Energy Bazaar
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Energy Bazaar

Can Blockchain help reduce energy poverty in Rural India? (2/3)

#2 What is Blockchain?

This is the second article in a series of three, being: #1 Problem Definition, #2 What is Blockchain, #3 Blockchain as a solution for the energy industry. Anyone interested in the combination of rural electrification with Blockchain technology I invite to get in contact with me through yvo@energybazaar.org.

In the first article of this series the difficulties in the current policies for rural electricity development have been described. The reluctance of distribution companies (DISCOMs) and microgrid operators to cooperate is a symptom of the current regime. However, Blockchain technology has been suggested as a solution to this problem. Before we connect Blockchain to the energy industry however, this article will set a broader scope of what Blockchain actually is.

Blockchain is seen by many as ‘the next Internet’, referring to the sudden intrusion of the Internet in traditional business models. In that sense, they are right. However Blockchain is fundamentally different from the Internet, where it is actually a potential solution to the many problems that still lie in the use of the Internet. Issues such as privacy and security have become a frequent part of our lives. Blockchain gained global attention through the success of Bitcoin, that sparked interest because of the global financial crisis. Bitcoin is a form of a Blockchain, though many more shapes exist.

Source: Santander InnoVentures, Oliver Wyman & Anthemis Partners

Essentially, every Blockchain is a ledger, which is a tool used by accountants, that is approached in a distributed way. Depending on the nature of the Blockchain, which we will not discuss here, a ‘block’ will be created at a certain point in time, thereby giving it a timestamp. In this block, sets of value transactions can be stored and that way later also verified. Each new block is dependent on the transaction in the past, therefore virtually linking all blocks, creating a ‘Blockchain’, that is stored and accessible distributedly. This would mean that the transaction cannot be changed, without needing to change the following blocks too. This is the reason why this is such a secure way to do transactions, because hacking it would require to adjust the whole blockchain in any place that it is stored, which is every computer connected to it in the network. It is simply impossible with today’s computational power to do this (See here for a discussion on what the effects are when quantum computers are introduced).

This means, that the Blockchain can be used in transactions of value, where parties do not necessarily have to trust each other.

This means, that the Blockchain can be used in transactions of value, where parties do not necessarily have to trust each other. This is because the system, or algorithm has this trust embedded in its design. This is revolutionary in our current world, where we rely on third parties such as banks, to verify our transactions. However, the implications of Blockchain do not limit themselves to the financial world. Don and Alex Tapscott show how the Blockchain relies on seven design principles: Network Integrity, Distributed Power, Value as Incentive, Security, Privacy, Rights Preserved and Inclusion. This is relevant for financial services, but also for many other industries such as energy, healthcare, insurance and even governments. An example of Airbnb, paraphrased from Don and Alex Tapscott, reveals what this means when applied in a distributed infrastructure:

dAirbnb (distributed Airbnb) is an app on the blockchain where you can put your room online for rent and rent other people’s rooms according to your specifications. The user experience is exactly the same as Airbnb, working with reputation systems to validate a user’s experience with the renter and vice versa. However it has an important difference. Your information is not stored in a database owned by dAirbnb. The messages between you and your potential renter are only accessible to the two of you giving you full control of your data, inaccessible by third parties.

It is argued that the United Nations even need the Blockchain to reach the Sustainable Development Goals and has now put them on the agenda.

So these decentralised applications (dapps) can have an enormous impact on security and privacy. However, the Bitcoin Blockchain does not allow its infrastructure to be used for these kinds of applications. Examples of Blockchains that can do this are Ethereum and Nxt. Currently hundreds of projects are spawning from the ground as mushrooms, trying to come up with decentralised solutions to many problems. Dapps such as uPort want to create a digital identity on the Blockchain, where you are the owner of your data, not facebook. Wetrust is building new forms of lending and insurance circles (also known as ROSCAs), allowing financial services to be reached by the poor. It is argued that the United Nations even need the Blockchain to reach the Sustainable Development Goals and has now put them on the agenda. The term that captures the infrastructures built on top of the Blockchain is ‘smart contracts’.

However, not all Blockchain startups are revolutionising. Gideon Greenspan, CEO of the company that made the Multichain Blockchain, has given the 8 principles to which a project must comply, before inserting Blockchain in the formula really has value. Another article by Jamie Burk (@jamie247), one of the investors of the first Blockchain venture capitalist, gives a different perspective, with some parallels. Jamie Burk finds that often Blockchain companies are just technology looking for a problem, instead of the other way around, as Greenspan also mentions. He has taken up a new approach, where only companies that are ‘Blockchain+’ will be invested. That is, companies that use Blockchain as a foundation for other technologies, rather than as an end goal. Think of Blockchain being the foundation for Artificial Intelligence, letting it make secure transactions governed by smart contracts. This is a vision incorporated by the Convergence movement.

This movement gives a number of key industries in which Blockchain+ can have a facilitating role to revolutionise current practices:

  • Industry 4.0
  • eGovernment
  • Health
  • Smart Cities (inc. Energy)
  • Mobility & Transportation
  • Embedded Services

Energy can therefore play an important role in the emergence of Smart Cities. The energy industry is waiting for a major breakthrough to happen, since the current infrastructures and operation protocols are already decades old and therefore in desperate need of rethinking. Also new innovations in energy technology are creating new problems that can be solved by Blockchain. The inclusion of intermittent renewable energy sources in the system could imbalance the grid when their share in it becomes larger. Here, Blockchain allows for a better, secure and efficient way of trading energy, which will be further explored in the third and last article of this series. Stay tuned!

I want to thank my editors Rob de Jeu, Vincent Hunink, Camille Hunink, Marina Graciolli de Paiva, David de Vries and Bart Keulen for their contribution in making this a more readable piece of text and understandable for a larger public.

I also want to thank the TU Delft Global Initiative and Rural Spark for making the visit to India happen. Check out their channels for more projects on development connected to Delft University of Technology.

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