The Blockchain
What is blockchain?
Blockchain is basically a virtual logbook, a digital ledger that records and stores all data created since it began, organized into blocks. The data can theoretically be anything, but typically, blockchains store transactions.
Each block can only be written during a specific time window. After that, the block is validated and closed. The next block is based on the information in the previous block. Since the previous block is already closed, it can’t be changed anymore. Once the next block is also closed, another opens, and so on, forming a continuous chain.
Why Use Blockchain Instead of a Traditional Database?
Traditional databases have been the foundation of digital data management for a long time. However, because they are centralized, they are vulnerable. The data can be easily changed and these systems are less efficient. Not only can the organization controlling the database modify the data, but even external attackers could exploit its weaknesses.
Blockchain eliminates the weaknesses of traditional databases and has revolutionized how data is stored and managed. With blockchain, all data tasks can be automated and made unchangeable. This increases both efficiency and trust between users.
Disadvantages of Traditional Databases
Even though traditional databases are still widely used, they have many disadvantages compared to blockchain.
Here are some of the main issues:
Centralized Control: Traditional databases are managed by one authority or company. This often limits access to the data and slows down communication because everything depends on a central admin.
Security Risks: Because they are centralized, these databases can be easily attacked or manipulated. Anyone with access – or who hacks into the system – can change or delete data without leaving a trace. If the server goes offline and there’s no backup, data can be lost permanently.
Manual Processes: These databases often require human involvement to carry out, approve, and verify transactions. This increases time, costs, and the risk of human error.
Lack of Transparency: Users must trust a system they cannot constantly check or verify themselves.
High Transaction Costs: Managing the system often requires third parties like banks or auditors, leading to extra costs and delays.
Advantages of Blockchain
Blockchain technology is a big step forward compared to traditional databases. Some of its most important benefits include:
Decentralization: Blockchain works across a distributed network of participants. This removes many of the disadvantages of centralized systems. All data is safe because it can be recovered from any member, and the system works even if some users drop out.
Security: Blockchain uses advanced encryption and consensus mechanisms to prevent data manipulation. Each member only sees information relevant to them; everything else remains private.
Immutability: Once data is recorded in a block, it can no longer be changed or deleted. This is possible thanks to encryption, consensus, and block-linking methods. All data on the blockchain is provable and permanent.
Smart Contracts: These are programs that automatically execute when contract conditions are met. They work without human input, reducing costs, time, and errors while improving efficiency.
Tokenization: Blockchain allows physical assets, or things like energy produced in an energy community, to be represented by digital tokens. These tokens can be traded freely. For example, a solar system could have as many co-owners as the number of tokens representing it. This allows more people to take part in energy communities as owners.
Scalability: Blockchain is designed to handle growing numbers of users and transactions without losing speed or efficiency.
Anonymity and Data Protection: Users of public blockchains can transact anonymously without revealing their identity. Some blockchains even hide transaction details for added privacy.
Interoperability: This allows different blockchains to communicate and share data. It supports smooth and free information exchange across different systems and communities.
Types of Blockchain
All blockchains are decentralized, but how this is implemented can vary depending on the use case. There are three main types:
Public Blockchain: Open to anyone. Examples include Bitcoin and Ethereum.
Private Blockchain: Only available to a specific group. These are often used inside organizations and require central control.
Consortium Blockchain: A hybrid that combines decentralization with shared control by several users. It’s only accessible to a certain group.
In energy communities, the consortium blockchain is the best choice. Members need to jointly manage ownership and define how the system works, similar to a private blockchain. But since new members may join over time, the system also needs to be open to growth, like a public blockchain).
Which Blockchain Do We Recommend?
For energy communities (ECs), we recommend Hyperledger Besu to run a decentralized blockchain network. It’s the only Ethereum-compatible system made for both businesses and communities. Hyperledger Besu supports both public and private networks and is perfect for Peer-to-Peer (P2P) transactions and smart contract management.
Which Storage System Do We Recommend?
For secure, decentralized, and efficient data storage and sharing, we suggest using multiple servers. Our recommendation is IPFS (InterPlanetary File System). Like blockchain, IPFS distributes data across users. This makes the data safer, more accessible, and protected from unauthorized access.
Benefits of Using Blockchain in Energy Communities
A blockchain-based system is ideal for supporting operations within ECs.
Main advantages include:
DID-based Identification: Blockchain uses Decentralized Identifiers (DID) to identify producers, consumers, and devices. This allows everything and everyone in the system to be properly identified.
P2P Energy Trading: Blockchain allows direct trading between users without middlemen like utilities. Smart contracts automate transactions, adjusting prices in real-time based on supply and demand. This lowers admin costs and improves efficiency.
Transparent and Secure Transactions: Every step of energy trading is recorded. This ensures that production and consumption are always traceable and accurate. The blockchain makes sure all data is tamper-proof, building trust among members.
Managing Microgrids: Blockchain supports local energy networks by improving resource use better than traditional systems. ECs can balance supply and demand in real time, reducing waste and improving performance.
Tokenization: Blockchain makes it possible to tokenize the electricity produced and the devices used for energy generation in the community. These tokens can be shared and traded, allowing more people to take part in ownership and benefit from energy production.
