the power grid

Using emerging software and technologies associated with the Internet of Things, we can instill intelligence into existing infrastructure, such as a power grid, by adding smart devices that can communicate with one another, essentially turning the grid into a mesh network that can automatically reconfigure itself and therefore present breakage or interruption.

Imagine if all power pylons had embedded monitoring and were able to communicate with other pylons and report back to maintenance crews if they detect an issue. If a pylon began to fail, it could summon a maintenance crew to itself immediately and possibly even transfer its responsibilities to a nearby pylon.

The utility would be able to restore power to an affected community more quickly (or possibly even take pre-emptive action to avoid an outage) and would also be saving on the costs of ongoing field inspection.

An example of a product that could enable this type of grid is Filament, who manufacture wireless sensor devices called Taps which leverage blockchain technology to create an autonomous mesh network allowing them to exchange information, coordinate work, respond to commands and receive payments.

Now imagine a future where every node in a power system is made autonomous in this way, which would create entirely new peer-to-peer models of power production and distribution. The network becomes far more resilient because all of the assets in the grid are helping to maintain and run it. Smart contracts and other controls are built into the assets of the grid and if there is a problem with an asset, the grid automatically reconfigures itself to prevent blackouts.

With increasing micro-generation coming on-line, the Internet of Things is challenging the regulated utility model. Locally generated power, used locally, is much more efficient than transmitting energy across vast distances with all the associated losses.

US-based startup TransActive Grid enables its members to trade energy using smart contracts via Blockchain. Its first transaction was successfully launched in early 2016, connecting five homes that produce energy through solar power on one side of a street in Brooklyn with five consumers on the other side of the street, who are interested in buying excess energy from their neighbours.

Potential for disruptive applications

This survey among decision-makers in the German energy industry reveals that almost 70 percent are aware of the applications of blockchain in the energy sector and 40 percent have plans for implementation. Regarding applications, 60 percent believe that further dissemination is likely, 21 percent believe it’s a game changer for the energy supply industry and 14 percent foresee niche applications. Only 5 percent see no or limited potential for blockchain technology.

Respondents indicated that they see the highest potential in security, followed by decentralized generation, P2P Trading, mobility, metering & data transfer, and trading platforms. In descending order, the lower half of the potential applications is led by automation, billing, grid management, and communication. The least potential is expected from sales & marketing.

By and large, the survey results suggest that participants see a greater disruptive potential in new markets than in existing ones (for example, the charging of electric vehicles).

It has the potential to enable new entrants to become part of the current energy supply structure; it may serve as a platform to reorganize regional or local markets more effectively, and it may be used by energy companies to optimize their processes. It’s likely to experience further dissemination and use cases, both in process optimization as well as in peer-to-peer transactions.

Are you considering developing an IoT product? Jemsys specialises in working with and analysing data from smart devices . We’d love to hear from you either in the comment box below, or through the contact form on our website.

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