Blockchains Part II: Why They Matter to Business

In my last post, I explained what blockchain was. Now, I’ll talk about what businesses can start to do with it.

We know that blockchain is a distributed ledger and that it is more secure and transparent than the trust model of managing and recording transactions. So how do we make the leap between “a better way to write down numbers” to something that is worthy of being (over)hyped?

Think of your bank account.  Are you thinking of it?  Wow, you have a lot in there.  Does the government know about all of that?  I mean, good for you.

Right, so your bank account.  You can transfer money to the accounts of your friends and family, and pay for groceries and your hydro bill without ever having to use cash – you can even set up autopayments to pay your monthly bills without lifting a finger.

Remember bitcoin from Part I? Bitcoin is a blockchain-based cryptocurrency (encrypted money), and Bitcoin accounts work with Bitcoin tokens like the way your existing bank account works with dollars.  All blockchain currencies have that transactional capability at their heart, with all the benefits we talked about in the last post (more secure, more transparent, faster, harder to defraud, etc.).

Now for the kicker: with regular banking, autopayments are crude tools that are prone to error – I happen to have been on the not-so-pleasant side of those errors, and maybe you have, too.  Blockchain, on the other hand, enables the use of self-enforcing payment agreements called “smart contracts”.  The terms, rules and conditions of a contract, instead of just living in a document which few people read, are defined and coded directly into the blockchain’s protocols.  That means that the contract enforces itself – payments are automatically rendered when conditions are met  – and the blockchain sees to it that all of it is transparent.

Now that alone would have big implications for electricity utilities – imagine dispensing with billing errors, and all the headaches they entail.  Here are three other blockchain applications for the electricity sector:

First, facilitating transactions between prosumers, consumers and utilities to buy and sell self-generated renewable power at market rates in real time.

Second, the ability to enable Internet of Things (IoT) deployment at the utility level.

And third, IoT deployment in the home.

Someone with solar panels on their roof that sells their excess power back to the grid are electricity consumers and producers, or “prosumers”.  Blockchain is already helping solar power prosumers manage their transactions in Brooklyn, NY, where several communities are piloting blockchain powered green-energy credit swapping programs to effectively subsidize their neighbours’ renewable energy projects.  Big U.S. utilities are taking notice as well, and are exploring how they can work within that paradigm.

Add smart contracts into the mix, and you could allow those prosumers to automatically handle power trading in real time without human intervention, enabling a much nimbler market response than feed-in tariffs would allow.  Price need not be the only factor on which to base a trade, such as if a person wants to trade with their neighbours first, before they go out to the larger grid.  Once you start to link neighbours and neighbourhoods together, there is really no predicting the potential impact of that kind of sharing economy for power.  It would be a fundamentally different business model to the one that currently exists, so utilities absolutely need to be involved in that conversation.

Second, and third: enabling the Internet of Things (IoT).  Most of us now own at least a few “smart” (wi-fi-enabled) devices.  At the moment, these are a bit gimmicky, but as more devices come online, their collective impact will increase.  They are not without their challenges, however.  Foremost among these are the security challenges: thus far thousands upon thousands of these connected devices have poor or even nonexistent security features.  In late 2016, a massive Distributed Denial of Service (DDoS) attack (the largest in history) was coordinated using a botnet of unsecured IoT-connected devices like DVRs and digital cameras  This attack targeted a large internet provider and resulted in much of the internet being unavailable for hours at a time.  Blockchain can help with security of these devices because it is fundamentally based on powerful encryption.  This could severely limit the ability to assemble a similar botnet in the future.

Another challenge is that the sheer numbers of internet-connected devices and objects is swelling; by 2020, Cisco Systems estimates that there will be over 50 billion connected IoT devices.  Managing the data created by all those devices in a traditional, centralized internet architecture is a staggering task, and centralized architecture also risks creating single points of failure.  Distributed, encrypted networks like blockchain could help mitigate those risks.

IoT devices truly come into their own not when you can get your phone to tell your smart light bulb to turn on “disco mode”, but when IoT devices begin to self-regulate.

For example, your smart washing machine knows when it is getting low on detergent.  On blockchain, that same washing machine could be allocated a budget for consumables and given responsibility for operating within that budget.  It would time wash cycles to coincide with variable electricity pricing, and watch Amazon.com for preferable pricing on its favorite detergent, ordering when its supplies get low or when it sees a good deal.  In a traditional centralized architecture, all of that (extremely) personal data that your devices will know about you – right down to the kinds of laundry cycles you run – would be collected and collated, right next to your SIN and credit card numbers, for the right kind of hacker to steal.

On a blockchain, all that data would stay anonymous and encrypted.  When a blockchain-enabled IoT device buys inputs, it wouldn’t need to supply anything more than the delivery address and payment.  When it pays its power bill, the utility wouldn’t need to know any more than how much is owed and that the payment has been settled.  There would be no personal user data sitting on a utility’s network, waiting to be stolen or compromised.

When I think about the applications of blockchain, sometimes I feel like I’ve gone back in time to 1991, explaining why we should care about the Internet.  Today, the internet is universal, it’s in everything, and there’s nothing it doesn’t “do”. At its core, the internet is a tool of information exchange. It’s an imperfect tool, but an extremely powerful one.  I see blockchain in the same way.  I think it has massive potential for widespread and powerful applications because at its core, it is about secure and transparent exchanges of information and value.  And what aspect of our lives would not be at best improved, or at least impacted, by greater security and confidence in those areas?