- Transactive Energy
- Peer-to-Peer Energy Trading
Whatever the Future of Blockchain, We Have Much to Thank It For
Entering 2019, there is a tangible drop in the hype surrounding blockchain. As Guidehouse Insights has warned (and is so often the case with new technologies), expectations of blockchain’s disruptive nature have been overinflated, and initial optimism is giving way to circumspection and doubt. Don’t get me wrong: blockchain is still a possible game changer and still has enormous potential. However, we are now entering a phase where existing projects must start to demonstrate real business value and the ability to work at scale in an operational environment. The many barriers to blockchain have made the refrain “blockchain is always the second-best technology to use” increasingly common.
Centralized databases were invented 40 years before distributed ledgers because most business processes can be adequately supported using a centralized database. Blockchain’s sweet spot is those processes that cannot. Distributing and sharing data between multiple parties can be a clumsy, expensive, and inefficient affair. In energy, many blockchain startups hit the market with ambitious ideas, but only about 25% of these are actually partnering with utilities. Guidehouse Insights expects around 65 utilities to be actively involved) and none are operating at scale. Look beyond utilities to financial services, where blockchain first took off, and the picture is no different. Given that financial services-related blockchain projects are a good couple of years in advance of energy, financial services will ultimately be the bellwether: if it fails to take off in banking, expect it to fail anywhere else.
One of my frustrations is that too many projects are looking in the wrong direction. As far as the energy industry is concerned, too much emphasis has been placed on peer-to-peer trading and transactive energy, where startups are hoping to play a radical disruptor role and disintermediate existing utilities. This was always going to be a tall order for small companies with no track record in regulatory environments that change at glacial pace.
Blockchain’s Near-Term Success Lies in the Prosaic
In a 2018 study, McKinsey assessed the business value of blockchain across multiple industries and published two conclusions that Guidehouse Insights has been discussing for the past year:
- “Blockchain does not have to be a disintermediator to generate value, a fact that encourages permissioned commercial applications.”
- “Blockchain’s short-term value will be predominantly in reducing cost before creating transformative business models.”
In short, blockchain’s near-term value will be in helping the industry manage business processes not well served by existing technologies. It is in the mundane and the prosaic where this short-term value lies.
Regardless of Ultimate Success, Blockchain’s Lasting Legacy Is Secured
What if the current barriers to blockchain—a lack of standards, vested interests and skills, and poor processing speeds—prove insurmountable? What then? I argue that the current investments in the technology will have a legacy regardless of whether blockchain is used because the blockchain hype has driven an incredible amount of innovative thinking in an industry where change is slow.
As I have argued before, business models are far more important than the technologies that support them. Blockchain has opened the industry’s eyes to the art of the possible in distributed energy. Without blockchain, we would never be as far down the road in our thinking regarding local energy markets, and for that we should be grateful.