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  • Blockchain and the Water Industry – a Primer

    By now everyone has heard of the crypto-currency Bitcoin. Crypto-currency made famous the underlying technology that makes Bitcoin possible. That technology is blockchain, and it is a fundamental technology disrupter that impacts how utilities will soon conduct business. As a result, Utility Managers will need to understand what blockchain is, the types of blockchains in use, and how and where it will be used in their business.

    A quick blockchain primer is in order. So what is blockchain? Blockchain is a distributed ledger for digital assets that stores, alters, and transfers information with a unique digital ID. A blockchain has three core elements:

    1. P2P (Peer-To-Peer) networks
      • Open networks, enabling transactions with anyone.
      • Private networks belong to a group of entities who have decided to transact with one another, like in an energy trading exchange.
    2. Consensus Mechanism – how transactions are made and verified
      • Consensus ensures that the shared ledgers are exact copies, and lowers the risk of fraudulent transactions, because tampering would have to occur across many places at exactly the same time
      • Bitcoin uses Proof of Work as a consensus mechanism. Proof of Authority is now emerging as the mechanism of choice because it uses significantly less energy.
    3. Shared Ledger/Database
      • Immutable, meaning that it is unchanging over time or unable to be changed
      • Exists in cloud and on all nodes of the P2P network
      • Read/write permissions exist

    A major benefit of blockchains is that they reduce transaction friction (costs and restraints associated with transactions)  and provide better transparency because they eliminate the need for a middle-man. They also create one secure record, and eliminate back office functions.

    As a result, a water utility will soon be impacted by blockchain in a variety of business areas. Examples include:

    • Regulatory reporting
    • Automated procurement
    • Partnership initiatives that share resources
    • Asset lifecycle management to improve reliability
    • Metering and Billing
    • Water rights/trading/resource management
    • Tracking of water quality data or to provide water quality forecasts

    We will discuss in an upcoming post how blockchains enable the creation of Smart Contracts and the available benefits.

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