With little fanfare, a new technology was invented in 2009 that is probably one of the most impressive of the century. A person known as Satoshi Nakamoto, the inventor of the Bitcoin whose name is quite possibly a pseudonym, was trying to resolve a very well-known problem concerning digital currencies. A digital currency is basically a digital code that is stored on a computer. How can we ensure that the same Bitcoin is not spent several times? The solution to the problem is simple, but also brilliant. Nakamoto proposed that all transactions should be public. If they are public, anybody can check whether a virtual coin has already been spent or not. To achieve this, Nakamoto came up with a system in which various transactions are put together in blocks and these blocks are written in a chain. In English, the chain of blocks is called a “blockchain”.
Once this problem had been resolved, another was encountered: how to ensure that only blocks with valid transactions could be written in a blockchain. The answer was again brilliant and simple. Nakamoto proposed that a network of totally decentralized computers was required. Using an algorithm that works like a lottery depending on computing power, only one computer (node) writes the block of the last transactions in the blockchain. The rest of the nodes accept or reject the block, according to the criterion that the chain can only contain valid blocks. The node that writes the block in the chain receives a reward in the form of digital currency. This proposal very elegantly resolves the problem of trust between actors who do not know each other.
The digital currency Bitcoin is now widely known. The way it functions is stable and it has not encountered any serious security problems. In fact, it has begun to be accepted in many places, and is taken as a basis for other digital currencies.
What impact will this technology have? Could it be used for other applications? The financial sector was the first to consider it. Initially, there was a lot of scepticism about this kind of currency, but the new technology has one major advantage: it is trustless. It does not require a centralized entity controlling the system. Financial companies have begun to apply this concept to validate transactions between each other.
The capacity to work without a centralized entity and to consult the blockchain is of great interest in other fields of application. The first non-financial application was the registration of web domain names. In this case, domains can be registered and conflicts prevented as the owner of the domain name is documented in the blockchain. This data is unalterable: hackers are unlikely to be able to change it.
Therefore, the most important characteristics of blockchains are the fact that data cannot be altered, and a central entity is not required.
There are many potential applications. One very important one is the registration and safe documentation of information so that it cannot subsequently be altered. This would be of great use for property registers, copyright, certificates, qualifications, etc.
The energy sector is also trying to make use of this technology. In recent years, energy has become an increasingly decentralized sector. The costs of photovoltaic and wind energy have dropped so dramatically that they are now competitive with other energy generating technologies. As renewable resources are spread out over the territory, generators are also distributed. Consequently, thousands of small generators provide energy at local level, through distribution networks. In response, a decentralized infrastructure has also been proposed, that would function on a plug-and-play basis and would be scalable. Blockchain technology could meet the requirements of such a system. By definition, blockchain is a decentralized protocol that collects data in a safe, unalterable way. As it is easy to install and start up a blockchain, the entry barrier for connecting new users would be very low.
There are many applications of blockchain in the energy sector. These range from transparent data collection and storage, transparent exchange of generation certificates, payment of electricity with digital currency, and the control of energy flows using a totally decentralized system based on blockchain.
The blockchain revolution has begun to change our lives. In the coming years, we will see numerous applications of this technology and its impact will be enormous. It will lead to a profound change in the structure of the energy sector. Times are changing.
Andreas Sumper is a digital energy analyst and lecturer and researcher at CITCEA UPC
Published at infoPLC++ on 16 March 2017