2. Introduction

1. Blockchain

A Blockchain is a continuously expandable list of records, in the form of blocks where one block holds a fixed number of transactions. This defines a decentralized database which is extended chronologically. If one block is complete, the next one is created. Each block contains a checksum (a Hash) of the previous block. New blocks are created through a consensus process and then attached to the Blockchain. The most popular method here is the proof-of-work method; but there are many other methods like Proof of Stake, Proof of Capacity, Proof of Burn and Proof of Activity.

Due to the blocks being linked via a hash-function to the respective previous block one cannot alter a block without effecting the overall system. Therefore a piece of information that is saved on a blockchain is irrefutable. The decentralized consensus mechanism replaces the need for a trusted entity to verify the integrity of transactions. Well-known cryptocurrencies based on the blockchain principle are Bitcoin and Ethereum.

Figure 3 - Blockchain in Energy Sector

Blockchain and cryptocurrencies are often discussed in similar contexts, but they are not the same. Blockchain is a technology while cryptocurrencies are applications for said technology. Furthermore, blockchain and Distributed Ledger Technology (DLT) are often used as synonyms. This is strictly speaking not correct, as a Blockchain is a special type of a distributed ledger.

[Hülsbömer, Genovese, March 2018]

2. Distributed Ledger

A distributed ledger is a multi-party database with no central trusted authority.

Distributed Ledger Technology (DLT) describes a technology for networked computers that come to an understanding about the order of specific transactions and about how these transactions update data. The technology is considered ground-breaking for the management of data on the internet without proprietary platforms.

DLT is a digital system for recording transactions of assets. For this, the data of a transaction is recorded in detail and stored in several places at the same time. Unlike traditional databases, distributed ledgers have no central data storage or management functionality.

In a distributed ledger, each node processes and verifies a transaction or information, thereby creating a record of that element and establishing consensus about its truthfulness. Thus, a DLT can be used to record static data, such as registration, and dynamic data, such as transactions.

Figure 4 - Distributed Ledger Technology

[Negin 2018]

3. Smart Contract

A smart contract is a computer protocol intended to digitally facilitate, verify, or enforce the negotiation or performance of a contract. Smart contracts allow the performance of credible transactions without third parties. These transactions are trackable and irreversible. Smart contracts were first proposed by Nick Szabo, who coined the term, in 1993.

Proponents of smart contracts claim that many kinds of contractual clauses may be made partially or fully self-executing, self-enforcing, or both. The aim of smart contracts is to provide security that is superior to traditional contract law and to reduce other transaction costs associated with contracting. Various cryptocurrencies have implemented types of smart contracts. Ethereum is considered as the most popular platform.

[Hertig, July 2018]

Figure 5 - Smart Contract Comparison

4. Ethereum

Ethereum is a distributed system, which offers the creation, management and execution of decentralized programs or contracts (Smart Contracts) in its own Blockchain. Ethereum uses the internal crypto-currency Ether as a means of payment for transaction processing, which is handled by participating computers. Ether is the second-largest crypto-currency after Bitcoin. (as of July 2018)

Ethereum, like Bitcoin, is based on blockchain technology. Unlike Bitcoin, however, Ethereum is not just a cryptocurrency, but also a platform for so-called Dapps (Distributed Apps), which consist of Smart Contracts. Ethereum is a distributed system whose participants (Ethereum accounts or contracts) use Ethereum's own peer-to-peer network to exchange data without a central server.

In this context, a node is a computer that is part of the Ethereum network. Furthermore, there are so-called mining nodes that confirm transactions.

[Ethereum Blockchain App Plattform, July 2018]

Figure 6 - Ethereum Platform

5. Meaning of Blockchain for the Energy Economy

Blockchain technology has the potential to reduce transaction costs in the energy sector, enable active participation of a larger number of market participants (consumer and devices) and, as a consequence, accelerate the transition towards a cleaner, more resilient, and more cost effective system. The role of the single consumer in the market becomes more important. Households who produce and consume energy have the opportunity to purchase and sell it at the same time.

Figure 7 - Enhanced Energy Sector

The energy sector can definitely profit from the mentioned technologies. However there are still some barriers for adoption, for example the transactions-per-second (TPS) rates of current implementations.