Electron’s strategy director, Jon Ferris, explodes some of the myths surrounding blockchain’s security, scalability and energy consumption.
The increasing media coverage of bitcoin may lead to a wider and better understanding of blockchain in the long term, but in the short term has entrenched a number of myths about security, scalability and energy consumption.
Bitcoin is the first, and most notorious implementation of the concept of combining a distributed ledger, cryptographic techniques and decentralised consensus. But any reference to “the” blockchain ignores the growing number of alternative approaches.
A distributed ledger is a peer-to-peer database shared across a network, so that each participant has the same record of transactions. These transactions do not have to be financial, and can describe any digital aspect of an asset. For example, switching a meter from one supplier to another can be recorded as a transaction.
All transactions are broadcast to the network, which use cryptographic techniques to securely timestamp and record valid transactions in a block, appended to an encryption of all previous blocks. It is this chain of blocks which ensures that any attempt to alter a historic transaction will be rejected by the network.
A blockchain can be shared and accessed by anyone with appropriate permissions. As anyone can participate in the Bitcoin blockchain, it is known as permissionless. In order to ensure that the network agrees on a single state, participants are incentivised to compete with each other to add a valid block.
Permissioned blockchains require users to be granted approval to participate on the network or access particular information. In the highly regulated energy sector, connecting to the physical network is controlled, matching the approach used in a permissioned consortium blockchain. This structure is beneficial where data needs to be shared between a defined and regulated group of competing parties.
Blockchain platforms will bring lower costs and add value to the shared energy infrastructure in areas such as data ownership, trading and asset registration. The energy industry is highly regulated, and these platforms will be owned and managed by consortiums overseen by a governance structure and regulation. There a number of reasons why the myths are not relevant to this approach.
Firstly, these platforms will not be public, and the consensus mechanisms will use proof of authority or proof of stake, not proof of work. The astronomical power demands of the Bitcoin blockchain are not relevant when another consensus mechanism is used.
Secondly, because they are private consortium platforms, the consensus nodes will be run by industry participants. They will be subject to the same oversight as now, except the regulator would benefit from transparent and real-time information.
Thirdly, all the instances of “hacking” relate to parties stealing crypto currency from insecure wallets or poorly written smart contracts. That’s no different from what happened to Equifax when a security breach exposed a file containing 15.2m UK records. It’s not the same as saying that the blockchain was hacked – it wasn’t and hasn’t ever been. In any event, on a private chain the currency is only of value to the authorised nodes on that blockchain, so even if you could steal it you couldn’t spend it.
Fourthly, all transactions are visible (on most blockchains) but that is not the same as saying all the data is visible. There are many ways in which the transaction data can be secured, for example zero knowledge proofs, secret store, off chain data with on chain commitments, and secure multi party computations.
Fifthly, scalability is potentially an issue as we get to huge volumes of trades, but there are a number of ways to mitigate this. But to put this in context Electron has replicated the UK’s entire meter asset base and shown that it is possible to store all these on a blockchain with all the associated data. This platform processes transactions at a rate at least 10 times the peak throughput required in the Ofgem technical specification for the new central registration service.
There’s no such thing as the definitive article when it comes to blockchain, and it is important to understand the appropriate implementation for the particular application.
Electron will host a hackathon in February 2018, for participants in our consortium to engage with a blockchain platform and develop solutions for a digital energy future. For more information, register your details at www.kwhack.com