There has been an introduction of a wide range of technologies, terming themselves as Blockchains today, making the definition of Blockchain difficult. Cryptocurrency’s blockchains are different from private commercial applications, for example, blockchains developed by the Linux Foundation, IBM etc. Irrespective of the said differences, these technologies share several important characteristics that make a working definition.
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Applying Blockchain to Transactive Energy
1. A P P L Y I N G
B L O C K C H A I N T O
T R A N S A C T I V E
E N E R G Y
N O V . 2 0 1 9
B L A C K C H A I N .
G U R U
2. B L A C K C H A I N .
G U R U
Architecture
There has been an introduction of a wide range
of technologies, terming themselves as
Blockchains today, making the definition of
Blockchain difficult. Cryptocurrency’s
blockchains are different from private
commercial applications, for example,
blockchains developed by the Linux Foundation,
IBM etc. Irrespective of the said differences,
these technologies share several important
characteristics that make a working definition.
Each blockchain is made up of peers
(computational nodes), initiated by participants,
and each of the parties (participants) own a copy
of the transaction ledger. Blockchains are
broadly categorized as permissioned or
permissionless based on whether those
computational nodes are on equal footing,
primarily with regard to the access they have,
like reading, writing or
validating the shared transaction ledger. Cryptos
such as Bitcoin and Ethereum come under
Permissionless blockchains as these
cryptos grant all the nodes equal right to perform
the said above tasks. On the other hand,
Permissioned blockchains or private blockchains
limits the data access or the reading, writing or
validating privileges of peers on participant identity
or role.
Definition
Transactions and Smart
Contracts
Transactions on the distributed ledger mostly
represent the transfer of a digital token or currency
from one point to another or simple said – from one
set of participants to another. Transactions are not
said to be valid until any blockchain account that is
party to them, cryptographically signs it. This process
requires access to that account’s secret key and this
cannot be faked.
Once the transaction is submitted to the network,
these transactions are then embedded into blocks,
so that the nodes or peers can validate it and add it
to the ledger, each block is related or referred to the
previous one, resulting in eponymous blockchain.
Apart from sending tokens or transferring
cryptocurrencies, transactions cam also trigger
Smart Contracts : collections of algorithm
3. B L A C K C H A I N .
G U R U
Architecture
that maintain internal data about the nodes
(peers) and their devices. For instance,
it is possible for a smart contract to store a
number of kilowatt hours (kWh) of energy
produced by a solar array, and expose one
function for a smart meter to increment the
value and another for the utility to read the
value. Traditionally, blockchains have smart
contracts stored in them, inside special types of
transactions, allow the participating nodes or
peer to inspect them. Smart contracts do not
have any legal meaning, even if the name has
‘contracts’. These are just applications that are
blockchain-specific.
these peer’s versions of shared ledger may not
match or disagree moment to moment. A consensus
protocol is there to reconcile these differences
which is designed to overcome mistakes,
manipulation and legitimate disagreements. It is the
consensus protocol that determines about the on-
going adding of the block in the blockchain, and
which peers are assigned to validate that block. This
process is known as forging, or mining, the block,
and can reward the owner of the peer, in addition to
transaction fees offered by each transaction
included in the block. All these rewards are decided,
validated and paid automatically by the blockchain
itself.
PoW protocol – Proof of Work, is utilized by Bitcoin
and Ethereum, the two largest public blockchains.
Any peer has the permission to mine a block at any
time by just solving a cryptographic math problem
based on the ‘difficulty’ level of that block. It is not a
traditional mining process and hence the term
‘mining’ means a lengthy, repetitive calculations
required by design to solve this problem. There is a
strict competition in the protocol, meaning, each
peer is racing against time to solve the
mathematical problem first, because the protocol
specifies that longer chains are “more valid” than
shorter
Peer Consensus
In any blockchain, the peer nodes operations are
free and independent of each other. Peers receive
transactions that are added/proposed on the
network by the other nodes/peers, and new
transactions submitted by participants, not yet
added to a block, they share them with other peers
in order to ensure that all are working with the same
information. Depending on the latency in the
communication to the blockchain,
4. B L A C K C H A I N .
G U R U
Architecture
Associated carbon emissions and the enormous
energy consumption required for Pow (the
computational activity requires electricity) have
been well documented. There are some
consensus activities that are less energy
intensive, such as PoS - Proof of Stake & PoA -
Proof of Authority, in which which the peers
have to stake some portion of their holdings of
cryptocurrency or their network reputation, in
order to forge a block, and lose that portion if
their proposed blocks are not accepted. These
are the notable alternative of PoW, as they both
share the validation characteristics and the self-
interest of the validators in pursuing those
incentives. All assurances of ledger integrity is
lost if a majority of peers fail to follow these
incentives for any reason. This phenomenon will
be known as 51% attack, in which one or more
validators that are working together
representing a majority of the computing power
in the network attempt to hijack the blockchain.
The potential hijackers spend a considerably
good amount of their wealth on the main
blockchain, in order to purchase physical goods
or services. And then they use their validation
influence to suggest the network that the
transactions never took place,
this is done by promoting an alternative chain. If
anybody want to perform a 51% attack on a major
PoW blockchain network would mean that they will
have to rent the necessary resources that will be very
expensive, but still can be done. If any PoW
blockchain, that has less nodes, Is more exposed to
attacks like these as for hijackers its less expensive.
5. B L A C K C H A I N .
G U R U
Architecture
The other properties of a true blockchain is
Immutability and Transparency. Immutability of
the transaction ledger - and its transparency
for validators. Immutability is important to make
sure that the state of the ledger is well fined and
presence of efficient validation – consensus is
present. Transparency is a precondition for
validation itself since unless a
peer can inspect a transaction and its effect on
the ledger, it cannot validate it.
These properties serves a unique purpose:
Responsibilities of managing a transaction
network from a single authority is distributed,
like commercial platform provider or financial
institution, to many. There are several
responsibilities that are performed by the peers
such as: the computation necessary to process
transactions and run applications (smart
contracts), hosting of staked collateral, and the
hosting of data. Smaller set of validator nodes
are distributed the responsibility of transaction
validation. Any costs associated are distributed
across the network,with these shared activities,
bared by the participants.
The Blockchain Ledger
and Distribution of Authority
The Blockchain Approach
Below is the illustration of how blockchain supports
the energy value chain from point of production to
downstream transactions.
In the example, John is a producer, seeking to
monetize his investment
in a rooftop solar array. He aims to achieve this on a
daily basis, with minimal involvement, there are few
energy enthusiasts with great vision for
future who consider it realistic for customers to
micromanage their energy asset investments, and
either negotiate grid services to a utility or day trade
energy. An artificial intelligence (AI)-enabled digital
assistant that is managing such transactions, seeking
only high-level guidance and permissions from the
customer. As a result, to procure day ahead energy
and adjust to real-time deviations from the forecast
with procurements from the real-time market,
6. the agent may forecast energy usage in the home. And the agent may earn additional by bidding the forecasted
excess capacity in the reserve market. Mr. John purchases ‘utility tokens’ from the blockchain network in the
beginning – it is the tokens that are required by the blockchain provider in order to give permission for platform
access, just like charging a rent.
For example, an Australian blockchain energy startup, known as PowerLedger, requires their users and energy
providers to buy their utility tokens known as ‘POWR’, which are then escrowed in exchange for Sparkz tokens, ,
which can be used to transact. Another startup – Brooklyn based known as LO3 Energy, requires its customers to
purchase their utility tokens known as XRG tokens and they must stake these tokens to a blockchain account or
smart meter in order to participate. The staking quantity is directly proportional to the reward a producers gets,
that means the more they stake, the more reward they will get.
A smart meter is used to measure and record John’s PV array producing power. Blockchain oracle then gets
accessed by a software client on the smart meter, connects to the blockchain over the internet or a home area
network and submits a transaction, registering the meter read. When validated and performed by the blockchain,
the transaction invokes a function on a smart contract, passing the oracle’s identity, the kWh value, and any other
attributes of the solar production as inputs. No matter how well designed and programmed a blockchain is, if the
oracle doesn’t pass the accurate physical information, then it means nothing. Hence, the oracle is thus a critical
part of the digital physical interface.
B L A C K C H A I N .
G U R U
John Bob Utility
kwh
T
Grid Service
T
kwh
Grid Data
kwh
Example blockchain transaction
flow, illustrating the value chain from
distributed power generation through
monetization.
Source: Ben Hertz-Shargel
7. B L A C K C H A I N .
G U R U
The Blockchain Approach ... contd
After the oracle’s identity is verified – smart
contract is the only external software permitted
to invoke it and hence credits John’s blockchain
account for the production. That involves either
minting tokens denominating energy and its
attributes, such as generator type and carbon
footprint, or transferring cryptocurrency equal to
their local market value. It is seen that most
presumptive blockchain platforms have their
own tokens in place:
Sparks is pegged to local fiat currency, offer by
PowerLedger. Another one is Grid+ offers BOLT,
this one is a stable currency that is pegged to
the US dollar. Energy Web Foundation (EWF) has
developed a blockchain known as Energy Web
Chain, is a non-profit consortium founded by
Rocky Mountain Institute and startup Grid
Singularity has introduced their own utility
token but on the other hands has shown green
signal to other application developers to use
their own utility tokens for transactions and also
use their own energy.
Assuming John is credited with tokenized
energy production, he or his software agent is
free to monetize it in the transactive market.
For instance, his agent may sell the energy or its
attributes (for example, credits for being low carbon)
to Bob’s agent in exchange for cryptocurrency.
The agent may also sell more complex energy
products and services, such as day-ahead energy
forward contracts or real-time voltage support, to
the utility. Verification of energy services may require
additional technical data, such as voltage and power
quality, which would be captured by her smart
meter. This data could be tokenized along with her
energy, which is LO3’s approach, or
automatically sent to the smart contract governing
the service. Compensation would follow only if the
physical data is consistent with the service
performance requirements, according to the smart
contract’s measurement and verification rules.
Notably, blockchain solutions for transactive energy
do not need to address an entire electric distribution
system. Privacy-preserving Energy Transactions, or
PETra, for example, is a decentralized control
framework for transactive energy on microgrids,
developed by Vanderbilt University and Siemens.
8. B L A C K C H A I N .
G U R U
Still there are several unpopular options that may represent energy data on the blockchain.
Tokenization – For each unit of energy produced, a unique digital token is minted. This token is then credited
to the producer’s blockchain account and is now available to be exchanged (buy or sell). This unique token
may have the attributes of energy, like carbon emissions, generation type and power quality. Still, these
attributes can be individually tokenized. However, it would require a smart contract to implement each type of
token. Creation of token, ownership, transfer and settlement can be managed by a smart contract.
It is possible that the energy data may still be embedded into the blockchain without the need of creating a
unique token. This can be done by maintained either in the state of a smart contract or in the body of a
submitted transaction. In either case, the data can be traded as it is not in any tradeable form, but as always
the data can be validated and stored by the blockchain. Energy data can also be hosted in an external
database off-chain, with only a small, cryptographic hash of the data stored on the blockchain. This hash
would enable validation of the externally hosted data without incurring blockchain storage cost and latency
but would not enable blockchain-based transactive energy applications to leverage the
underlying data.
All of these methods incur ongoing transaction costs, as the submission of data and its access via smart
contract are performed through blockchain transactions. Notably, however, the off-chain approach can
significantly reduce transaction costs, if hashes of entire datasets are submitted, rather than hashes of
individual data.
ENERGY DATA ON BLOCKCHAINS
9. Known as the youngest and most influential Blockchain expert in the field. She is
an Italian-American who first started out as a startupper in the AI and IT business,
while still finishing her Economics and Management studies in Bocconi. Eloisa is
a renowned author, public speaker, and biz-dev, catering startups and
companies wanting to innovate. Currently being the Chapter
Director of Bocconi University Startup Grind Chapter, she made valuable
connections and became a part of some of the main blockchain associations
around the world, namely The Blockchain Council and The NYC Women in
Blockchain. She will be featured in the Forbes Italy 30 Under 30 most influential
entrepreneurs in 2020.
Giovanni Casagrande
A known name in the world of cryptocurrency. He has been in the marketing
industry for well over 20 years and have switched to the cryptocurrency industry
in 2014. He’s a writer, public speaker, investor and Marketing / Growth Hacking
advisor in more than 100 successfully projects. His specialty was Economics in
the University of Bologna and the knowledge, experience gathered from there
has helped him to manage/help many businesses in the industry. 4 years ago he
founded Black Marketing Guru, a successfully Growth Hacking startup in Italy.
Giacomo Arcaro
He has 15 years’ experience in growth hacking, digital strategy, startup and
business development. He has advised over 150 startups and has 50 managed
employees into a XII Century Church in Italy for the European biggest growth
hacking company. He holds the title of ‘Amazon Best Seller Author’ and is been
known to be one of the ‘Most Influencial Blockchain Evangelist’ with +200
conferences all over the world.
Eloisa Marchesoni
'The Most Influential Fintech Advisor' 'European Best Growth Hacker'
'Number 1 ICO Advisor Worldwide
Award'
'An influential Personality in the
Blockchain Space'
'Number 1 token model architect for
ICOs'
'Top 100 Fintech Leaders and Influencers
in Italy'