- 11.07.2018
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Blockchain: the final drop in the wave of digital water disruption – Part 2
In Part 1 of this series, the fundamentals of blockchain were explained to provide a basis of understanding of this new technology and how it could be applied within the water sector. In the next parts of the series, I intend to describe in greater detail how certain aspects of blockchain would be useful for the water sector and why we should seriously consider integrating this technology as a core component of operations across utilities, cities and basins.
Relatively few of us understand the underlying specifics of the internet, can read binary or write code, even though we use computers and have digitised our lives. In the same way, the intention here is not to describe the intricacies of the technology, but instead to build capacity to understand the potential benefits of integrating blockchain technology into the water sector to address some of the key challenges faced in the 21st century in both high and low income countries. It is important to note that the uptake of this technology is still in an exploratory phase and we are seeing in real time what possibilities are arising and how blockchain might yet be used. As for all technologies, it should be viewed as a tool to achieve your goals, not as the goal in itself.The business need is where to start.
In the same way that Youtube, blogs and social media have allowed for user generated content in a distributed, decentralised way, blockchain allows people to exchange assets without needing an intermediary. The technological revolution has democratised content by giving individuals access to computation capacity and blockchain is simply the next phase of this. This technology will lead to an extensive redefining of business processes within and between companies.
Businesses that opt to integrate blockchain and learn how this technology will alter and improve their operations will be heralded as the early adopters and reap the rewards in the industry. With the water sector moving towards smart city integration, IoT, AI and the data economy, blockchain can provide a future-proof, integrated foundation for water utilities.
Recap
As a reminder of what we are talking about – blockchain is a distributed database which allows different parties of common interest to agree on an immutable and transparent record of an exchange of a particular kind of asset, whether this is a cryptocurrency like Bitcoin or whether it represents the movement of goods through a supply chain.
There are three levels of blockchain. The first level is the storing of digital records in a controlled, secure, auditable and immutable way, not simply of transactions but also of digital representations of physical assets – for example a utility’s water quality data. The second level is the exchange of digital assets where people can transfer ownership in real time without the need for banks, stock exchanges or payment processors – for example paying for a water bill. The third level is the execution of smart contracts which are contracts written in code that include rules, conditions, expiry dates and any other necessary information that are embedded in a blockchain and automatically execute when the conditions are met. Smart contracts allow businesses to reduce the time spent on paperwork, enforcing contracts and interacting with third parties. The terms of the smart contract are recorded into the code and subsequently implemented automatically through the shared network which monitors compliance and verifies the outcomes without the need of a third party – for example, payments to contractors wherein a smart contract would be possible for contractors only if it determines the business has enough funds to pay for the requested services. Another example of the use of blockchain-based smart contracts is the trade of water rights in water markets – this will be discussed in more detail in the blog on blockchain for basins.
The main uses to date of blockchain technology have been in the cryptocurrency world – you might have heard of Bitcoin or second generation coins like Ethereum or Litecoin.
More recently, there has been a large uptake of blockchain technology outside of cryptocurrencies. Based on how blockchain technology is designed, its use provides an opportunity to prove integrity of data and further develop trust in the data economy. Of note is the potential to help utilities, cities and local authorities reduce the cost of operations through the use of blockchain – with the increasing pressure on utilities to do more with less, this technology can help reduce costs by removing intermediaries and the expensive transaction fees that these entail. Equally, through the use of this tool that promotes transparency, we are likely to see an increase in citizen engagement.
As a way to improve efficiency, increase security and cut costs, it is a technology worth looking into more closely. Efficiency is the most basic and relevant reason that many leading companies are embracing blockchain technology, especially in sectors where transactions and records are core to their business. Sectors with heavy supply chains are investing in blockchain to create more transparency throughout their systems – Nestle, Walmart, Costco for example are working with IBM to develop global food chain supply safety. Why not the water sector?
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