Three key innovations of Blockchain – namely Consensus, Smart Contract and Distributed Ledger are the basis for the new computing paradigm that provides a game changing opportunity. First, a Distributed Ledger is a “distributed” database that is resident across all participating nodes. This distribution of databases or ledgers is unlike conventional replicated database systems, because in a Blockchain based application each node performs independent verification of each transaction prior to accepting the data. Hence each copy of this distributed ledger is independently verified and validated copy of data. This process provides autonomy to each node while operating within the controls established by all participants. This governance model ensure that each node even while working independently, must also produce the same results. This guarantees that each node, although independent, works within the rules established by the collective thereby guaranteeing that a single node cannot monopolize the data even while working independently. Second, a Smart Contract – which is the business logic for the application, is replicated across each node allowing each node to operate on the data – again independently. This means that operations on the data are decentralized as the control is no longer resident with a single node or with a single company. Third, Consensus, a key innovation of Blockchain is the process via which, an actor such as a Data mining company, validates the data based upon the business logic and creates valid and trustworthy blocks of data. Each block of data may have one or more transactions. Once a block is created, it is chained with a previous block. Over time, each block is part of a long chain of connected blocks and a Blockchain emerges. It is important to mention that the actor who is responsible for Consensus building i.e. one who creates a block, is nominated and selected based upon a decentralized control model as well. In traditional computing paradigm, the actor who controls the business logic and operates on the data, is the company that holds the data such as the airline, the retailer, or the insurance company etc. With Blockchain, the actor may be (though not necessarily) an external organization that is democratically selected via a Consensus driven processes known as Proof of Work, Proof of Stake, Proof of Authority and few other techniques. A Consensus driven process results in identification of a leader who is then nominated to act as the creator of a Block. The creator of the Block associates its private signature (private key) to the Block thereby eliminating the possibility for any one else to alter the data (intentionally or unintentionally). Once created, the Block is immutable. This immutability is a key attribute of Blockchain that establishes verifiable trust through traceability. It is important to note that a Blockchain can be a private blockchain or a public blockchain. A public blockchain is open to any qualified party and the consensus is typically offered with the consensus protocol commonly known as “Proof of Work”. In a private Blockchain, the consensus is established via a smaller subset of Consensus builders commonly known as “Proof of Stake” and “Proof of Authority”. The Private Blockchain is a good way for Power companies to embrace Blockchain as it provides more control to Utilities, consumes less electricity and does not allow open access to any party.
Today’s Information Technology is based upon a simple paradigm where a company or an organization controls operation of a computer application. As shown in Figure 1, any organization such as a bank, an Insurance company, a retailer, an airline, a telecom company, a social media company or any company that uses computer systems, is responsible for running the application and managing its data. This company is solely responsible for operating this application as its control is centralized with the company, and the company has exclusive responsibility of the application and its data. With Blockchain, the paradigm changes. Rather than a single company being responsible for the control or functioning of the application and its data, the responsibility is split between two or more companies or nodes – this is by design. This “decentralization” when combined with a “democratize” approach to executing business logic on the data is the real game changer. Unlike traditional computing paradigms, Blockchain provides a new approach for computer applications where decentralization and democratization are at the core of its functioning. These fundamental changes can empower customers unlike ever before, facilitate new transactions economically, enable unprecedented cyber-security capability and deliver trust guarantee for all participants.
Blockchain Technology launched after the financial crisis of 2007-08, broke into public consciousness in 2012-13 with its iconic application – Bitcoin, a cryptocurrency whose jaw-dropping rise both puzzled and intrigued the general population. Ardent support led to its fierce but volatile rise. Since its inception, this esoteric cryptocurrency continues to reshape the global financial markets. Blockchain, the less-understood albeit foundational technology powering Bitcoin, is the real technological game changer, an innovation in some ways as radical as the Internet itself. It provides an opportunity to reshape the Digital economy, empower consumers and secure the digital world. This paper addresses the importance of Blockchain technology and its application in the Energy industry – especially how ISOs can use Blockchain technology to solve some of the ISO challenges and opportunities.
Blockchain technology is more than just ‘Bitcoin’. While Bitcoin is an ‘application’ that is ‘visible’ to end consumers, the underlying and ‘invisible’ technology that drives this application is called Blockchain that is also known by another name – Distributed Ledger Technology or DLT. Simply put, it is the next generation of distributed computing technology that can serve as a new computing platform to implement ‘distributed’ solutions. Distributed computing technologies have been around since the eighties and have been well known to IT practitioners in the field. A few major distributed computing technologies more widely known with their acronyms in the IT field are: OSF DCE, CORBA, J2EE, .NET and SOA. In fact, a majority of computing application and clouds in existence today are based upon at least one of the distributed computing platforms identified above. This paper identifies use cases that do not require or depend on any crypto currency such as Bitcoin or Ethereum. This paper addresses non-crypto use cases that are more germane to the ISOs business models to provide wholesale market functions and grid reliability.
So why is Blockchain so different? Because, Blockchain offers the next generation of ‘built-in’ distributed computing features such as consensus, immutability, provenance/tracking, cryptography, smart contracts etc. that are well suited for today’s not just distributed systems but decentralized digital systems as well. Blockchain takes it one more step further by injecting the capability to design democratized systems. The distributed, decentralization and democratization attributes of the Blockchain architecture are coincidentally very well aligned with the transformation of the energy industry. Although public blockchains may be too slow for real-time transactions, private or consortium blockchains are apt for next generation of solutions for the energy industry.