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Renewable energy technologies are being sought all over the world, whether to shift away from fossil fuels in order to create sustainable future or simply to provide basic electrification for the fifth of the population without access. Energy leaders believe that blockchain technology would be playing key role in making this thing happen.

 

A blockchain is a secure, transparent and decentralized digital ledger designed for exchanging value/information in a peer-to-peer network. Blockchain technology has already disrupted finance industry in the recent years, by allowing virtual currencies like bitcoins to work efficiently without involving intermediaries or third parties. It has potential to provide additional efficiency and security in future, which could completely disrupt the finance industry. Blockchain is thought to play a pivotal role in transforming many industries but the one which excites me most is its utilization in energy industry, I strongly believe that some wider and more disruptive future awaits.

Consensus algorithm consumes most of the energy required to run the system. Putting into perspective, bitcoin miners consume more energy in a year than many small nations like Denmark do. Different companies are trying to find different ways to reduce energy required reaching consensus within decentralized network. Bitcoin uses permisionless mechanism called proof of work which everyone can join and participate in the network increasing energy consumption because of large number of participants involved end up reaching high level of consensus and trust. However, Etherum often considered as Blockchain 2.0 trying permissioned mechanism called proof of stake where certain players of network would be given rights to update and verify decentralized ledger which lacks in terms of consensus because few players of the network are responsible for updating chains of blocks within the decentralized network which in case of bitcoin would be open for every participant of the peer-to-peer network.

 

There is no denying the fact that Blockchain has made huge progress in the past several years, but before delegating everything on blockchain a reality check need to be carried out. The most important trade-off in blockchain large scale adoption happens to be scalability versus performance. High energy consumption required for reaching consensus within the network hinders its scalability, switching from proof of work to proof of stake consensus mechanism does reduce the consumption of energy required for reaching consensus but scaling poorly in consensus terms.

 

Solving the classic performance-scalability trade-off would be major milestone for its massive adoption by many industries. Until then, let’s focus on out of the box use case adoption and appropriate platform selection to maximize results and energy efficiency.

 

#blockchain blockchain1.0 Grzegorz Bytniewski

 

 

 

 References

 

https://www.engerati.com/energy-generation/article/blockchain/blockchain-and-clean-energy-how-distributed-ledgers-benefithttps://www.engerati.com/energy-generation/article/blockchain/blockchain-and-clean-energy-how-distributed-ledgers-benefit

 

https://www.engerati.com/energy-management/article/blockchain/member-voice-blockchain-applications-energy-consumption

 

The most important trade-off in blockchain large scale adoption happens to be scalability versus performance. Consensus algorithm consumes most of the energy required to run the system which hinders its scalibility, switching from proof of work to proof of stake consensus mechanism does reduce the consumption of energy required for reaching consensus but scaling poorly in consensus terms.

 

Please share your insight about widespread blockchain adoption and what issues need to be addressed before hitting full potential of it. 

A blockchain is a secure, transparent and decentralized digital ledger designed for exchanging value/information in a peer-to-peer network. Blockchain technology has already disrupted finance industry in the recent years, by allowing virtual currencies like bitcoins to work efficiently without involving intermediaries or third parties. It has potential to provide additional efficiency and security in future, which could completely disrupt the finance industry. Blockchain is thought to play a pivotal role in transforming many industries but the one which excites me most is its utilization in the 9/8energy industry, I strongly believe that some wider and more disruptive future awaits.

If you are keeping an eye on energy transition from fossil fuels to renewables, you could see that something very interesting is happening. It’s not only the way we produce energy is changing but also consumer habits are changing, consumers are becoming producers. If you are one of those people who have solar panels or small wind turbines over the rooftop of your home and generating more electricity than the consumption; more often that surplus energy brings little or no value at all to you due to inefficient and outdated centralized energy grids. As business logics are being changed energy utility companies are finding it tough to cope with rapidly changing business models. Blockchain technology has potential to solve this problem effectively and could unlock the full potential of decentralized micro energy grids by allowing producers to trade energy in a peer-to-peer network of energy producers and consumers without the need of intermediaries or energy utility companies.

When a traditional power plant generates a unit of electricity in today’s centralized grid system, a meter spits out data that gets logged in a spreadsheet which then goes through many needless steps and redundant data management system. Such a byzantine system could add up transaction costs while leaving plenty of room for accounting errors that can range from honest mistakes to outright fraud. The lack of transparency also scares many people off entirely. What if the meter could send the data directly to a blockchain instead? Most of these existing problems would vanish altogether. This decentralized database when integrated with certain network makes it possible to carry out decentralized value/information exchange between two or more users under specific conditions defined previously.

 

This is what we call smart contracts or tokens which could be applied in energy utility. In this type of value/information exchange, the terms & conditions of the contract are first to be accepted by the users and the execution of the contract is then automatized. In a smart contract, rules are defined individually (quantity, price, quality) and thanks to blockchain technology, there is an autonomous matching among the participants of the network, for instance between distributed providers and prospective customers. A smart grid network supported by blockchain technology would definitely ensure an efficient and trusted relationship between production and consumption of renewable energy.

 

Participants could publicly track their energy usage and production efficiency and sell any unused energy to other participants of the decentralized network. They would also have the ability to reduce their energy bills by making more informed purchasing decisions, avoiding consumption peaks or switching into a lower subscription. Smart meters and blockchain technology would ensure a simplified billing process (efficiency, transparency) and faster switching times. It’s also very much possible that blockchain could enable the development of an integrated trading system that would permit businesses to trade their option to use electricity during a given time frame. For example, a factory could sell five minutes of unused power during a downtime to a different factory that needs the additional power. Trading grid flexibility in this way could provide large efficiency benefits for grid operators.

 

From theory to reality: the emblematic experimentation in Brooklyn

Transactive Grid, the project of the LO3 platform and ConsenSys, has become a famous example of the possible application of blockchain to energy with its pilot experiment in Brooklyn, NYC (for more details: www.brooklynmicrogrid.com). Five “producer” houses, equipped with solar panels, are selling their products to five “consumer” houses, on the other side of the street since April 2016.  The objective of the experiment lies in the re-appropriation by citizens of their energy production, by the establishment of mini-grids, that is to say, mini autonomous energy communities. For this purpose, sensors record the history of the energy generation at a specific point and immediately record it on blockchain Ethereum. Smart contracts (tokens) can then govern the rules of use of this energy, and of course the tariffs of producers.

 

Blockchain technology is a potential game-changer for the energy market and its ecosystem. Moreover, barriers such as legal and regulatory requirements that blockchain projects must comply with are obstacles that still have to be overcome. The legal and regulatory frameworks still have to be designed to reflect the requirements of decentralized transaction models and provide protection to energy consumers and it’s also unclear how soon this nascent technology can be scalable. Despite these challenges, there is a lot of excitement about blockchain in energy circles, industry is keen to harness the full potential of blockchain by making peer-to-peer energy trading a reality. As blockchain getting mature with time, a world could be envisioned in which homes and buildings are equipped with real-time sensors that automatically sell and buy power to and from the grid on the basis of real-time price signals.

 

 blockchain smartgrid decentralized energy solutions

 

References

https://www.technologyreview.com/s/609077/how-blockchain-could-give-us-a-smarter-energy-grid/

https://www.bearingpoint.com/fr-fr/blogs/blog-energie/how-blockchain-technology-could-reshape-utilities-businesses/

https://www.investopedia.com/news/how-blockchain-changing-energy-industry/

https://www.accenture.com/us-en/insight-perspectives-utilities-energy-ecosystem

https://www.capgemini.com/2018/02/blockchain-technology-transforming-the-energy-and-utility-industry/

https://www.theguardian.com/sustainable-business/2017/jul/13/could-a-blockchain-based-electricity-network-change-the-energy-market

https://www.edf.org/blog/2018/01/10/how-blockchain-could-soon-upend-americas-power-markets

INTRO

In this post and in the future ones, we'll start focusing less on blockchain technology itself and more on its consequences and implications in the energy transition. We'll discuss about user empowerment and user agency, energy democracy, internet of energy and how blockchain can facilitate the active participation of the end-users in the energy markets.

 

However, first, we think it's necessary to introduce the topic of smart grid (if you are fed up of hearing about smart grids, feel free to jump to the second part of the article), smart consumer and how blockchain can be the link between the two. So, here it goes.

 

P.s. If you are wondering why a weird crypto cat is in the banner of this article, i'm sorry but you will have to read it until the very end.

 

MAIN

Climate change is very likely one of the biggest challenges modern society has to face and solve. An ever-growing demand for resources by a growing population is putting tremendous pressures on our planet’s biodiversity and is threatening our future security, health and well-being. In order to tackle these issues, the energy sector and the current power system will need to be decarbonized and transformed considerably. The European Union after the announcement of the Energy Union and the release of the European Commission proposal of the Clean Energy Package in November 2016, has made clear that the EU wants to be the leader and pioneer of this change and transition.

 

Risultati immagini per Modernisation of the economy – Role of the Energy Union and Climate Action

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The backbone for the smart, sustainable and inclusive growth, included in the objectives proposed in the Clean Energy for all Europeans proposal, is represented by the famous smart grids.

 

At the end of 2009 the European Commission set up a Smart Grids Task Force (SGTF). The SGTF defines smart grids as electricity networks that can efficiently integrate the behaviour and actions of all users connected to it — generators, consumers and prosumers — in order to ensure an economically efficient, sustainable power system with low losses and high quality and security of supply and safety [Smart Grid Task Force - EG1 Report, «Interoperability,Standards and Functionalities applied in the large scale roll out of smart metering,» October 2015].

 

Let’s have a look in more details at what will change (or is changing?) in practice. 

 

Risultati immagini per smart grid

 

Electricity generation will have a more unpredictable and intermittent nature and local injections from PV systems and distributed storage will cause reverse power flows. The grid will enable bidirectional flow of both power and communication between suppliers and consumers, leading to significant changes in the control and protection strategies. The injection will sometimes exceed the local consumption, and cause a reverse flow into the transmission grid.

 

Thanks to the incorporation of modern information and communication technologies (Internet of Things) the consumers will shift from the traditionally passive role they always had to active players. Moreover, it is very likely that this will be combined with a shift from fossil fuels to electricity. This larger share of electrical consumption will be driven by more efficient and clean technologies, such as electric vehicles in the transport sector, and heat pumps in the heating/cooling sector .

 

These transitions will lead to a different, more variable and thus less predictable use of the electricity grid. Problems of congestion may arise more frequently without countermeasures, since both production and consumption profiles are characterized by a large synchronicity (e.g. PV panels, heat pumps and electric vehicles). The paradigm of the power system will shift from generation following demand, towards demand adapting itself to intermittent renewable generation, with the help of storage technologies and flexible demand (this is known as demand side response). With more flexible demand, the total cost of production and transport of electricity can be reduced, both by peak shaving (avoiding the use of expensive generation) as well as by an optimal use of the network capacities (avoiding grid congestion).

 

The biggest change will happen at distribution level, which is now the dumbest and will have to develop into the smartest. DSOs will also have to invest in order to automate the distribution system leading to more reliable and efficient operation. Efficiency will also come from solutions which aim to foster self and local consumption where distributed energy resources are located, in order to alleviate the stress on the distribution grid and decrease the power losses along the transmission grid.  Smart meters, which are the cornerstone of smart grids, will be read through an Automated Meter Management system (AMM) and information will also be sent to the customer (control or price signals).

 

[DISCLAIMER: if you decided that dedicating another 2 minutes of your life to smart grid was too much, you can start reading again from here ]

 

Image result for welcome to the future


This is all great. I’m sure that majority of the people within the InnoEnergy Community will say that this change is already happening.

 

But, aren’t we forgetting about something? Or even better, someone?

 

What about the end-user?

 

Risultati immagini per forget

 

Honebein et al., 2011, argue that the only aspects of the smart grid that can be truly smart are the people within it.

 

I never agreed more with a single sentence in a paper. Rephrasing, the empowerment and engagement of the consumer are the most crucial and fundamental drivers in order for smart grid projects to succeed.

 

This is also acknowledged by the Smart Grids Task Force: “the engagement and education of the consumer is a key task in the process as there will be fundamental changes to the energy retail market. [...] A lack of consumer confidence or choice in the new systems will result in a failure to capture all of the potential benefits of Smart Meters and Smart Grids”.

 

This concept is further examined also by Gangale et al., 2013, who argue that the two most critical aspects frequently encountered during consumer engagement projects in Europe are “lack of trust by consumers and uncertainties regarding the use of different motivational factors”. Further on, one of the key finding is that in order “to actually trigger behavioural change, energy providers need to build confidence and trust and leverage consumer motivations and values putting them at the center stage of their engagement strategies.”

 

Since blockchain is a technology able to build trust between peers and to empower them, it is very important to further examine the concept of trust related to consumer engagement. In the same study previously mentioned (Gangale et al., 2013), building trust between consumers is identified as the crucial step to overcome consumer resistance to new technical, regulatory and market solutions and to successfully engage them in energy related projects. Trust is therefore indicated as the main pre-requisite for consumers’ cooperation and goodwill.

 

Risultati immagini per blockchain trust

 

However, blockchain is at the same time a very new and premature technology, and as argued by Krishnamurti et al., 2012, when people know little about a technology, as it is clearly the case with blockchain and partially with smart grids, acceptance is low and may mostly depend on trust in the actors responsible for the technology.

 

Therefore, blockchain finds itself in the peculiar situation of being a technology able to solve the trust issue putting the consumers at the center of the stage, but at the same time, given its abstract nature and complexity, it is still surrounded by skepticism and low acceptance. The creation of the Enterprise Ethereum Alliance and the Energy Web Foundation with the involvement of large and well-recognized corporations aims exactly to help solving this issue, but also, initiatives like the virtual cat smart contract can represent a cool way for beginners to interact with the Ethereum blockchain and break the complexity and skepticism barrier (mystery unveiled, but please click on the link, you will not regret it ).

 

 

Once the acceptance issue will be overcome and blockchain will reach a very user-friendly usability, blockchain together with IoT devices, might become the backbone of the future smart grids enabling both consumer trust and empowerment.

 

In the next blog posts, we will discuss in more detail why and how blockchain can achieve user empowerment - introducing the so-called user agency - and how this could eventually lead to the foundation of an energy democracy. Stay tuned! 


 

With a current rise in the popularity (and price) of cryptocurrencies, significantly grows also the energy needs to sustain this new game-changing technology. At the time of writing it is estimated (source) that both of the leading public blockchains Bitcoin and Ethereum are using an amount of energy equivalent to the consumption of a big country like Hungary.

 

 

This is a massive problem which popped out often during recent blockchain conversations, ultimately questioning the usefulness of the technology. The problem of blockchain energy inefficiency lays at the core of the blockchain technology - consensus algorithm. It defines how the transactions are validated and finally packed into blocks.

Both Bitcoin and Ethereum are using so-called Proof-of-Work (PoW) consensus algorithm. This process involves solving a very computationally expensive riddle that attracts everyone (miners) to race for the price (a few bitcoins or ethers) which is automatically issued to "lucky" one that solves the riddle. This was the initial idea of securing the blockchain network provided by Satoshi Nakamoto, mysterious inventor of Bitcoin (and blockchain technology).

 

However today's blockchain technology  Proof-of-Work, there are many other consensus protocols that are widely used, mainly for permissioned (private) blockchains. This type of blockchains are often implemented across industries or governments and are usually not subject to energy inefficiency of public ones, due to different underlying consensus protocols.

For public blockchain's PoW still remains the most widely used solution, mainly due to its inherent security, however, the status quo in this field is about to change... sooner than expected.   


Ethereum is finishing their implementation of Proof-of-Stake consensus algorithm (called Casper) where the validators will be randomly assigned based on their deposit (stake). In order to secure the network, there will no longer be a need for massive amounts of computational power and at the same time massive amounts of energy. Normal laptop with some cryptocurrency deposited in a smart contract will be equivalent to today's giant mining farm, effectively making current energy issue non-existent. Public Ethereum blockchain will gradually move towards such new way of securing the network perhaps as early as later this year (source).

As we said in the conclusion of the last blog post, over the last year and a half, blockchain has flooded the news trends and R&D departments of every single industry. Let’s just simply take a look to some news headlines.

 

  • Monaco launches a new Ethereum and Bitcoin Debit Card based on the VISA circuit” [source]
  • From Bitcoin to puke-tracking: Walmart uses blockchain to monitor food” [source]
  • Walt Disney Company Goes Big On Blockchain With Dragonchain” [source]
  • Estonia to protect patient records with Guardtime blockchain technology”[source]
  • Corporate support for the Enterprise Ethereum Alliance (EEA) is growing after 86 firms including Microsoft, Intel, State Street, Toyota, Merck, ING, Broadridge and Rabobank joined the collective” [source]
  • “RWE Germany’s Energy Giant Launches 100s of Ethereum Based Electric Cars Charging Stations” [source]

 

So, blockchain has started to grab large attention in other industries rather than finance at the same time as the power industry is facing a different transition, the Energiewende. In this context, many industry players and some researchers have started exploring whether blockchain may one day replace a portion of utilities’ businesses by replacing intermediaries and offer a reliable, low-cost way for financial or operational transactions.

 


 

However, as argued by James Basden and Michael Cottrell ["How Utilities Are Using Blockchain to Modernize the Grid], this view is too extreme and simplistic. What they state it is more likely to happen is that “blockchain will become part of the answer to updating and improving centralized, legacy systems with a distributed hybrid system made up of a patchwork of both large power plants and microgrids powered by distributed energy resources such as solar power. Such a decentralized energy system would be capable of delivering efficient, reliable, and, in many cases, renewable energy.”

 

So now we will present some studies that can be found in literature and the most prominent projects in the private sector to better understand the current state of the art of blockchain applications in the energy sector.

 

LITERATURE

 

Mihaylov et al., 2014 ["NRGcoin: Virtual Currency for Trading of Renewable Energy in Smart Grids"] and Mihaylov et al., 2016 [“Smart Grid Demonstration Platform for Renewable Energy Exchange"] propose the novel concept of NRGCoin, “a mechanism for trading of locally produced renewable energy that does not rely on an energy market or matching of orders ahead of time”. In the proposed model, energy generated by prosumers is continuously fed into the grid and payment (in NRGcoins) is based on actual usage by the other participants of the market as consumption is measured by the DSO and billed in near real-time. This approach aims to incentivize self-consumption and limit grid injection which could stress the distribution grid. The value of 1 NRGcoin is bound to the value of 1 kWh in EUR cents. They can be kept and used later in time to buy equivalent amount of renewable energy or can be traded for fiat currency on a currency exchange market by prosumers/consumers, whichever is more profitable.

 

Tanaka et al., 2017 [“Blockchain-based electricity t rading with Digitalgrid router”] propose to use Blockchain-based electricity trading system with Digitalgrid router, a back-to-back bi-directional digital inverter with software-based control, as an underlying platform to realize a decentralized power exchange transaction with secured and cost conscious system.

 

Finally Imbault at al., 2017 [“The green blockchain: Managing decentralized energy production and consumption”] explore the implementation of blockchain technology on an Industrial operating system (Predix) for a use case of green certificates and they demonstrate its application within an eco-district. As the other researchers, Imbault at al., 2017 conclude the following: “Blockchain is a promising technology for a trusted measurement and monitoring of energy related assets, […]. Much research remains to be done both on the theoretical foundations of the blockchain and on the relevant business applications for energy management. More experimental settings are needed to fully envision how the direct use of real-time measurement data from “Internet of Things” sensors or from other embedded instrumentation can be achieved.

 

PRIVATE SECTOR

 

Risultati immagini per germany flag In Germany, the subsidiary company of the utility RWE, Innogy is extremely active in the sector of blockchain and e-mobility. It has deployed 100 Ethereum Based Electric Cars Charging Stations with the aim of creating a fully automated, worldwide authentication, EVs (electric vehicles) charging and billing solution with no middleman [26]. Innogy has also launched the startup Share&Charge, which provides a central registration platform for electric car owners and charging station operators and they are currently running a pilot testing car eWallets to see if blockchain technology can authenticate and manage the billing process for autonomous electric-vehicle charging stations.

 

Risultati immagini per netherlands flag TenneT, Sonnen, Vandebron and IBM are developing a blockchain-based solution for managing the electricity grid (video) in the Netherlands and Germany, investigating the use of a permissioned blockchain network that uses Hyperledger Fabric to integrate flexible capacity supplied by electric cars and household batteries into the electrical grid [27]. Similarly, the British company Electron is building a blockchain-based flexibility trading platform.

 

Risultati immagini per austria flag In Austria, Wien Energie together with BTL and EY, are taking part in a blockchain trial focused on energy trading based on the existing Interbit platform [source].

Also, the Austrian startup Grid Singularity, co-founded by Gavin Wood (Ethereum CTO and co-founder), is using Ethereum to develop a decentralized energy exchange platform that can host applications ranging from validating electricity trades to monitoring grid equipment.

 

Risultati immagini per united states flagGrid+, a start-up supported by ConsenSys and based on the experience of previous Ethereum-enabled smart grid pilot projects TransactiveGrid and Co-Tricity, has built a platform that uses the Ethereum blockchain to give consumers direct access to wholesale energy markets, responding intelligently to changes in energy prices, in order to decrease consumers’ costs while increasing consumption form renewable energy sources and efficiency.

 

Risultati immagini per australia flagWith the same objective of revolutionizing the retailing sector, the Australian company PowerLedger is creating a peer-to-peer energy trading platform which ,gives retailers the ability to empower consumers (or in an unregulated environment, the consumers themselves) to simply trade electricity with one another and receive payment in real-time from an automated and trust-less reconciliation and settlement system

 

Finally, the last example we want to give of the traction that blockchain is currently having in the energy sectore, is the Energy Web Foundation, a global no-profit organization involving nearly all the big players of the energy industry (and not only) focused on accelerating blockchain technology across the energy sector.

 

In conclusion, despite the traction and the large attention dedicated to it by large companies, as also argued by James Basden and Michael Cottrell  ["How Utilities Are Using Blockchain to Modernize the Gridand by Imbault at al., 2017, blockchain remains a largely unproven technology, and significant barriers remain. Governments and regulators will need more highly developed use cases in order to be convinced to back and adopt this new technology and common industry standards will also need to be established.

 

The challenges are many, but the disruptive potential could be a game changer for the industry. We are definitely on the right track to find out soon. Immagine correlata

#_ftnref3#_ftnref5

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Welcome back to our 360° blog regarding Blockchain, its history, present and future. Summarizing what we discussed so far, Blockchain is “a vast, globally distributed ledger running on millions of devices, it is capable of recording anything of value. Money, equities, bonds, titles, deeds, contracts, and virtually all other kinds of assets can be moved and stored securely, privately, and from peer to peer, because trust is established not by powerful intermediaries like banks and governments, but by network consensus, cryptography, collaboration, and clever code.”  (source)

 

As we discussed in the last post, the disruption enabled by Blockchain, started first in the financial sector (“How Blockchain is changing finance” by Alex and Don Tapscott). The Spanish bank Santander estimated that using blockchain as backbone of their banking infrastructure, they could reduce frictions and costs achieving potential savings of around $20 billion a year (source). The consultancy firm Capgemini calculated that consumers could save up to $16 billion in banking and insurance fees each year through blockchain-based applications (source).

 

Resultado de imagem para Scrooge McDuck

 

Given its potential, blockchain applications soon expanded to other sectors. As of today, we can count hundreds of public blockchains that amount to a total market cap of almost $100 billion, excluding many more private blockchain installations. The World Economic Forum is even going as far to predict that 10 percent of the global GDP will be stored on the blockchain in less than 10 years. Currently, according to today’s global GDP, the number would be $7.8 trillion. (source: Global Agenda Council on the Future of Software & Society, “Deep Shift: Technology Tipping Points and Societal Impact,” World Economic Forum, 2015)

 

Resultado de imagem para digital money

 

So, as it is argued by Dr. Julian Hosp (co-founder and CVO of TenX), “here a challenge arises: If we, as a community, do not find a way to connect blockchains, these $7.8 trillion will be dispersed in such a way that its true value is a lot lower.” 

 

The solution lies in the same transition that happened before the invention of the TCP/IP protocol, when the Internet was dispersed in many intranets (local networks). The revolution happened when the future-to-be internet dropped the requirements allowing almost any intranet to join gaining access to almost the entire world over the following years. Something similar is foreseen to happen for blockchain in order to ultimately increase its scalability. Many projects are already in advanced phase to achieve such consensus network (InterLedger, Cosmos and Polkadot) whose aim is to create the so-called “Internets of Blockchain”.

 

Imagem relacionada

 

Apart from the fancy names, the main takeaway is that Blockchain technology is just at the early stage and it keeps evolving. New consensus protocols (such as Proof of Stake) and novel scalability solutions like state channels or Sharding are already being implemented, together with many other innovations (i.e. zk-SNARKs for privacy) that will emerge in this novel technology sector that is moving at an incredibly fast pace.

 

Whether Blockchain 3.0 will mean Internet of Blockchains or new broad-purpose protocols, it is clear that many industries besides FinTech are looking at how their future will be with Blockchain, including the energy sector, as we will discuss in the next post coming up next week. Stay tuned!

 

Grzegorz Bytniewski

Blockchain 2.0

Posted by Grzegorz Bytniewski Partner 04-Oct-2017

In the last blog post, we finished by saying that after the release of Bitcoin, researchers’ and programmer’s attention started rapidly to shift towards the implications of the underlying blockchain technology rather than Bitcoin itself, with the objective of adding [i] complex programs and executables and [ii] complex non-financial records to the blockchain distributed database.

 

The results of these studies coined the term Blockchain 2.0. One of the most prominent examples is the platform Ethereum, which enables the user to benefit from blockchain’s newly (at that time - 2012) added possibilities and to create and interact with smart contracts through the Ethereum platform. Ethereum is a public blockchain-based distributed computing platform that runs smart contracts and it provides a decentralized virtual machine, the Ethereum Virtual Machine (EVM). The main characteristics of the Ethereum virtual machine (EVM) are the following:

  • It is computationally “Turing” complete. This means, drastically simplifying, that Bitcoin VM can host simple decentralized applications (only calculator-like functionalities), while EVM can run all kinds of (D)Apps (like the difference between a calculator and a smartphone).
  • It has the ability to run any coin/token (cryptocurrency), protocol or blockchain (you can create your own customized blockchain based on Ethereum protocols).
  • It executes peer to peer “contracts” using a cryptocurrency called ETHER (Ξ).

 

Smart contracts are applications that, by using the inherent possibilities offered by blockchain, run exactly as programmed without any possibility of downtime, censorship, fraud or third-party interference, the so-called DApps working on blockchain. Arbitrarily complex decentralized apps in Ethereum can be built by non-specialist programmers entirely within the full security of the protocol. This enables developers to create markets, store registries of debts or promises, move funds in accordance with instructions given in the past (like a will or a future contract) and many other things that have not been invented yet, all without a middle man or counterparty risk.

 

Denis Gorbachev stated in the document “What is Ethereum?” that “Ethereum, like any advanced system, will mean different things to different people”, so it is worth to explain what Ethereum practically is and what it could do in real-life.

 

EVM as A World Computer

 

In a technical sense, Ethereum is a "world computer", a single computer that the whole world can use. It has only a single processor, but as much memory as required. Anybody can upload programs to the Ethereum World Computer and anybody can request to execute a program that has been uploaded. This does not mean that anyone can ask any program to do anything; for example, the authors of the program can specify that requests from anyone but themselves are ignored. In addition, every program has its own permanent storage that persists between executions. Furthermore, as long as it is in demand, the Ethereum World Computer will always be there: it cannot be shut down or turned off. Ethereum World Computer’s main advantage is that it makes certain tasks cheaper and easier to execute. In order to better understand this statement, we will proceed further to the next point presented by Gorbachev.

 

EVM as an Internet Service Platform

 

Ethereum is an internet service platform for guaranteed computation that provides the following set of features:

  • User authentication, via seamless integration of cryptographic signatures.
  • Fully customizable payment logic: easily create a proprietary payment system without any reliance on third parties.
  • 100% DDoS (Distributed Denial of Service) resistant up-time, guaranteed by being a fully decentralized blockchain-based platform.
  • Interoperability: everything in the Ethereum ecosystem can trivially interact with everything else, from reputation to custom currencies.
  • Server free zone: DApps can be deployed on the blockchain without the need for setting up or maintaining servers.

 

Gorbachev argues the following “Over the last twenty years in particular, we have seen an acceleration in the development of services and infrastructure to make the overhead of working as a team or running businesses simpler and less expensive, mainly thanks to the internet. The likes of eBay, Drivy and Airbnb have made setting up a shop, car rental company or hotel much easier. These are platforms that allow people to realize their idea quickly, as long as the service they want to provide fits the template offered by the platform.” Therefore Ethereum can be seen as a platform for platforms because it enables people to create the infrastructure to easily set up new services on the internet. In addition, any DApp or infrastructure created on Ethereum sits next to other developers’ DApps and can interact with them in a guaranteed and seamless manner. Finally, since there is not a company or indeed any entity in charge of or controlling Ethereum, the cost of running the infrastructure does not include any profit margin, so it is likely to see lower costs.

 

EVM as Opt-in Social Contracts

 

Ethereum enables the creation of smart organization, in the sense of groups of entities working together for a particular cause. In the simplest scenario, we have two people working together to achieve a trade, but ultimately, Ethereum could be used to sustain a country’s health records, like it is happening in Estonia, or the decentralized smart grid of the future.

 

We believe that Ethereum was the key to unlock the true disruptive potential of Blockchain and it is paving the way towards the next Blockchain revolution: Internet of Blockchains and new consensus protocols. Stay tuned for the next post!

 

INTRO

 

Over the next few weeks, Grzegorz Bytniewski and I (Simone Accornero) will be posting blog posts regarding blockchain, following its evolution from its birth in 2008, through the rise of Ethereum until what is expected to come in the upcoming years. We will discuss Ethereum and Fabric, smart contracts,  blockchain's Gartner Cycle, public vs. private vs. hybrid blockchains,  the evolution of the consensus protocols (proof-of-work, proof-of-stake, proof-of-authority), the so-called Internet of Blockchains and much more. Stay tuned!

 

BLOCKCHAIN 1.0

 

The history of Blockchain begins when the mysterious creator of Bitcoin, Satoshi Nakamoto published in 2008 his/hers/theirs paper titled: “Bitcoin: A Peer-to-Peer Electronic Cash System”.  According to the author(s), the paper was made for the purpose of providing the “solution to the double spending problem using peer-to-peer network”.

 

The double spending problem exists in a situation in which we would like to transfer to someone else some goods, for example digital money (like in classic online banking) or concert tickets. If we would have done it directly (peer-to-peer), we could issue the money or the tickets more than once by simply copying them and spending them more than once. This is why we need trusted third party like banks that prevents this kind of practice, but this comes with obvious costs and various limitations. (In the concert tickets case, the double spending is still a problem).

 

Classical solutions for double spending problem (source: Magister Advisors - Blockchain & Bitcoin in 2016 - A Survey Of Global Leaders)

 

A few months after the publication, in 2009, the first decentralized money (cryptocurrency) was created – Bitcoin was born. From that time on, it is becoming widely accepted in more and more places like e-commerce platforms, universities, airlines, charities, ordinary merchants and so on.

 

"Bitcoin Accepted Here" map (source: coinmap.org access:29/11/2016)


That day in 2009, not only the first cryptocurrency was born, but also the first ever genesis block (the first block of a blockchain) was created. In fact, many experts argue that the most important part of the Bitcoin experiment was the underlying blockchain technology as a tool of distributed consensus.

 

It is relatively hard to accurately and at the same time plainly define what blockchain is. As a starting point, we will present to the reader one of the generic explanations given by Swan in her book “Blockchain: Blueprint for a new technology”. She defines blockchain as a distributed, digital transaction technology that allows for securely storing data and executing smart contracts in peer-to-peer networks. This gives a general idea of the purpose of this new technology, however it does not say much about how exactly it works.


Exploring more thorough and detailed definitions, Don and Alex Tapscott describe blockchain in their book "BLOCKCHAIN REVOLUTION: How the Technology Behind Bitcoin is Changing Money, Business, and the World" as a distributed database that contains a continuously growing list of data records, the so-called blocks. These blocks are time-stamped, shared, unalterable, and connected to preceding blocks; they contain data and programs, batches of individual transactions and executables. In the case of Bitcoin, blocks contain mainly transaction data.

 

Definition of the block (source: EY, BitCoin Basics: Doing Ordinary Things in Amazing Ways Paul Brody, Americas Technology Strategy Leader @pbrody Linkedin.com/in/pbrody December 2015).

 

Definition of the block chain (source: EY, BitCoin Basics: Doing Ordinary Things in Amazing Ways Paul Brody, Americas Technology Strategy Leader @pbrody Linkedin.com/in/pbrody December 2015)

 

Transactions are verified in short intervals by computers run by the network’s users (the so-called nodes). Nodes are distributed, public, and encrypted. If a hacker wants to modify some data, the whole Blockchain would have to be reconfigured at every node, a computationally and organizationally extremely difficult task.


This distributed database, also referred often as distributed ledger, is stored at every node. Nodes which maintain and verify the network are called miners. They are incentivized to do so by mathematically enforced economic incentives coded into the protocol.

 

Centralized vs. Distributed (source: FT research, adopted by Andrew Chesler)

 

The network enables the change from the traditional client-server architecture of the web into the peer-to-peer architecture of the new decentralized web in which every node is both client and server. This diffuses information silos and removes single points of control, vulnerability and failure.

Blockchain networks can be sustained thanks to the globally increasing computation power and storage capacity on mobile devices and personal computers that already exceeds by a few orders of magnitude the capabilities of commercial servers and services. Gartner, Inc. forecasts that 8.4 billion connected things will be in use worldwide at the end of 2017, up 31 percent from 2016, and will reach 20.4 billion by 2020.

 

Computation power and storage capacity chart (source: statista.com, adopted by EY)


Blockchain technology is potentially disruptive, as trusted intermediaries could become obsolete. Banks and, more generally, the financial sector were the first ones to become aware of the technology via the cryptocurrency Bitcoin (which, as we explained above, operates on the basis of Blockchain). Bitcoin implemented the use case of decentralized money, however researchers’ and programmer’s attention (in particular Vitalik Buterin's as he writes in Ethereum White Paper) started rapidly to shift towards the implications of blockchain which they believed could have been far more profound.

 

They started investigating the possibility of adding [i] complex programs and executables and [ii] complex non-financial records to the blockchain distributed database. The first would create a whole new business logic behind Blockchain, enabling the so-called “smart contracts”, while the second would enable businesses to apply this technology to other digital applications beyond Fintech in areas such as governance, health (records), energy, science, literacy, culture and art.

 

This is how Blockchain 2.0 was born and this is where the true potential lies. Stay tuned for the next blog post about Blockchain 2.0!!!