Breaking through the confusion

How blockchains in the energy and natural resource sector can help drive gains.

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As blockchain technology advances and its use cases proliferate, energy and natural resources sector businesses are taking advantage of new opportunities to help drive innovation and disruption in today’s hypercompetitive global landscape. In many cases, however, clients are facing the big question of ‘build or buy?’ — as well as confusion over the technology itself.

Blockchain features a distributed database that holds a growing number of transaction records and a blockchain ledger that is continually updated and synchronized across a network of computers. Each transaction is stored chronologically in a block, with each block connected to the one before and after it. To ensure data integrity and security, all parties in the blockchain network must validate each transaction and each block is secured by cryptography. The blocks form a permanent, chronological chain of transactions that cannot be changed without user approval.

Blockchain and bitcoin’s reputation

For a while, ‘blockchain’ and ‘bitcoin’ were synonymous, and, despite progress, doubts linger for some and have impeded adoption of blockchain technologies. Bitcoin cryptocurrency uses blockchain to provide a distributed ledger of transactions and is essentially a use case for blockchain. Unfortunately, the misconception could continue to limit growth.

Blockchains offer provenance, immutability, privacy, resilience and tamper resistance, and can be used to protect the confidentiality, integrity and availability of data. As a result, several start-ups have surfaced to provide permissioned, private blockchains that enable easy adoption. A number of blockchains allow consumers and organizations to build private blockchain capabilities. Here is a brief overview of sector uses that have been compiled, noting that this is not a comprehensive list.

Ethereum: A highly developed blockchain technology, Ethereum has built an ecosystem allowing organizations to either build private enterprise blockchains known as Enterprise Ethereum, managed by Enterprise Ethereum Alliance (EEA), or attach to the public “main net” Ethereum blockchain. The EEA has more than 200 members plus frameworks and use cases to accelerate adoption of Ethereum.

Consensys: To further enable organizations to use Ethereum, Consensys has built a modular stack over the top of Enterprise Ethereum, enabling fast adoption of applications and services using Ethereum. The stack is industry agnostic, flexible and can help develop solutions for any use case.

IBM: IBM’s Hyperledger Fabric framework offers permissioned and private blockchain services. A national Oil Company in the Middle East for example, has partnered with IBM to create a blockchain for its oil and gas production operations. Hyperledger Fabric is open source and has a large community of supporters.

Guardtime: Guardtime’s Keyless Signature Infrastructure (KSI) blockchain technology pre-dates bitcoin and has been used for large-scale data authentication, without the need for centralized trust authorities. Guardtime, like Ethereum, offers technology solutions underpinned by blockchain, but as a product stack rather than as a technology requiring development of applications and solutions.

Use cases across the sector

Mining

Mining and metals supply chain: Managing supply chains, diverse contracts and the sharing of information in mining is cumbersome. Blockchain technologies digitize information, unlock faster, easier and more secure information sharing.

Data Management: As above in mining and metals supply chain, data management can be expedited via the use of a distributed ledger. MineHub offers components of this, while other organizations offer data management and smart contracts as use cases.

Provenance of mining: Tracing the source of materials, such as diamonds and gold, is making advances via blockchain adoption.

Energy

Commodity trading: Trading of environmental commodities such as renewal-energy certificates, carbon credits and more can unfold in a secure, efficient, transparent manner using blockchain for non-repudiation, privacy, immutability and resilience.

Peer-to-peer energy trading: As solar power and battery adoption increase, so does the opportunity for peer-to-peer energy trading. Blockchain enables consumers to sell excess generated energy to other consumers, rather than back into a centralized grid. It’s transparent — there is no middleman, and it can help everyone save money.

Energy trading and traceability: As more consumers adopt solar power and generate their own energy, contributing to a centralized grid may no longer be the norm and consumers are pursuing technologies for decentralized trading. This can be done at a consumer-to-consumer layer, allowing customers, organizations and buildings to: trade energy between each other; offer traceability on energy sources; access a marketplace for trading power purchase agreements (a smart contract use case); and rely on a data-management and settlement system.

Is blockchain worth it? Decisions, decisions

Several sector organizations are certainly capitalizing on blockchain’s advantages. In Australia, for example, where there is a huge solar-adoption trend among consumers, some businesses are currently providing blockchain-backed energy services, while trials are underway for others.

One of the biggest impediments to adoption today is the question that many businesses are struggling with: “Should I build or buy blockchain?” Big players in the market are offering proven blockchain solutions and permissioned blockchains. At the same time, when clients are thinking about adopting their own blockchain solutions, as one Oil and Gas Major has done successfully for example, the next question that arises is also familiar: “Is this a solution looking for a problem?”

Businesses are also pondering whether blockchain is the only solution available or if their business objectives can be achieved with another technology or service. Some also struggle with concerns over whether blockchain is even necessary for their operations.

In conclusion, blockchains are clearly making their presence felt in the marketplace and delivering significant new advantages for sector businesses. There are many opportunities to offer disruption and innovation to clients in this sector, but questions, doubts and confusion still linger for some. At the same time, KPMG professionals’ work with clients is helping to eliminate much of the mystery and reveal the game-changing opportunities that may await.