For the novices among us, how does blockchain work?
Blockchain is basically a digital register. For example, a company that wants to sell an item to a customer enters this into the register. The customer then confirms in the register that he or she has received the item. The register is stored simultaneously on many different servers. This protects the data from manipulation: any subsequent changes would have to be made on all the servers, which is considered virtually impossible. The name blockchain comes from the fact that the individual register entries—or data blocks—are gradually updated and chained together. Nothing is ever deleted in this process. Every record remains transparent to everyone involved. Blockchain provides a technological basis for trust between actors, trust that would normally require a central control authority, like a trading platform.
What are blockchain’s potential applications in the energy transition?
Tomorrow’s energy supply will be smaller-scale, more distributed, and more digital. For this to work efficiently and uncomplicatedly, the energy system itself must also become more distributed without a loss of trust and supply security. Blockchain can do this. For example, households can now generate energy and share it with their neighbors in process called peer-to-peer trading. A lot of startups are focusing on this business model. The aim is to automize billing, certification, and so forth. The same applies to electric-vehicle (EV) charging. People can make their charging station available to other EV owners and use blockchain to bill them directly. Blockchain also makes it possible to trace electricity’s origin and determine whether it really was produced sustainably. Many companies specialize in these services as well. Blockchain can also support the integration of virtual networks, another application where traceability and trust are important.
Traceability is important for international climate protection as well.
Yes, blockchain technology could be used to prevent carbon savings from being counted twice. It can also track money flows. If the EU wants to support conservation projects in a country with a high rate of corruption, for example, it could use blockchain to ensure that the money actually reaches the projects.
Blockchain makes it harder to falsify entries after the fact. But how does it ensure that the right data are uploaded in the first place?
This is indeed a crucial issue. The Internet of Things (IoT) will play a key role. In the energy industry, for example, smart meters are already ensuring that data are captured accurately. Such technologies make a big contribution to data quality. In other areas, it’s not so simple. To track forestry products, for instance, every step has to be recorded in the blockchain from the moment the tree is cut down. GPS tracking is part of this. But how can a buyer be certain that a producer has met social standards like working conditions? The IoT applications and control mechanisms for this still need to be developed.
Are there also legal and regulatory hurdles blockchain needs to overcome?
As I mentioned earlier, one of blockchain’s advantages is that it records all steps in a transaction. Under certain circumstances, however, that can conflict with data protection laws. Nevertheless, I’m very confident that blockchain applications can be built to ensure compliance with data protection. The regulation of blockchain applications is also an issue, for example in the financial sector. But it will soon be necessary in other sectors as well. In fact, it could become a major issue for the energy sector. The challenge will be to craft sensible regulation that promotes a reliable energy supply yet doesn’t impede innovation.
Blockchain sounds like a busy field.
Yes, everywhere. China is a pioneer in blockchain development. Germany, India, and Australia are among the many countries that have design a national blockchain strategy. Interestingly, these strategies no longer focus exclusively on finance – establishing frameworks for cryptocurrencies and digital central bank currencies, for example – but increasingly also on other use cases, such as identity management, land ownership management, and payment tracking. In energy, blockchain applications are used primarily with renewables. Energy companies across Asia are experimenting with it. Nevertheless, I believe Germany has a competitive advantage: its ongoing energy transition continually promotes the development of new solutions. Compared with other countries, Germany also has many more active players. Yes, there are such companies elsewhere as well, but Germany has uniquely diverse range of approaches and expertise. The networking between researchers and the energy industry is also better than elsewhere. So I’m confident that Germany is well positioned to offer technological solutions to the energy industry.
What impact will blockchain have on the energy industry? Will it still be a hot topic 20 years from now?
Blockchain is still in its infancy, which makes predictions difficult. But it’s developing so rapidly that in 20 years it will look very different. The future degree of networking will, in my opinion, no longer be able to be organized centrally. And that’s why building trust on a decentralized foundation will prevail and, over the long term, play an important role, especially in the energy transition.