If you transact with people you don’t fully trust, over a network that imposes costs and risks, then blockchain will hit your building in the next three years.
You’ve probably seen some media coverage of Bitcoin recently. Its price explosion in 2017 (from $750 to $17,000) has renewed public interest in blockchain, the underlying technology that powers Bitcoin. So let’s dig into blockchain, especially in the context of buildings and energy. To quote Freddy Mercury of Queen, “Is this the real life? Is this just fantasy?”
We answer four questions below:
- Should I care about blockchain?
- What problems does blockchain solve?
- How does blockchain work?
- How will I see blockchain in my professional life?
Should I care about blockchain?
In short, yes, you should care. Blockchain is already on its way to delivering important benefits to anyone who transacts with parties they don’t fully trust (i.e. all of us):
- Saved time
- Reduced cost
- Reduced risk of tampering, fraud, and hacking
- Increased trust between partners through shared processes and record-keeping
Blockchain is about a lot more than Bitcoin. Your boss, your customers, and your vendors are going to start pounding you with questions in 2018. It’s time to get smart, so you can steer a path that makes sense for your organization and your career.
My guide to this kind of change is Bill Gates, who said,
“We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten. Don’t let yourself be lulled into inaction.”
What problems does blockchain solve?
The technology is designed to solve a very modern problem: We live in a world of centralized systems that create transaction costs and headaches. For example, when you use your Visa card, you’ve instantly created entries in five ledgers:
Most of the time these ledgers match up, and we love the convenience, but the system is full of grit:
- Transaction problems with auditing, reconciliation, and fees
- System problems with reliability and security
- Market problems with monopolies and lack of service options
What if we could get the convenience of electronic transactions without the grit? Enter blockchain.
When someone says “blockchain”, you should think “Distributed Ledger”, a way to pull transactions out of centralized databases and into the hands of participants. Each participant in a network maintains the ledger of transactions. The genius of blockchain is that it ensures these distributed ledgers are synced up and highly secure. Think of all of the work done by centralized systems to ensure trust. Blockchain does that without the costs and risks of the centralized systems.
In the words of Richard Brown, one of the founders of the financial consortium, R3:
“Distributed Ledgers … are systems that enable parties who don’t fully trust each other to form and maintain consensus about the existence, status and evolution of a set of shared facts.”
If you transact with people you don’t fully trust, over a network that currently imposes costs and risks, then blockchain is for you.
How does blockchain work?
This starts to get technical. You can just skim the two diagrams below to get the basic idea, or dig into the details below the diagrams.
Here’s the current world for most of us, with browsers and apps accessing sophisticated data and tools from a central database.
And here’s how it looks in the blockchain world, where a distributed database is synchronized across multiple nodes without a central manager:
The key elements of blockchain
The simple formulation is that blockchain technology allows connected devices to reach agreement over shared data. Without getting too techy, let’s dig in on those three critical pieces.
Connected Devices are in a peer-to-peer network. If your computer or phone or smart meter is a part of a blockchain network, it is communicating directly to other devices on that network, not through a central server owned by a third party.
Agreement between all of the connected computers is based on a consensus mechanism. One of the challenges of distribution is that the ledgers can get out of sync. Blockchain includes a specific process for managing agreement over time. This is a non-trivial exercise. Any time you see “Proof-of-X” associated with blockchain, you’re looking at innovations designed to improve the syncing process.
Shared Data in the form of a chain of blocks (surprise, surprise). A blockchain network maintains data, transactions, and contracts in a specific format so participants can verify the consistency of a growing ledger. Each new entry must always reference earlier entries, creating a linked chain of data. The links along the chain are encrypted in a specific way, so that if someone tries to change an earlier entry, the whole chain breaks. The consensus mechanism in the paragraph above will then reject that change, ensuring that the ledger remains intact.
The five key aspects of blockchain
IBM is heavily invested in blockchain. They talk about four key aspects of the technology:
- Consensus, i.e. allowing multiple parties to automatically approve new records being added to the ledger.
- Provenance, i.e. maintaining a complete record of who’s owned the asset.
- Immutability, i.e. ensuring that the ledger can’t be tampered with.
- Finality, i.e. holding one single version of the truth across all the distributed ledger
I’d like to add one more:
- Smart settlement, i.e. embedding standard contract terms in the ledger so that exchanges are triggered automatically as events occur (this idea is also called “Smart Contracts”)
How will I see blockchain in my professional life?
Once you start looking into blockchain, you’ll find hundreds of different scenarios where it might apply. To be honest, a lot of these are nonsensical ideas, but here are some that are gaining traction. We give you just a taste of them here, but a quick search on any of these ideas will turn up vendors galore.
| Things you do | How blockchain is relevant |
|---|---|
| Buy goods and services | You can already use blockchain-based crypto-currencies, like Bitcoin, at Overstock.com, Expedia, and other merchants. New tokens of exchange, like Monero and Ripple, are also emerging. What to look for: While the dollar is not currently under threat, expect these new currencies to gain traction if there’s inflation or a recession. |
| Buy energy and participate in markets | There’s increasing interest in energy trading between consumers. PowerLedger, GridPlus, and LO3 are leading the charge here. Demand response (DR) and renewable energy credits (RECs) are also getting a blockchain makeover. EPRI, the utilities’ research arm, has put out a comprehensive study. What to look for: If your facility has a mix of solar panels, batteries, and/or EVs, you’re a prime target. If you’re in a competitive market, new retailers are coming your way with a goal to reduce cost by managing trades between customers. If your regulated utility has a good track record of innovation, expect a call later in 2018. |
| Sell energy to tenants | If you provide tenants with a bill that includes an energy line item, then you’re in the business of selling energy. If you’re in a market with compulsory submetering, then blockchain is even more relevant. Companies like Electron in the UK are making move-in/move-out easier for energy retailers. What to look for: Retailers in deregulated markets are going to be early adopters. You’ll see news items from Europe and from Texas about advances in metering. As the technology gets refined in 2018, it’ll come your way. |
| Operate and maintain equipment | Blockchains now come with smart contracts built in, so that equipment can automatically take action when certain conditions apply. The airline industry is experimenting with blockchain for fault detection and parts management. Warranties are also moving to blockchain to ensure fraud-free and timely service. Supply chains are already moving to blockchain. What to look for: Vendors of equipment that is advertised as “smart” or “IoT-ready” will ask for access to the Internet to improve O&M efficiency. |
| Run energy efficiency (EE) projects | Utilities regularly provide incentives for EE projects. But you’ve probably run into at least one case where you didn’t get what you expected due to measurement and verification (M&V) issues. Equipment vendors are already encouraging utilities and customers to use equipment-based metering for M&V. What to look for: “Smart Building” vendors are collaborating with utilities. Expect to be asked to participate in pilots and to link your building to the Internet to share results. |
| Provide flexible work space | Companies like WeWork typically charge a monthly fee for space, but the pressure is on to provide finer-grained access to facilities. Identity management is a burgeoning space for blockchain, that will allow people to come and go with expectations of being charged only for time used. What to look for: Flexible workspaces are charging into the real estate market, whether operated by WeWork, by similar companies, or in other formats. Expect a greater number of people to use your space and expect requests for blockchain-related improvements to your security systems. |
