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Blockchain in the energy sector

//Blockchain in the energy sector

Csaba Csabai, CEO of Inlock gave a very informative presentation on how blockchain is going to affect different types of businesses, and how today’s cryptocurrency fever will be dwarfed by the blockchain craze of the next few years. The conference where Csaba gave his talk was organised by the Hungarian National Grid to gather industry leaders in the energy sector and design the future of energy together. Although a lot of people think the only use case of blockchain is cryptocurrencies, the areas it can be applied outside of the financial world is essentially limitless.

“Blockchain itself is a decentralised network spread out across many nodes, who all hold a copy of the same data as everyone else on the network. A system without a central actor might scare a lot of you here, because in large corporations today centralised databases act as a layer of trust. Let’s suppose we all have a notepad in our pocket, and we all jot down our own, and everybody elses current bank balance. Don’t get bogged down in how absurd this sounds, just see the real beauty of it: if anyone modifies data on the network (edits an entry in one of the notepads), everyone else will see they’re trying to cheat, and that’s why we call blockchains tamper-evident networks. When the information is on paper, finding out what others have written in their own notes is rather difficult, but this makes a lot more sense when we’re talking about a permissionless network where everyone can see everyone elses entry. The internet is very similar in the sense that it’s a global network where information can travel freely between decentralized actors spread out across the world, although the databases our data is stored on in the case of the internet is mostly a network of centralized storage facilities, while data entries on a blockchain are spread out between many actors. I think it’s safe to say that the internet is the basis of digitization, however, it can only be used to transfer information, not value. The freedom we gained with the advent of the internet was monetized by companies who aren’t producers of value themselves. Google is the world’s biggest advertiser, who creates no content. Facebook is the largest social media network, who also creates no content. These trusted third parties are responsible for information intermediation, and that’s how they make their money. When thinking about blockchain, we have to find areas where open access to information that has been validated is crucial for the proper operation of the system.

So what is blockchain? Blockchain is the system that has the potential to render these players obsolete. When I say transfering “value”, most people assume I’m talking about money, but many types of data can represent value. We’ll use solar panel generated electricity metering as a concrete example to stay within the energy sector. Currently, if you feed electricity generated by your solar panels back into the grid, the electricity company pays you for it, makes a profit on it, then resells it to other consumers. In a decentralised system each consumer/producer would record their consumption/production on the blockchain, so the system could monitor how much electricity everyone added to or taken out from the decentralised grid. Trust won’t be completely eliminated from the equation, since we still have to trust the manufactures of the energy consumption/production monitoring equipment, but this level of trust is also given with today’s energy distribution method. One of the reasons why combining the physical world with the digital sphere of blockchains is no so straight forward, is that in a decentralised power distribution system the independent actors have to take on the roles associated with maintaining the network responsible for power distribution and carry out all other related work previously done by the centralised company acting as the intermediary. A blockchain becomes the network that used to be run by the trusted third party, so putting it in place eliminates the need for the middleman. Wait, what? So how do I stay in business as a company and still use blockchain to increase profitability? If having a decentralised network of nodes holding public ledgers where all parties are incentivized for honest behaviour outweighs the cost of running a blockchain, then you can implement it and stay in business.

Blockchain technology guarantees exchange between parties enabling them to transmit value without the need for a centralised party or for the exchange of physical goods. An interesting precursor of this is Axxa’s flight insurance, where the application develops a smart contract that uses independent data do determine if your flight was late by minimum two hours or not. If yes, then the insurance money gets deposited into your account instantly without the need for a third party to initiate the transaction. Thanks to blockchain and smart contracts, we now have the option to program how money behaves, just like in the example above; if delay>2h, then pay money to customer account. Simple, yet so much more efficient than having humans evaluate such simply trackable data.

A very important problem to consider when thinking about blockchain use cases is the Oracle problem: the validity of the information entered into the blockchain has to be certified 100% true without having to trust anyone. It’s important we say anyone, not anything. The whole purpose of blockchains is using mathematics to eliminate the risk of being cheated by taking away trust from those who might otherwise be incentivised for dishonest behaviour. This anti-trust model works so well in the case of Bitcoin, because we now have the chance to rely on clearly defined mathematical formulas instead of concentric circles of authority on the top floor of a bank to take care of our money. Bitcoins proof of work algorithm generates the block containing the information the network needs to validate transactions only once sufficient amount of electrical energy has been committed to the creation of that block. And who regulates this, you wonder? No one, no person, only mathematics. It combines incentives in the physical world (not wanting to commit energy to a block containing false data) and the “virtual” rewards of the network (when committing energy to valid information) by the issuing of new bitcoins. In the case of the energy sector, such data worth validating and making publicly available would probably be measurement data. Accurate and valid measurements represent huge value, especially when combined with predictive algorithms and big data analytics tools.”
Csaba Csabai, CEO Inlock.io

The most important takeaway for me after listening to Csaba, and about 10 more presentations about the future of business and technology was, that if we don’t embrace the change this ever more rapidly shifting and evolving digital world is going through, we will be left far, far behind. They say blockchain is a technology that’s “looking for problems”, so companies have to start thinking about how blockchain could be relevant to their field of business, find it a problem to solve. I think what will pose the biggest challenge to companies trying to innovate and adopt new solutions will be to determine where blockchain will really add value to their operations. It can’t be forced, and blockchain is definitely not a magic wand we can wave at any data storage model and make it perfect.

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By |2018-10-08T11:27:12+00:00October 8th, 2018|Inlock blogposts|