Much has already been written about the role of Artificial Intelligence (AI) in financial services. […]
How can blockchain empower the energy industry?
Benefits and use cases for a promising new technology
Security and trust are basic requirements for doing business. Especially in a complex and costly transactional ecosystem like the energy industry, which deploys so many innovative technologies. This is where the blockchain comes in. This technology can be the underlying backbone of the transactional energy infrastructure.
Blockchain in a nutshell
Distributed ledger technology, commonly known as blockchain, is a powerful peer-to-peer network technology that uses advanced cryptographic techniques to enable trustworthy interactions between parties, whether they fully trust each other or not. The ledger can be accessed and managed by multiple (even unknown or anonymous) parties, and still remain reliable, secure, and immutable, without the use of a third-party intermediary (e.g. banks, brokers, or regulatory entities), which makes it more cost-efficient as well. With a blockchain, companies can reliably execute and record transactions and information, and control what information is shared with whom.
Substantial value across the industry
It seems obvious that blockchain has the potential to unlock substantial value across the energy industry with its networked infrastructure. With the rise of IoT (Internet of Things), the industry might soon turn into a vast global network of connected devices that feed data into blockchain-based platforms to capture and share information in real time. One of the most powerful use cases for blockchain in the industry therefore is its potential as an efficient and reliable shared trading platform for both physical and financial trading across the full spectrum of energy commodities. Transactions can be recorded almost instantly and without the need for reconciliation, since there is only one ledger and one entry for every transaction which is shared by all parties.
Enhancing the end-to-end process in the energy industry
The end-to-end process in the industry, from getting hydrocarbons out of the ground, converting them into a usable form, and delivering them to customers, is quite complicated. It involves various steps and players, from energy companies to service providers and government inspectors. Until now, this process was a highly siloed and far from transparent. By basing it on the blockchain, Deloitte has prototyped a platform that can support the entire process, which provides speed and efficiency, traceability, and transparency. With the use of encryption, companies can share the information they need to without having their business-critical data compromised.
Supply chain management
The complex supply chains within the industry increase the risk of errors and even fraud. The use of blockchain technology to record and manage the movement of goods and related invoices can be used to mitigate these risks. Goods and invoices can be tracked from source to customer, reducing time and costs and providing insight into the supply chain process. Unapproved parties cannot access the invoices themselves, since the blockchain only stores the hash value and the digital fingerprint, while the sensitive data is sent via a separate, secure channel.
Asset optimization: reducing complexity and cost
Perhaps the biggest challenge in the industry is asset optimization, when assets can be very expensive and subject to very strict certifications. Blockchain can help companies monitor compliance from their suppliers, reduce fraud risks and associated costs. Each entity only has to reveal the information that is necessary for collaboration, while masking information that is a source of competitive advantage.
Regulatory reporting and compliance
Last but not least, blockchain can streamline regulatory reporting and improve data standardization in the energy industry. With current technologies, gathering and cleaning up the required data is a huge burden, as well as a risk — data could fall into the wrong hands. Blockchain enables transparency by allowing regulators to securely access clean, tamper-proof data through their own node in the network, while at the same time allowing companies to retain control over what information is available and who is allowed to access it.
Real world and digital world
Of course, there are still a lot of challenges that need to be addressed, such as the link between physical commodities and their representation on the blockchain. The blockchain might contain digital information that a tanker is carrying a certain type of fuel. If this cargo is changed in the real world, but the registration is not automatically appended on the blockchain, then the real and digital reality will diverge, making the digital records unreliable. Solutions are already being thought up and tested, such as smart sensors or chips that can detect any changes made and are connected to the blockchain themselves.