This blog post was written by a Software Developer at Catalysts
Newspapers claim, that blockchains will revolutionize far more than currencies. Notaries will lose their jobs, governments become unnecessary and game changers like Uber will be replaced by new game changing blockchain-based applications.
Impressive claims! This is reason enough to take a look at this technology.
A blockchain connects blocks, by storing the block’s content and a hash (a value used to detect tampering) of the previous block in a block. This results in a verifiable and persistent chain of information.
Blockchains alone are no big revolution. Its power is unleashed as multiple peers collaborate on one blockchain and we define who is allowed to create the next block.
So what are its features?
- Blockchains are all about removing the need of trust; As information is verified by all peers that collaborate on a blockchain, there is no need to trust each other.
- Blockchains are permanent, the content cannot be changed or deleted, just added.
There are several new possibilities that emerge on top of these features:
- Instead of a written contract, we can write an application and deploy it on the blockchain so it will be executed no matter what. For example: I will award person A 5 Bitcoins if Person A has 5 likes on his most recent Facebook post by Friday. Otherwise, return it to me.
- It is possible to host server-less applications by storing the relevant data within the Blockchain.
- It is unnecessary to define who is allowed to participate within a shared blockchain, anyone can do so if we want.
- Committed content to the blockchain is permanent, this makes censorship impossible.
- Property information can be stored within the blockchain, the owner can transfer ownership without the need of an authority.
Currently distributed blockchain implementations are not efficient in terms of network load, blockchain size and latency and will always have a certain overhead.
Software security failures may have fatal severity. And most importantly, existing popular public blockchains need to charge an amount of currency every time when something needs to be persisted on the blockchain.
This is the big unanswered question. It is possible to replace a traditional centralized web service with an app that gets its information from a shared blockchain. Nevertheless, the participation workload comes with shared blockchains are not user-friendly. Problems like every user needs to download the blockchain, interactions cost money and huge latency. These limitations are by design and can be replaced by different rules on how to access the blockchain. As of now, it is only possible to remove these problems at the cost of other limitations or security issues.
Certainly not! These headlines form from the idea of programmable contracts. The idea is that laws are automatically enforced and set by these contracts. While this works well with digital properties and crypto-currencies. The interaction with the real world still needs to be observed and enforced in some way.
They are likely to be replaced sooner or later. Property information can be stored on a public blockchain and leave it maintained by its owner. Traditional contracts can be signed by two parties on a public blockchain, making signature fraud impossible.
While blockchains fit well for such tasks, a traditional more transparent web-service that is controlled by the government could be a better solution.
New business models in the energy sector
The energy sector will benefit from blockchain technology:
- Green energy can be traced to its production and proven to be only sold once
- Consumers can decide where and what type of energy they want to buy
- Energy grid providers get paid automatically by usage
- Transparent, exact and fair pricing
- Users may be physically connected to multiple grid operators
- Payment can be done with tokens instead of bank transfers
- Grid operators no longer sell power, they are only paid for the transport
Businesses that rely on expensive middlemen may have interest in completely removing the need of them. Simultaneously middlemen are frightened to be left behind by decentralized fee free services. But once such a decentralized new service takes over a market, new business models arise. A decentralized service has its drawbacks, at first it may sound conflicting, but these drawbacks can be covered by a centralized service that provides enriched access to a decentralized blockchain. For example, a website that provides quick access to the required part of a huge blockchain or an online Wallet for Bitcoins.
There are already a few meaningful blockchain applications on the market. We have currencies like Bitcoins, DNS server replacements like Namecoin and censor-proof, fee-less marketplaces like Openbazaar.
How would you utilize the blockchain technology?
Let’s get back to one of the use-cases sketched in the blog entry. In case we want to set up a blockchain for energy trading we could define the following rules to make the blockchain work:
- Each grid operator has its own blockchain and defines the added blocks
- Grid operators, consumers and producers participate in all blockchains as clients
- We trust Smart Meters to provide correct data
- Smart Meters do only accept correct transactions
- Smart Meters create energy tokens and add it to the producers’ wallet for stored energy
- Smart Meters destroy energy tokens for consumed energy
- Smart Meters are bound to somebody that can be held liable in case of fraud
- Energy tokens represent a certain amount of Watts per second
Thus, these security features would be supported by our implementation:
- Hacked Smart Meters are traceable and may be punished by law enforcement
- Grid operators are not able to manipulate their blockchain
This is what the power line grid could look like. Communication happens independent to power lines between all peers.
Finally, we can define how energy is traded:
User B produces energy and wants to sell it:
- User B produces energy and is automatically awarded energy tokens by his Smart Meter as the energy passes through
- As user B informs its connected grids about his selling price and energy type, they validate that the Smart Meter data has not been manipulated by the user and store it in their blockchain.
User A wants to buy energy from user B:
- User A takes a look at the energy transportation fees of the grid operators and chooses to use grid operator X and Y on the way to user B
- User A tells operator X that he would accept the energy offer of user B and send X and Y a transportation fee, if the following conditions are met:
- Operator X and Y confirm that the fee is high enough
- All participants confirm that the physical connection is established
- Once the network is able to verify that the conditions are met, the energy tokens are considered property of user A