1.

Introduction to Blockchain technology

As described by Louise Hagström and Olivia Dahlquist in their research paper entitled “Scaling
blockchain for the energy sector” , Blockchain is a distributed ledger technology where every full node in
the network downloads a copy of the same ledger. The ledger is a collection of all transactions ever
made on the blockchain. The original thought of blockchain was to have all transactions on the
blockchain viewable to all nodes in the network. All nodes in the network need to verify a transaction for
it to be completed. No third party verifies transactions, meaning that the power is distributed through
the network. The transactions are stored in series in a chronological order of blocks, as soon as the
transaction is verified. The blocks are then put together creating a chain of blocks, also known as a
blockchain. Once a block is added to the chain it cannot be changed, making the blockchain irreversible.
The writers of this research paper further present three nodes of the Blockchain technology in their
research paper. Full nodes, light nodes and clients. A full node computes all computations necessary for
verifying transactions [28]. A light node only downloads header information and cannot verify all
information [8]. A client is software that provides cryptocurrency wallets to users. The clients rely on full
nodes verifying transactions, since the users of wallets only can perform transactions [10]. How the
process of verification of transactions is performed on the blockchain depend on the blockchain protocol
[29]. A protocol is a set of rules and instructions that apply to all nodes in the network [30]. Depending
on purpose, the blockchain protocol is constructed differently. These design choices are still under
development and every year more alternatives to original Bitcoin blockchain are launched.

Under the heading of Blockchain both writers have described the blockchain technology with
subheadings in their literary piece. Louise Hagström and Olivia Dahlquist describe two types of
blochchain technology in their research paper. Public and Private Blockchains. A public blockchain
means that anyone that downloads the blockchain is able to; (1) view transactions (2) verify transactions
(3) make transactions. The first blockchain created and used for Bitcoin is called a public blockchain.
When viewing transaction, the addresses of the ones making transactions are anonymous. The
information showing is amount transacted and time of transaction. For example, see [31].

In contrast to public blockchains, there are also private blockchains. In private blockchains, nodes have
to be accepted into the network and not every node can view, make and verify transactions. These
networks are sometimes called consortiums [11]. Some articles refer to this as permissioned
blockchains, but to make the language in this thesis more consistent, the term private will be used.

Louise Hagström and Olivia Dahlquist in their research paper demonstrate the verification and
transactions procedure in detail under the subheading of “process of verification and transactions”.
Verifying transactions on the blockchain are performed by the nodes in the network. The nodes agree by
reaching consensus [13]. The process of reaching consensus is made accordingly to a consensus
algorithm. Different blockchain protocols use different consensus algorithms. Both writers use visual
images as well to demonstrate the verification and transaction process. The process is further detailed in
their research paper under three subtitles; proof of work proof of stake and Practical Byzantine Fault
Tolerance.
Proof of work

The consensus algorithm used by both Bitcoin and Ethereum is called proof of work, PoW. Nodes in the
Bitcoin and Ethereum network verifying transactions are called miners. The miners mine to earn money,
cryptocurrency [29]. Every miner generates new blocks with a hash value based on the hash value from
the current block. The miner that first generates a hash value lower than a current target wins. The
winning miner is rewarded with cryptocurrency and with fees paid by the node making the transaction.
The winner’s block is also accepted as the current block [33] [34]. After a block is added all other nodes
have to start over, now based on the new hash [1]. As shown in figure 2, different blocks can be created
at the same time and this generates forks in the chain. As time proceeds the shorter chains will be
abandoned by the network. This happens since mining on the wrong chain do not generate
cryptocurrency [35].

In the Bitcoin protocol the current hash target is set to generate a new block on average every ten
minutes. This is called the block time. Each block contains several transactions, and the size of the block
differs depending on protocol. The Bitcoin protocol block size has a limit of 1 MB [36]. Another specific
attribute to the Bitcoin protocol is that six blocks have to be added to the chain before a transaction is
counted as confirmed. This is a security measure in order to avoid cryptocurrency being spend more
than once, called double spending.

To claim that blockchain is irreversible is not completely true. In order to change a transaction on the
blockchain, one node would need the same amount of computational power as has been put into the
blockchain since that transaction was verified. Mining is therefore computationally expensive work, in
order to secure the state of the blockchain. The purpose of making mining hard is also to hinder the
miners of producing too much cryptocurrency for them. In 2014 research showed that the electrical
power consumed for the Bitcoin network was equal the electrical power consumed for the whole of
Ireland [38].

Proof of stake

Transaction verification can also be created through the consensus algorithm proof of stake, PoS. The
general concept of PoS is that a node, for PoS called forger, with the highest stake has a higher
probability of creating a block. For PoS all cryptocurrency already exists in the network, and forgers have
to buy cryptocurrency. The stake is determined by how much cryptocurrency the forger has. For
example, if Anna has 60 coins, Bob has 30 and Cedric 10, Anna has 60 % chance of forging the next
block, Bob has 30 % and Cedric 10%. All blocks created in the network are used in the blockchain, and no
unnecessary blocks are created. The forger of a block is rewarded with cryptocurrency, taken from the
fee paid by the node making the transaction [39]. Proof of stake is under development and different
protocols use it in individual ways.

Practical Byzantine Fault Tolerance

As said in 2.3 a blockchain can be private, where the nodes in the network are known and
predetermined. This means that nodes are not anonymous, and therefore it is in the nodes’ own
interest not to fool the network. Instead it is their interest to verify transactions, since it is their own
initiative to have transaction on a blockchain. Therefore, there is no need for nodes to be rewarded in
order to verify transactions. Consensus can then be reached in other ways than in public blockchains.
One of these ways are with a Byzantine Fault Tolerance protocol, BFT. BFT is a family of protocols known
and used for almost 30 years [40]. In 1999 Miguel Castro and Barbara Liskov published a paper
describing a new form of BFT that they claimed was more practical. Castro and Liskov called it Practical
Byzantine Fault Tolerance, PBFT, and had the purpose of handling systems like the Internet [41]. PBFT is
now one of the protocols used for private blockchains [42].

David Livingston, Varun Sivaram, Madison Freeman, and Maximilian Fiege in their literary work titled as
“Applying Blockchain Technology to Electric Power Systems” defines blockchain using the definition of
Satoshi Nakamoto (2008) as a pseudonym for a person or a group whose identity remains unknown—
released a white paper describing a system for peer-to-peer trading of a digital currency known as
bitcoin. All bitcoin transactions would be recorded in a blockchain—a digital, decentralized, and publicly
available ledger. Network participants would be able to transact over the internet without a central
authority processing and validating those transactions. In theory, transactions on a decentralized
blockchain network could be processed and verified with fewer intermediaries, lower transaction fees,
and greater security than those conducted on traditional centralized platforms.

Additionally this research paper goes further detailing the blockchain basics. In the case of the
blockchain network that underpins bitcoin, each computer connected to the network stores a copy of
the blockchain, which is a running history of all bitcoin transactions. When a user initiates a bitcoin
payment, other computers connected to the network validate the transaction, coming to a consensus
that the transaction is in fact valid and not a case of double-spending (the same digital token being
spent more than once). Approximately every ten minutes, a list of new transactions is bundled together
into a “block” for all network participants to add to their local copies of the blockchain ledger of
transactions. Because of the way the blockchain is cryptographically constructed, it is virtually
impossible to alter the transaction history recorded in the digital ledger.11 Computers connected to the
network around the world help verify new transactions because they are rewarded with newly issued
bitcoin for successfully doing so. Known as miners, these computers compete with one another to solve
computationally intensive math problems (these problems amount to busywork, but as a consequence
of solving them, miners happen to verify each new block of transactions added to the blockchain
ledger). Once a computer wins, the competition begins anew to verify the next block. This arrangement
has incentivized hundreds of thousands of bitcoin miners to compete for bitcoin payments and, in the
process, facilitated the decentralized verification of millions of bitcoin transactions every year. (Mining—
and bitcoin, by extension—has been criticized for the huge amount of energy consumed by powerful
computers; by some estimates, bitcoin mining uses more electricity than all of Ireland. 12 More energy-
efficient methods of validating transactions are under development.13) Although the use of bitcoin for
financial transactions is still dwarfed by the use of conventional currencies, financial markets are
ascribing significant, albeit volatile, value to bitcoin.14 After a year of appreciation, the global value of
bitcoin topped $300 billion toward the close of 2017 before collapsing to around $100 billion in mid-
2018.15 Other cryptocurrencies have emerged alongside bitcoin, all of which also use a blockchain
ledger to record transactions but differ in their exact implementations. The Ethereum platform—with
tokens of value (known as ether) that command a market capitalization second to that of bitcoin— could
enable a much broader range of blockchain applications because of its ability to encode socalled smart
contracts. In an Ethereum transaction, users can write code onto the blockchain ledger that stipulates
the conditions under which payment will automatically be remitted. For example, a shipping firm might
set up a smart contract under which the customer will pay the firm in ether tokens only after a package
has been delivered. A data stream from a GPS tracker on the package might then trigger the smart
contract to execute payment once the package reaches its destination. In this way, smart contracts
running on a blockchain can eliminate the need for a central authority to enforce a contract.16 Although
blockchains such as Bitcoin and Ethereum are helpful to illustrate the technology’s capabilities, a
cryptocurrency is not actually a necessary component of a blockchain network. A blockchain can be used
as a ledger to store a variety of transactions, from currency payments to contract execution and asset
registration (see figure 1). Moreover, not all blockchains are public, as Bitcoin and Ethereum are. In the
case of Bitcoin, any computer connected to the internet and running the Bitcoin client software can
participate in verifying transactions to be appended to the ledger, which is then publicly visible. Private
and consortium blockchain networks, such as IBM’s Hyperledger and JPMorgan’s Quorum, only allow
those entities that have the permissions to view and validate transactions on the ledger.17 These
alternatives to public blockchain networks can process transactions faster and enable the entities that
manage these networks to keep sensitive user data confidential and better protect their networks
against cyberattacks. However, centralized oversight undercuts the nonhierarchical, decentralized
architecture of the earliest blockchains; therefore, some critics argue, private blockchain networks
should instead be labeled distributed ledgers.

Disagreements over the benefits of different blockchain platforms and cryptocurrencies and the trade-
offs among public and private blockchains signal that blockchain technology is evolving. Its first decade
has had mishaps: prominent cyberattacks on cryptocurrency exchanges have erased millions of dollars’
worth of digital currency, and the market values of bitcoin and other cryptocurrencies have gyrated
wildly.18 Moreover, speculative investment in new and unproven blockchain ventures is growing. Many
start-ups are bypassing conventional methods of fundraising from established venture capital investors
and instead crowd-funding investment through so-called initial coin offerings (ICOs), in which a
blockchain venture sells cryptocurrency tokens that will have utility within its network ecosystem. Start-
ups rose over $5 billion through ICOs in 2017, but market analysts warn that many of these ICOs are
scams, and the U.S. Securities and Exchange Commission has launched investigations to crack down on
fraudulent offerings.

This flurry of activity is a result of the transformative potential blockchain has. Some observers liken
blockchain to the Transmission Control Protocol/Internet Protocol (TCP/IP) suite that enabled the
internet. By this analogy, applications such as cryptocurrency trading facilitated by the blockchain are
similar to email and e-commerce facilitated by the internet. In the future envisioned by blockchain
proponents, a rich application layer built atop blockchain architecture can revolutionize disparate fields,
from health care to financial services and energy. In each of these fields, however, blockchain will have
to surmount obstacles to upend the existing order. Initiatives to apply blockchain to reimagine the
electric power sector, in particular, will encounter economic and regulatory structures that are resistant
to rapid change.

In the first chapter of his master thesis Qianchen Yu provided a detailed introduction to the blockchain
technology blockchain process blockchain technology prospective and a few platforms of block chain
technology. As described by Qianchen , among all the data structures for DLT, blockchain is only one of
the possible, yet the most famous subcategory. It is a distributed, transactional database, creating a
shared ledger system maintaining the integrity of data[26].Globally distributed nodes are linked by a
peer-to-peer(P2P) communication network with its own layer of protocol messages for node
communication and peer discovery [27]. When a new data entry is agreed upon, in accordance with a
consensus protocol, it is packed together with other agreed entries taking place at the same time. This
package of transactions, as well as the hash of the latest block, is then sealed into a new "block". This
block is appended to the longest chain of blocks that have reached consensus previously. This structure
links all the valid records in sequential order. Section 1.2.2 demonstrates the full process. The signed,
chained data records provide security, anonymity, and data integrity [28], without a third party’s
verification of the authenticity of the transaction [29]. With this primary advantage, many industries
envision the blockchain technology to be the backbone of the disruptive revolution in the future,
regardless of its current technical challenges and limitations. Section 1.5 gives some examples of these
challenges and limitations. Due to the novelty of the underlying technologies, there is no well-known
definition of DLT and blockchain. Researchers and practitioners may confuse these two terms [30]
despite the quality of the work they deliver in the field of blockchain. Some studies [17] define the
common interchangeable usage between the term "blockchain technology" and "distributed ledger
technology" or DLT.

Qianchen Yu additionally provides details about the technical details of the blockchain technology under
a subheading of the first chapter. Qianchen introduces a few terminology regarding blockchain such as
Permissioned and Permissionless DLT, Public and Private Keys, Smart Contract, Transaction and Block ,
Consensus Algorithm and more. Under the comparison section Qianchen Yu compares three major
blockchain technologies naming as Ethereum, Hyperledger Fabric and Corda their characteristics and
their main operations.

2. Blockchain Application in energy sector

Blockchain technology can be a tool for managing increasingly complex electric power systems, even as
more intermittent renewable energy flows into the grid and customers connect new equipment to
produce, store, and consume energy. Recognizing this, diverse entities have recently launched ventures
to harness blockchain in a myriad ways, including both for-profit and nonprofit undertakings (see
appendix for the full list). Roughly half of them use a public blockchain; the other half use private or
consortium blockchains

2.1.Blockchain Actors
Under the heading of “Blockchain and the Electric Power Sector: Actors and Applications” David
Livingston, Varun Sivaram, Madison Freeman, and Maximilian Fiege discuss the application of
blockchain in energy sector in a quite comprehensive manner. Writers describe a wide range of
applications of blockchain in energy sector particular the use of blockchain technology by the startups.
According to their research paper start-up companies account for the majority of new blockchain
ventures. From March 2017 to March 2018, start-ups raised over $300 million to apply blockchain to the
energy sector. Almost 75 percent of the funds they raised came through ICOs, compared to just 20
percent from traditional venture capital sources.20 Still, start-ups face serious barriers to
commercializing their technology. Additionally this research paper provides a worldwide history of
blockchain applications in energy sector by discussing the categories and the actors involved.

Around the world, electric power systems are heavily regulated, and utilities often have a monopoly
over operating the grid and delivering electricity to end users. Fortunately for blockchain’s prospects,
utility-sponsored initiatives comprise the second most numerous category of blockchain ventures. From
the Tokyo Electric Power Company (TEPCO) in Japan to E.ON in Germany, established firms in the
electric power sector are launching their own initiatives or partnering with startups.21 Some of these
firms own power plants and trade the electricity they produce in wholesale electricity markets; those
firms see blockchain as a way to improve the functioning of the markets. Others operate transmission
and distribution grids and hope that blockchain can help them do so more efficiently in the face of rising
system complexity. By virtue of these firms’ dominant positions in the electric power sector, utility-
sponsored blockchain initiatives have a greater chance of achieving commercial traction.22 Another
category of actors comprises other corporations—both in the broader energy sector and in other
industries—as well as nonprofits. For example, major European oil companies such as Shell and Statoil
have partnered with the nonprofit Rocky Mountain Institute to support the Energy Web Foundation,
which aims to develop a standard blockchain platform upon which energy applications can be built.
Other initiatives, such as Hyperledger and the Enterprise Ethereum Initiative, bring together
corporations such as Toyota and Intel to develop blockchain standards across various industries,
including energy.23 Yet another category includes the public sector. A smattering of governments and
public sector organizations—including the government of Dubai; U.S. national laboratories; and energy
regulators in Singapore, the United Kingdom, and Australia—have signed on to initiatives to develop
standards and test blockchain applications such as energy trading. Involvement of public sector entities
such as regulators will be crucial to blockchain’s commercial prospects because the electric power sector
is so highly regulated.

These various actors are sponsoring energy and blockchain initiatives on every continent save Antarctica
—most of them are in Europe, followed by North America. This geographic spread means that
blockchain ventures will confront a wide range of regulatory regimes and electric power system
characteristics, and they will have abundant opportunities to learn across regions.

Louise Hagström Olivia Dahlquist also discussed the actors of blockchain technology in their research
paper. The blockchain community and start-ups have driven the early development of blockchain. This
has mostly been done open source, meaning that the code is open for anybody to view and copy [20].
Many actors have therefore had the possibility to take part of the development, and recently large
corporations have taken the lead on developing blockchain.

Ethereum is a platform for blockchain applications using smart contracts. The Ethereum project is
developed by a foundation spread across the world, but still one of the founders Vitalik Buterin plays a
role as the spokesperson of Ethereum [57]. During the spring of 2017 a network called Enterprise
Ethereum Alliance (EEA) was established, with goal of sharing design for public and private blockchains
working with start-ups and corporate giants [58] [41]. Some of the companies engaged in EEA are
Microsoft, UBS, Intel and Accenture [59] [42].

The Hyperledger project is an umbrella for several different blockchain developments. For the last years,
the project has gained a lot of attention and is hosted by the Linux foundation, with support from big
industry names as Intel, J.P. Morgan and Accenture [60]. IBM’s Fabric is the furthest developed
blockchain in the Hyperledger project. Fabric is, according to IBM, a platform for flexible blockchain use
[61].

2.2. Applications