dena expert Philipp Richard certainly didn’t get rich from Bitcoin, but he does see potential in the blockchain — even for the energy sector.
An interview with Philipp Richard, author of the dena blockchain study.
This article was featured in The Beam #9 — Voices from the Global South. Subscribe to The Beam for more.
What can the blockchain contribute to the energy transition and climate protection?
Information has up until now been transferred across the internet in a relatively centralised fashion. The blockchain is an entirely new way to exchange information in the digital space using peer-to-peer technology, from one person to another, without a middleman and in a way that eliminates the possibility of fraud. This is of particular interest to the energy industry where it has the potential to make numerous processes much leaner. Energy is confronted with millions of different assets such as wind and solar power systems or electric cars. All of these need to be managed and information exchanged in real-time. The decentralised energy transition is massively increasing the flood of information out there. Mechanisms such as the blockchain can play a key role here.
Information is stored in the blockchain in a way that is traceable without requiring a trusted central system. This allows anyone to check whether the information in the blockchain is a true representation of reality. This serves as a good basis for entirely new services and business models. Ultimately, we need alternatives to the big four multinational internet companies (The Big 4) who have centralised a large proportion of the data processing power. New business models that strengthen ownership of data for its authors can be built around the blockchain. For example, a service like Facebook that arises from the business itself without a central administration platform.
In your study, you investigated whether the blockchain could be used in the energy sector. In which specific cases would this technology be particularly helpful?
We took a look at eleven use cases from various areas of the energy industry.
Let’s start with congestion management: The blockchain is able to show how much energy the homes and electric vehicles on a street are currently using and how much energy is being fed into the network at the same time. This can help to better manage supply and demand, thus strengthening the electric power system. The same applies to wholesale power.
Another example is the case of international money transfers: The blockchain can document that someone in Berlin made available 50 euros for climate protection activities on the other side of the world, e.g. a high-efficiency cooker in a remote area. Contracts can also be used to ensure that the money is used for the purpose which it is intended. That would, however, require a lot of effort. The blockchain makes this almost free of charge and without any significant amount of effort — money goes from one digital wallet to another. The money is only released once the purchase of the intended article has been verified — e.g. in the form of a photo or product scan.
The blockchain also makes a lot of sense in terms of mobility: Today, a household will have a supply contract that binds them to a single energy provider. In the future, you will be able to charge your electric car from charging stations operated by various different providers. We, therefore, need a guarantee that the electricity from different providers is correctly billed. This requires flexible, automated contracts that require a minimal amount of information and are bound to a particular charging station for the duration that the vehicle is being charged. These “smart contracts” are implemented using the blockchain with the decentralised network acting as a trust anchor for creating the contract.
“The blockchain is an entirely new way to exchange information in the digital space using peer-to-peer technology, from one person to another, without a middleman and in a way that eliminates the possibility of fraud.”
What are the advantages of blockchain compared to other technologies?
It makes little sense if, in the future, we were to sit down together and put everything down on paper — digital contracts will be set up in a semi-automatic way. We also need a secure technology such as the blockchain, which can verify these smart contracts. It is the decentralised nature of the technology that gives it trust. Trust as we know it today, based around a physical institution such as a bank or large company, will be expanded to include the trust in a technologically implemented mathematical mechanism. This would be a good alternative in many parts of the world where corruption is a real issue.
Where does blockchain development stand at present?
The blockchain must be able to process many transactions in a relatively short period of time. Whilst electronic payment and banking systems are currently capable of processing thousands of transactions each second, blockchains can only manage 15. The technology therefore needs to become significantly faster. But I’m absolutely certain that this will happen in the next one or two years.
It’s a technology that is currently only for real experts. The scene is building up a huge amount of knowledge, but it is difficult to pass this knowledge on. The blockchain needs something that can shed some light on it, much like the browser did for the Internet. A type of content management system is currently being worked on that should help laypeople build blockchains to suit their own needs. The scene is hoping this will see wider adoption of the technology.
Is the blockchain just a great story or will it be a market worth billions?
The blockchain is definitely on an upward trend. It just has one big problem: its reputation is getting ahead of itself. Firstly, a huge number of cryptocurrencies were created. It was thought that a huge amount of money could be made — something that has certainly hit a wall. This leads people to think that blockchain is just a bubble.
I believe, however, blockchain is crucial for the development of society to allow us to handle information in an entirely new way. We have so far not taken a close enough look at it in this regard.
When the internet first truly emerged, a countless number of social media platforms shot up and we happily threw our personal data into them without giving it a second thought. Many business models developed based upon this. There was no way to fully keep track of this data. The blockchain allows us to trace exactly what happens with this information and what it is used for.
The technology will certainly need some time to be understood, but it’s definitely not going away. Rather, it will grow its market share. This is something that should be clear to politicians and market players. This is a huge opportunity to rethink business and society in an era of globalisation and digitisation.
If used more widely, wouldn’t this technology consume far too much energy and thus clash with the need to protect the climate?
Trust and monitoring of the blockchain come about from any number of computers joining in to validate a transaction — the motivation to do this is a reward of bitcoins. The fundamental theory is: the more participants, the greater the security of the network. This in turn, however, increases energy consumption. This then raises the question at what point do we have enough security and is energy consumption in proportion to this security. There is now a range of alternative methods available that significantly reduce the energy required.
How can blockchain applications be made compatible with data protection requirements and the GDPR?
Storing personal data in a blockchain without the ability to delete this data is not compatible with data protection legislation. This will only change if a blockchain is built that permits deletions. However, trust in the blockchain arises from the fact that the information cannot be falsified and is documented in perpetuity. This leads us instead to ask what kind of information does not need to be written to the blockchain — such as personal data. Datasets must be anonymised or sufficiently pseudonymised.
Should companies in the energy sector, which are working in areas where this technology would be useful, make a jump straightaway into the blockchain train?
I would indeed stay on the ball. Those who engage with the blockchain will be able to better understand how many markets will develop in the coming years. There is an opportunity to help shape something from the very start, something which will play a significant role in the digital future.