Have you heard about blockchain? Maybe you have heard about bitcoin? Wondered what the fuss was about? In her latest blog Lisa Ehrenfried, Manager Research and Innovation takes you through the basics and explains how it could be used in the water industry.
When I first heard about blockchain, I dismissed it as ‘excited geek talk’ and wasn’t keen to understand it. Over the last couple of months however I have repeatedly heard about it and its potential to ‘revolutionise the world even more than the internet did.’ Over the last year alone $500 million were invested in the technology! The latest example of its revolutionary potential was the news that the technology is now used in Perth for peer-to-peer solar trading.
So what is blockchain, and what’s all the hype about?
Blockchain, in one sentence, is a data structure that facilitates secure peer-to-peer transactions without the need for a trusted third party to supervise the transaction. Currently, for a financial transaction between two parties, a third trusted party facilitates that transaction, typically a bank. With blockchain, this third party is no longer needed, because blockchain guarantees that the transaction is logged and legitimate. It acts like a ‘digital bank’. Bitcoin, a digital currency, is just one of many possible applications of using blockchain (like email is one of many applications of using the internet), and the technology may have the potential to transform some of the basic pillars of society: banking, business, governance, health systems and power supply. And the water industry? Keep reading…
How does blockchain work?
In the old days, accountants used a ledger as the trusted source to record and time-stamp all transactions. Blockchain does very much the same (almost), it records and time-stamps transactions. However (unlike its forefather, the pen-and-paper ledger) the blockchain ledger is public, distributed across a global network of computers, and secured through very clever cryptography that enforces its integrity. Every 10 minutes the blockchain is synchronised across this global network of computers. While the distribution of the ledger may sound like a security risk, it actually is the technology underpinning its very high level of security: if one computer attempts to manipulate the ledger (for example to change or remove a past transaction), this transaction won’t match with the record on all the other computers, it will fail the synchronisation test and won’t proceed.
The possibilities for applications go well beyond financial transactions: Anything that can be ‘digitised’ can be traded. For example, instead of downloading music from iTunes, and giving Apple your credit card details to pay for the latest hits, on Ujo Music you can use blockchain to pay the musician directly. When trading shares, instead of going through the involved process of proving that someone owns a share before it can be sold, blockchain would know that they own the share, and a deal can be closed within seconds. For many other possible applications, check out this Wall Street Journal article, or this one for early uses of blockchain technology by governments.
While blockchain is exciting, disruptive technology, it’s important to be aware of the risks and challenges it may pose. Deloitte have put together a handy list of the benefits and challenges of blockchain technology and you can find out about the risks of using bitcoin on ASIC’s Money Smart website.
How could this impact the water industry?
There are many ways blockchain technology could be used in the water industry. Water utility customers could pay their bills directly using bitcoin instead of BPAY, reducing transaction fees. In times of drought water allocations could be set and tracked with smart meters and be traded digitally between customers. Budgets could be allocated upfront to be spent on certain projects and within certain timeframes, potentially cutting out a lot of bureaucracy. The ability to pre-determine and track transactions using the blockchain, could result in processes becoming much more transparent and efficient.
The possibilities appear endless. Only time will tell whether the hype is justified.
1 Sep 2016
