For a few decades, the idea of creating a faster, more decentralised web technology system which is less dependent on human interference has been a defining factor for database innovations, cue in the blockchain database, which is what cryptocurrencies are run on.
However, that is not the only use of this blockchain technology; renewable energy innovators know this. Implementing this new form of technology to execute contracts smartly to help manage energy needs seems to be the way forward.
The basic idea of the blockchain database technology is that data is introduced into a block with a specified intake capacity. Once that capacity is reached, data is rerouted to a new block that is continuously chained to the previous one. This is done chronologically so that whatever data comes in first is retained first.
The blockchain database is most commonly used to store information as a ledger of transactions for now, but many more aspects of this technology currently remain unexplored. Data entered into decentralised blockchains cannot be reversed, and so they can be view by anyone and are not controlled by any single entity.
Blockchain technology deals with the issues of security and trust in several ways. The major one is its almost impossible allowance for alteration without consensus due to hash codes’ chain reaction. Each block has created these hash codes, with the codes of the previous block and timestamps getting stored in the block following it continuously.
The ultimate goal is to create a database where digital information can be recorded and distributed without the possibility of this information being altered or edited yet remaining completely accessible.
How Does Smart Contract Work?
So far, understanding the blockchain technology has been simple enough, so will smart contracts.
These are contracts that can be digitally executed when predetermined terms and conditions are met. They are lines of code that have been previously embedded to carry out an agreed-upon command when triggered.
According to IBM blogs “The benefits of smart contracts are most apparent in business collaborations, in which they are typically used to enforce some type of agreement so that all participants can be certain of the outcome without an intermediary’s involvement.”
To wholly understand how smart contracts work here is an example. suppose you’ve ever gone through the hassle of buying a new home or getting a loan to start a business and have gotten easily turned off by all the hoops, checks and rechecks you have to be put through to get a nod from your service provider before the actual process begins. In that case, you’ll understand the stress of the situation which can drag on for months at a time, leaving you in more distress than when you started. Well, smart contracts cut out all that hassle. You can almost liken it to switching from a 1994 Macintosh to a 2021 smartwatch.
Entering and re-entering personal information, verifying identity, interacting with different intermediaries, and unnecessary fees and commissions at every step are entirely removed in smart contracts. So this means there are less third party interferences and much smoother executions of contract agreements where all parties are abreast of all details, changes and conclusions as they occur. A huge preference for companies and organisations alike.
How Can Blockchain Smart Contracts Improve The Energy Sector?
With energy evolving before our eyes from the era of fossil fuels and their effects on the earth to renewable energy sources and energy storage and management, it would be wise to seek out an innovative way of reducing the hassle of the management aspect with the blockchain technology and smart contracts.
Bridging the trust gap is a critical factor of smart contracts. If your information is already stored on the blockchain, it is readily available for review and decisions can be made about agreements, payments and deals within shorter periods.
Here are some key benefits of smart contracts:
- Trust: because Smart contracts work with preinstalled code they are executed once predetermined rules are adhered to without third party involvement and, transparency is evident, all information is shared with involved participants
- Security: blockchain technology works with code, all data is encrypted making it increasingly difficult for hackers to have a field day because all records are linked to previous and subsequent records with time stamps and hash codes making any alteration completely affect the whole database, to change anything would involve changing all the information on the blockchain
- Accuracy: without excessive human interference the execution of smart contract orders happens seamlessly and according to exact requests entered into the blockchain, so there is less of a possibility of human error
- Speed: information on the blockchain is automated saving you the stress of unending paperwork or manually correcting and filling documents every time a contract is needed, it does the job in half the time traditional contracts would take
- Immutability: in blockchain, more blocks can always be added but not removed, so records of every transaction are permanent, this increases trust between all participants
- Cost-saving: with the expulsion of unnecessary intermediaries less money will be needed to complete agreements or execute contracts, this will only happen when all other benefits are fulfilled and trusted
Smart contracts are executed through codes that follow the “if/when/then” statements stored on the blockchain database. In the energy sector accuracy, trust, security and saving cost is paramount, and these are the major advantages of smart contracts linked to the blockchain.
In contemporary energy management systems, which usually involve the generation of orders, trade compliance, managing orders, price delivery, exchange execution and settlement accounting, are all time-consuming. The lack of flexibility allows for too many complications tying in several intermediaries.
As a grid operator, smart contracts and decentralised software guaranteed by blockchain technologies can be utilised to create a seamless, secure and efficiently distributed energy system promising to solve at least 80% of these highlighted pitfalls.