So, buzzwords… you got a loving or a hating relationship with those? As a kid, deeply into IT and all the abbreviations & huge concepts (anyone remember „robust“ as a buzzword?), I used to be full of them. About a hundred conferences, seminars and discussions later, I’ve grown to learn people who use them generally know very little about what they’re talking about, and smartest ones almost make it too simple – because knowledge is in explaining complex things in simple terms.
I’m a master of electrical engineering, majored in power systems. The most boring topic ever. There’s the power plants, power lines, transformers, get to the wall plug, turn on your hairdryer, i mean what is there to talk about for crying out loud?! Throw in some physics, math, a teaspoon of economics, a bit of people management, and it still turns out electrons follow the path of least resistance, Ohm’s law can’t be changed, supply matches demand at all times or lights go off and in general people just don’t care about the whole thing – until they need to charge the new gadget’s empty battery that is.
Then one day your favorite news outlet reports that some guys made 34 million dollars in an initial coin offering (ICO) on something called a Power Ledger, an energy trading application for peer-to-peer energy trading. Eh, what’s going on? When I included „making sense“ into the title here, it reflects the same issue the Power Ledger team had – it takes them 10 pages of their excellently written whitepaper to start explaining what they’re doing, and seemingly every blockchain discussion starts with about half hour explanation of what a blockchain is, leaving little focus & room to get to talking about applications of it.
Oh well, at some point back in horse carriage days, I bet talks of cars looked about the same, yet today it’s exotic to talk about horses, isn’t it?
Grassroots knowledge – demystifying Blockchain
Blockchain in its conceptual essence is really not that complex – the technical execution is, but that’s okay, Windows are also really complex yet it’s not difficult to explain what an operating systems is.
Here’s the basics of the market below.
Figure 1 – Concept of blockchain-based local energy trading between residential (source)
Remind you of say stock market trading? Owners of shares (in this case electricity) exchange stocks (in this case electrons), and do it through a physical channel (through power lines) and a virtual one (the market). The difference with introduction of blockchain is that the whole thing is done through a sort of a public ledger instead of through a central stock exchange database.
Next two illustrations below go a bit deeper. Traditional intermediaries, e.g. a bank, are no longer required under the blockchain model, as other participants in the network act as witnesses to each transaction carried out between a provider and a customer, and as such can afterwards also provide confirmation of the details of a transaction. All relevant information is distributed to the network and stored locally on the computers of all participants. So it’s like one huge town square where everybody knows everybody’s business.
Where a provider and a customer agree to enter into a transaction, they specify the recipient, sender and size of the transaction, as very basics. All information relating to an individual transaction is then combined with the details of other transactions made during the same period to create a new block of data. This is comparable to sending emails, which are also split into separate data blocks.
Figure 2 – The blockchain process (source)
Figure 3 – Traditional transactions vs. Blockchain (source)
From here on it can get technical, just like the simple 1+1=2 can be mathematically proven over a couple of hundred pages. So hang on and let’s do a reality check & plan a bit first.
Everybody’s talking Blockchain today – even about things which are really not Blockchain but a database-based system, it just sounds cooler and few people know the difference. Before approaching things deeper, it’s useful to refer to keep a bit of a skeptical eye to all this, having in mind the following:
- The most widely known blockchain implementation – cryptocurrencies – in reality still have a limited success as well as use. Yes, about 14 million people use or have used Bitcoin, and about a million are using Ethereum, the two most known currencies. Altogether, this is less then the population of say Mumbai or New York. And it’s been years and years and loads of media hype. Looking purely at prices one could argue 15 million people are either making killer returns or playing a fools game of “musical chairs”, waiting for the superpeak after which something will trigger the real-estate-market-like bubble burst & bust.
- If you ever traded bitcoin, you may remember how long it took for the first transaction to happen. In my case, it was nail-biting 30 minutes, during which I had absolutely no idea what’s happening to my money or when the transaction will be finished (I still remember googling like a mad person to troubleshoot the delay and only then learning this is an ongoing issue… this is before all the forks that happened recently). Then there’s the issue of various little fees to pay on entry or exit from any trading platform… not that accessible, is it?
- Since we’ll be talking about energy and blockchain, it doesn’t really make sense that bitcoin consumes enormous resources – check this graph out… is it going exponential? Yup. So in a day, about 2.6 million households could be in the dark because bitcoin is being processed… or looking at it another way, you can power a not-so-small American city instead of computing Bitcoins. That’s quite a steep price just to begin with… and governments are catching on the the model of putting data centers in countries with underpriced electricity. Not exactly sustainable yet, is it?
- It’s a new technology, sure, but some problems come with a high risk and high price to those who are on the losing end – have a look here, and also here. There was even a link to the wallet on which the stolen money was stored, like here– imagine being able to literally see where all the money went by the hacker/thief and being completely unable to do anything about it. Nuts.
Okay, so it’s not like when cars were invented people had answers to road congestion issues, security of vehicle or ideas on emission standards… but it may come for Blockchain too. Just that possibility makes it worth digging deeper.
To understand more, and set myself a plan of research & blogposts, these would be the bullet points:
- Relationship of cryptocurrencies and blockchain and their link to contracting in energy systems
- Initial coin offerings and how they work for energy projects
- Regulating for Blockchain success in energy systems
- Communicating 1-3 to executives (probably the top challenge right now!)
Plan is to cover one point per week. Research is on!