The common belief that blockchains possess a disruptive potential in numerous domains because of their decentralised nature (i.e., no single entity controls their operations) is misplaced. As a policy maker, how do you know if blockchain systems have disruptive potential in other areas beyond cryptocurrencies, health care, government, energy systems, manufacturing, retail, insurance, the Internet of things or the sharing economy? A definition of blockchain is a good start.
In simple terms, blockchain is a novel method for storing data across hundreds or thousands of computers as opposed to one centralised server. In technical terms, it is a distributed, decentralised, shared digital ledger that stores data in the form of blocks, and the data in each block is secured by cryptography. Data once stored in a blockchain cannot be modified or removed. The ‘oneway-ness of records being written,’ is akin to a double entry accounting ledger. You can’t remove records, only amend the totals with a new entry in the ledger.
Numerous high-tech companies, big and small, are closely watching the blockchain space analysing how this technology could affect existing or future operations. Buildings Evolved takes the view that Blockchain-based, database ledgers do not scale to meet the needs of energy markets at this time. Why is that? Simply put, Blockchain databases are incapable of processing large, or even moderate numbers of transactions in a timely manner. Why is database transaction speed important for the digital future of the energy sector? For any digital marketplace to thrive it will need the ability to process millions of transactions a second. In a future where real-time power generation, transmission, and supply from the grid to buildings or homes and back again occurs, database transaction speed is everything, as the volumes of data to process, will be nothing short of immense.
“The blockchain system throughput is measured in the number of TPS (transactions per second) a system can support. Bitcoin’s current average throughput of three TPS compares to 2,000 TPS average throughput in Visa’s centralized system, 4,000 TPS daily peak, and 56,000 TPS maximum capacity. Without scalability, cryptocurrency systems will hardly become mainstream, and blockchains are unlikely to realise their disruptive potential in any other area.” Source: https://queue.acm.org/detail.cfm?id=3319534
Ok, what about giving control to a handful of parties to control and scale a blockchain database? Well, small centralised systems scale very well by placing trust in a small subset of participants and passing them the control over the transactions included in the blockchains (e.g., Ripple and EOS).
However, this centralisation defeats the single most notable aspect of blockchains: the distribution and decentralisation of control over transactions. Worse, providing control over a blockchain’s transactions to a limited number of participants allows participants to collude, censor, and discriminate among users, nodes, and miners. If policies are created that foster misunderstood technologies or immature technologies we could set the path to the digitalisation of the energy system back years. In the UK the Government Digital Service uses a 10-point set of design principles to deliver on technology policies, and digital transformations successfully:
- Start with user needs
- Do less
- Design with data
- Do the hard work to make it simple
- Iterate. Then iterate again
- This is for everyone
- Understand context
- Build digital services, not websites
- Be consistent, not uniform
- Make things open: it makes things better
Blockchain technology as a solution, to energy participant users’ stories, through these design principles, is hard to see. What is a forward-thinking approach for energy technology policy? Work with mature, stable technologies, that meet real user needs for all the market participants in the grid to the buildings energy market. Buildings Evolved works with such systems delivering value to Government and large building portfolio owners throughout Australia and the UK. We are a technology agnostic strategy consultancy that believes that users should come first as technology is the enabler of value for users. Want to discuss energy policy or strategy further? Let’s chat.