What is blockchain?
A ‘blockchain’ is a database whose records, or blocks, linked and secured cryptographically. It ensures an especially high level of transparency and enables transactions between market participants to be verified.
Blockchain is one instrument that can solve the problems of decentralization. It enables peer to peer energy trading. It is a good choice for implementing safety and transparency of transaction. At present, the research of blockchain in the field of energy is still in its infancy. It offers quite a few advantages: it is economical to combine operation on the distributed blockchain, and the trading mechanisms of distributed energy, which work on the blockchain network, are highly credible.
In simple terms, blockchain is a distributed database of transactions, which is managed by individuals who all own and store a copy of that database. For any transaction to be valid and ‘legal’, it needs to be verified by most of the individuals managing the database.
Once the transaction is verified by a majority, it is processed and added to the database and cannot be removed. Blockchain has two types based on the access to the transactions ledger: public and private, more about the two is discussed below.
A public blockchain (also called permission-less blockchains) is based on a transactions ledger which is accessible to everyone to read/write, given the transaction is validated. The most famous blockchains, including Bitcoin and Ethereum, are public blockchains. Anyone can download the code and start running it on their device. They can access and write transactions on to the existing blockchain ledger through a verification process which requires majority of the network to confirm ‘legality’ of the transaction.
Public blockchains offer increased security because every transaction to be added to the ledger needs verification from a majority of the network. Anyone manipulating the network would require a significant amount of resources to add false transactions to the ledger, making it a very difficult and expensive operation. At the moment, most common public blockchains are cryptocurrencies, but some public blockchains, like Ethereum and Ripple, provide functionality which enables their use in industry. Some examples of public blockchain are:
- Bitcoin (bitcoin)
- Ethereum (Ether)
- Ripple (XRP) — Semi-Permissioned
- Bitcoin Cash
In private blockchains (also called permissioned blockchains), only a few people have access to the transactions ledger. Permissions are managed by a central authority, which determines who among the users have the power to add and modify transactions in the ledger. Private blockchains provide an easy way to take advantage of this technology by setting up of participants in the organization whose transactions needs to be recorded in runtime. It helps with the quick scalability of operations and helps comply with strict data privacy regulations in today’s world. In practice, private blockchains go against the principle of decentralized control, one of the core value-propositions of blockchain. Security is also an issue as unauthorized access to internal systems of one member with control of the ledger can compromise the entire system. Some examples of private blockchain are:
- Eris Industries Chain Inc.
- Hyperledger Fabric
- Energy Web Foundation (EWF)
- Corda (R3)
Ethereum and Smart Contracts
One of the most promising public blockchains for use in industry is Ethereum. In addition to providing a cryptocurrency (Ether), Ethereum promises to enable the use of blockchain in industry. Ethereum adds an additional layer of smart contracts, on top of an existing blockchain for peer-to-peer (P2P) transactions of any kind which would not require third party to overlook and validate. This feature has made Ethereum a viable “off-the-shelf” blockchain implementation solution to use. Miners of the currency validating transactions get paid in Ether (Ethereum’s Currency), which is also used by application developers to pay for transaction fees and services which they run on the Ethereum network.
In Ethereum based applications, P2P transactions are carried out through ‘Smart Contracts’. Smart contracts are essentially like any other contract, except they are a digital piece of code which is generated at runtime to facilitate the exchange of money, energy/electricity, property, shares or anything of value. Ethereum introduced the idea of decoupling the contract layer from the blockchain layer, where the ledger itself is used by Smart Contracts that trigger transactions automatically when certain pre-defined conditions are met. By decoupling the smart contract layer from blockchain layer, Ethereum and other similar blockchains provide developers a flexible environment to run their decentralized applications on.
However, blockchain, as a technology, is not perfected yet. There are still some problems with the technology e.g. amount of processing power required to process transactions is increasing every day, and security not being as tight as claimed.
Blockchain in E-Mobility and Energy Applications
EV industry is no different in this regard. Solutions in EV ecosystem also saw an increased use of blockchain, in the form of new companies and partnerships implementing blockchain enabled business models. On one hand, companies like Share&Charge, eMotorWerks, (Called Enel X) and AeroVironment are providing hardware and software solutions for peer-to-peer EV charging using blockchain. On the other hand, companies like Electron Project, L03 Energy, and partnerships like P2P SmartTest, Tennet & Sonnen and Tennet and Vandebron are utilizing blockchain to integrate electric vehicles into the grid using V2G, and P2P energy sharing solutions. China has invested billions of dollars in constructing charging piles for their growing electric vehicle consumers.
The advantages of blockchain technology have been the subject of research as well. A study at the university of Waterloo suggests that blockchain can help develop trust among charging service providers, the property owners that install these stations, and electric vehicle owners. In an open block chain platform, all parties can access charging data, and therefore see whether the data has been tampered with. Car owners, for example, can see if they have been overcharged. On the other hand, property owners can see If they are being underpaid for providing access to the charging stations.
Researchers identified that there are a few steps necessary in order to incorporate blockchain technology into energy systems. Firstly, it is important to see whether trust is a factor in the execution of the service. Secondly, if it is indeed a factor, blockchain needs to include smart contracts that resolve the trust issues. Finally, the system can be converted slowly from a legacy/ blockchain hybrid into a completely decentralized solution.
According to Forbes’ annual Blockchain 50 list, total corporate and government spending on blockchain hit about $3 billion in 2019, and is expected to grow to a whopping $12.4 billion by 2022. There are many companies that are adopting the blockchain technology to profit from the centralized management. Here are some of the biggest market players that are using blockchain technology:
1. Amazon (Seattle)
Amazon uses this technology in its most profitable business line, cloud computing. Cloud clients can use its tools, including Change Healthcare, Guardian Life Insurance and Workday.
2. Ant Financial (Hangzhou, China)
Fintech power Ant Financial has developed a proprietary blockchain that is used to keep check on the products sold on a marketplace run by Alibaba, a part owner of Ant.
3. Citigroup (New York City)
The bank has invested in some startups: Digital Asset Holdings, Axoni, SETL, Cobalt DL, R3 and Symbiont. It is focused on developing blockchains and distributed ledgers for applications such as securities settlement, credit derivative swaps and insurance payments. Last year, Citi partnered with Barclays and CLS to introduce LedgerConnect, an application store where companies can buy blockchain tools.
4. Coinbase (San Francisco)
Almost a decade after its launch, coinbase has opened 35 million accounts, and according to the Forbes list, is on track to target $800 million in revenue in 2020. In February of this year, Coinbase announced that Visa has granted it permission to issue its own credit cards.
5. Facebook (Menlo Park, CA)
In 2019, Facebook announced a crypto currency, Libra, which was backed by US government bonds. The currency soon ran into trouble, however, and large backers such as Visa and Mastercard have dropped out.
6. ING (Amsterdam)
This Dutch giant uses the decentralized trade platform Komgo. It cuts down the paperwork and time required to issue letters of credit.
7. Samsung (South Korea)
Samsung’s blockchain, SDS, is used by 18 local banks, and it allows customers to prove their identity, even at banks where they are not customers.
8. UBS (Zurich)
UBS led 14 financial firms to launch a new company, Finality International. The company will support the development of a trade settlement vehicle that reduces time required to process a transaction.