Blockchain for SMEs: Energy Sector Prospective

Blockchain is a decentralised digital ledger that enables untrusted parties to run transactions and rest assured that their transactions are not going to be lost or modified by unauthorised parties [1]. Through the usage of specific cryptographic functions, blockchain provides security, immutability and transparency in data storage and exchange. Like the Internet, blockchain is transforming the world. SMEs are still learning about blockchain, but 55% of leaders consider it important [2].

Blockchain is sometimes known as a "trustless" network because involved companies (network members) don't have to trust each other. Blockchain's trust is realised using enhanced security, transparency, and traceability. To facilitate the transactions on the blockchain, specific digital contracts can be used to determine the conditions based on which the contract will be executed automatically [3]. These programs are called Smart Contracts; they will be stored on the blockchain and the agreement between the involved parties will be executed.

Full transparency is provided as all the transactions and data are identically and immutably recorded in multiple places at the same time. All people who have permission to use the network can see identical transactions and data at the same time [4]. Traceability is the capability of tracking and tracing information. The blockchain’s traceability feature enables people to see all the submitted requests/transactions and meet consumer needs for quality assurance.

Beyond trust, blockchain offers cost savings via enhanced speed, efficiency, and automation. This technology minimises paperwork and errors, transaction costs, and the requirement for third parties or middlemen to validate transactions [5]. Since documents and/or transaction data can be recorded on a blockchain, the need to physically trade traditional documents is eliminated. Also, there is no need to reconcile different ledgers, which helps the clearing and settlement process to occur significantly more quickly [6].

Finally, security is enhanced in blockchain-based applications by establishing immutable and end-to-end encrypted records which prevent fraud, malicious behaviour and data manipulation which are generally the main problems of centralised systems [8]. Also, adopting privacy-preserving techniques (such as anonymised data records, and cryptographic hash functions) and employing access permissions can help with users’ concerns about their privacy.

Due to its unique features, more and more businesses, such as banking, transport, healthcare, and the energy sector, are taking advantage of blockchain for different purposes, including data trading.

Considering the energy sector as a use case, nowadays, the Internet of Energy is facing several challenges. Some examples include cyber-attacks, trust management, access control, and customers’ concerns about their privacy when it comes to the adoption of smart meters. Usage of third-party cloud services for energy data management has also raised several challenges regarding the security and privacy of the stored data on the cloud, and the reliance of the energy companies on the cloud service providers to take care of their data [7].

Blockchain could offer data integrity and confidentiality via its immutability feature to address some of these concerns. Several major technology companies, such as Siemens and IBM have developed blockchain-based applications for the energy sector. Some examples include the carbon tracking platform in China’s emissions-trading system and a project with the European power system operator, Tennet, to balance supply and demand for high-voltage grids [8]. Some research studies have also suggested the usage of blockchain for peer-to-peer (P2P) energy trading due to its transparency and traceability features [9]. P2P trading can be considered a key enabler for the renewable energy market, which is the future of the energy sector. Blockchain could play an important role in connecting various renewable energy suppliers with local energy centres to develop and maintain a balanced distribution system.

References

  • [1] Taylor, P.J., Dargahi, T., Dehghantanha, A., Parizi, R.M. and Choo, K.K.R., 2020. A systematic literature review of blockchain cyber security. Digital Communications and Networks, 6(2), pp.147-156.
  • [2] Deloitte’s 2020 Global Blockchain Survey: From promise to reality
  • [3] What are smart contracts on blockchain? | IBM
  • [4] Sunny, J., Undralla, N., & Pillai, V. M. (2020). Supply chain transparency through blockchain-based traceability: An overview with demonstration. Computers & Industrial Engineering, 150, 106895.
  • [5] Benefits of blockchain by IBM
  • [6] Frizzo-Barker, J., Chow-White, P. A., Adams, P. R., Mentanko, J., Ha, D., & Green, S. (2020). Blockchain as a disruptive technology for business: A systematic review. International Journal of Information Management, 51, 102029.
  • [7] Miglani, A., Kumar, N., Chamola, V., & Zeadally, S. (2020). Blockchain for Internet of Energy management: Review, solutions, and challenges. Computer Communications, 151, 395-418.
  • [8] Bao, J., He, D., Luo, M., & Choo, K. K. R. (2020). A Survey of Blockchain Applications in the Energy Sector. IEEE Systems Journal.
  • [9] Wu, Y., Wu, Y., Cimen, H., Vasquez, J.C. and Guerrero, J.M., 2022. P2P energy trading: Blockchain-enabled P2P energy society with multi-scale flexibility services. Energy Reports, 8, pp.3614-3628.