Navigant Research Blog

Cashing In on Blockchain

— January 23, 2018

The 325 initial coin offering (ICO) events in 2017, as tracked by CoinSchedule.com, raised a combined $3.7 billion that the Securities and Exchange Commission is still working out how to define and regulate. Surging cryptocurrency market capital is drawing huge numbers of new players into the market—some are pioneers, some are sheep, and some are going to jail for using ICOs to make a quick buck.

It is not just ICOs and greenhorn startups that dangle blockchain as a shiny object in front of investors. The combination of uncertainty, novelty, and potential for wealth has created an environment where a finance firm’s stock price can grow by 2,000% just by acquiring a blockchain company that has yet to post revenue. Seekingalpha.com put together a graphic showing how non-alcoholic beverage company, Long Island Ice Tea, boosted its stock value 183% in one day just by changing its name to Long Blockchain and by making vague promises about experimenting with the technology. Similarly, Kodak’s share prices doubled after it announced a blockchain-based photo licensing platform.

Something Is Rotten in the State of Blockchain

It is tempting to look at the explosion of blockchain projects in 2016 and 2017 as an encouraging sign that blockchain has earned its way into the mainstream as a powerful and innovative technology. Surely the diversity of companies announcing pilot currencies and proofs of concept can only be good for R&D, right?

The answer is that a yawning gap exists between announcing a project and treating the underlying technology seriously, just as there is a gap between announcing an ICO and having a real and sustainable product. Projects like this only help blockchain progress if the companies behind the announcements have a legitimate purpose beyond capitalizing on the world’s blockchain fever.

Where We Are Headed

It is possible—maybe even likely—that fraud, exploitation, and publicity stunts are a natural part of blockchain’s growing pains. And it is true that for the strong applications and business models to rise to the top, the weaker applications must drop out, one way or another.

We should not be afraid of projects and experiments failing. But is a cause for concern that blockchain has become a talisman, drawing in everyone from first-time investors to established companies, few of whom seem aware that most will fail. When the hype dies down, share values will drop with it—blockchain’s status as a magic word simply cannot last.

It is not just the opportunists that benefit from all the hype. Developers of serious blockchain solutions need to work doubly hard to separate themselves from the chaff, and they have an obligation not to let the investment flowing their way go to waste. The question is not whether the crash will come, but, as the creator of the joke turned billion dollar reality, Dogecoin, asks, “will there be enough magic left to build something real once it does?”

 

Tackling the 2 in V2G

— January 16, 2018

EV adoption is speeding up around the world, and while electrification offers emissions reductions and other benefits, it creates new challenges and opportunities for grid operators. Navigant Research expects that EVs will make up 5% of the global market for personal vehicles by 2024, and that collective charging requirements will add 160 GW of demand to electricity systems as owners switch from filling up to plugging in.

Vehicle-to-grid (V2G) technologies seem an obvious and low cost alternative to ramping up generation in the face of new demand from EVs. Why not use EV batteries to shift and shave demand peaks during the 95% of the time they sit unused? But making V2G a reality requires significant infrastructure and software developments, and EV owners must also consent to allowing grid operators access to batteries for flexibility services.

Integrating EVs Requires New Technology

If EV batteries are to be called upon for V2G, they first need a physical connection to the grid that supports two-way charging infrastructure, which are not yet widely available. However, major automakers like Honda are already developing two-way charging stations with V2G in mind, and deployment is likely to increase as more EVs hit the road.

Once two-way charging infrastructure is in place, the vehicle-station pair needs a software solution for monitoring grid signals and managing power flows. IBM and TenneT are collaborating with sonnen and Vanderbron to pilot a blockchain-based V2G platform that can adapt to conditions on the grid, such as congestion or oversupply of wind power. The blockchain records the locations and identities of devices involved, exchange volume, and other details as a secure and verifiable basis for settlement with the EV owner.

Consumers Need to Be Compensated for V2G Risks and Services

Technology is only half of the equation—EV owners also need to participate. Owners that participate in V2G take on the risks of doing so, and should expect to be compensated for providing flexibility, services, and for potential wear and tear of the vehicle’s battery (though there are conflicting views on this). Owners will also require guarantees that integrating will not cost drivers the use of their vehicle in emergencies or other situations.

In the short term, compensation might provide enough incentive for owners to adopt V2G. One study estimated the value of flexibility services from £600 to £8,000 ($800 to $10,800) of income each year for vehicle owners. Whether the income is a sufficient counter to real or perceived risks will likely vary with a customer’s individual situation, which constrains the potential of V2G.

The Rise of Mobility as a Service (MaaS) Could Help Maximize V2G Potential

Evolving vehicle ownership models could have a huge effect on V2G. In a world where consumers access on-demand fleets of EVs owned and operated by an MaaS provider rather than owning vehicles, many barriers to V2G adoption disappear.

Since demand for MaaS vehicles is likely to be cyclical, with lower demand during midday when grid congestion demand is higher, a portion of the fleet can be parked and plugged in to act as a buffer for the grid. Utilities and grid operators could partner with fleet owners to ensure that some fraction of the electrified fleet is grid-connected at any given time, providing the grid with a reliable pool of flexible resources in exchange for a new source of revenue. The service provider pools customer demand, and any effects on vehicle battery performance become a straightforward business cost.

As is often the case, the challenge is getting from here to there. Navigant Research can help—check out our latest report on the future of MaaS.

 

High Stakes Blockchain Applications Are a New Frontier for Cybersecurity

— November 30, 2017

Blockchain-Based Systems Are Only as Strong as Their Weakest Link

On November 16, the US Patent and Trademark Office released a patent filed by Nasdaq that describes a blockchain-based architecture that could be used to track the ownership and transaction of stock market assets.

Nasdaq is part of a wave of big name organizations globally—including banks, utilities, and the Pentagon—that have announced plans to experiment with blockchain to determine whether it can help their organizations run more smoothly, efficiently, and securely.

As the hype train charges onward and expectations skyrocket, there is a real risk that in the rush to generate solutions to increasingly complex high stakes problems, adopters will forget that simply adding blockchain doesn’t make a system bulletproof. Before integrating blockchain into keystone systems like stock exchanges or electricity grid operations, it’s important to understand where blockchain brings security to a system, where it doesn’t, and how it interacts with other pieces of the puzzle.

Blockchains Are Built on Security and Cryptography Principles

Blockchain architectures are considered a robust and highly secure means of storing information for several reasons:

  • The blockchain is stored across a decentralized and distributed network of many computers, creating a redundant record with no single point of failure.
  • Network nodes use a resource-intensive cryptographic process to reach majority consensus on the chronology and validity of transactions between nodes.
  • The full record of information stored on the blockchain is auditable by any node in the network.

In combination, these properties make the blockchain ledger itself resilient to attacks. Indeed, despite soaring valuation that provides a $140 billion incentive for hackers, the underlying architecture of Bitcoin has never been broken.

Determined Hackers Will Work Around Unbreakable Cryptography

Rather than attacking the blockchain itself, hackers have repeatedly exploited weakness in the hardware and software components of the system—the personal computers and devices that make up the nodes of the network and the software applications that enable autonomous transfers and digital contracts. It’s the cryptographic analog of identity theft: a thief doesn’t need to smash their way into a bank vault if they can clone your credit card.

White hat hackers used exactly this principle to gain irreversible control of users’ Bitcoin wallets by exploiting a hole in cellular text messaging protocols. A hacker famously exploited errors in an Ethereum smart contract to steal $31 million  from early backers of a startup. The blockchain preserves an immutable open record of the thefts for all to see, but it also makes them irreversible.

Planning Ahead

The electricity system is a frequent target of cyber attacks backed by powerful antagonists. To date, no blockchain architecture has yet been subjected to a stress test of the magnitude we might expect if it were supporting, say, the automated demand response capabilities of a microgrid in an urban financial district. Potential applications in these systems are among the most transformative opportunities for blockchain, but will also be among the most prone to cyber attack and the hardest to field test at scale.

Until a set of comprehensive security standards for blockchain-based systems is developed, Nasdaq and any organizations seeking to adopt blockchain-based solutions must recognize that blockchain does not inherently provide end-to-end security. For blockchain to be part of the solution requires thoughtful implementation and proactive design that maximizes security at the ends of the chain. Every link of the system must be evaluated for security and potential vulnerabilities, and adopters should be especially cautious about entrusting critical systems to the technology.

 

If You Build It, They May Come: Solving for Customer Experience in TE Platforms

— November 16, 2017

The utility customer of the future lives at the center of an ecosystem of networked and largely automated smart devices. Their household is within their preferred temperature range whenever they are at home; their EV charges when electricity prices are cheapest and is always ready for the morning commute; and they store any surplus electricity generated by their rooftop PV or, if the price is right, sell it in a digital market. Every decision made by each of these devices is a data point used by different service providers to refine and optimize customers’ distributed energy resources (DER) and integrate them with wider grid processes.

Transactive energy (TE) platforms will underpin tomorrow’s consumer energy market. The interface between energy producers and consumers, TE platforms allow parties to interact with one another in an open market while ensuring the needs of end users and the grid are met. These platforms will incorporate multiple technologies—including blockchain and machine learning—which have attracted a great deal of interest from the energy industry. But what should the consumer experience with TE platforms look like in practice?

TE Platforms Must Balance Grid Needs, User Preferences, and Ease-of-Use

TE service providers must supply an appealing product that creates value out of the box while providing options for users who are more hands-on. Optimizing household energy consumption to minimize costs requires a multitude of forecasts, calculations, and decisions. Since electricity bills in the US average around $115 per month, or 0.2% of the median household income ($55,000), the typical consumer has little incentive to manage these processes themselves.

Grid+, a technology startup and TE platform provider, solves this problem by supplying users with intelligent agents—hubs that integrate price signals, user preferences, and grid needs to coordinate a household’s smart device (TransActive Grid and Grid Singularity have a similar approach). While some user preferences may be set manually (e.g., preferred temperature range), most will be automated based on analyses of user behavior (e.g., heating the house prior to the customer’s return from work). The user decides their preferred balance of comfort and profits and they need only supply the agent with enough currency to pay bills and execute the necessary transactions on their behalf. All transactions are recorded rapidly and securely on a blockchain.

Thinking with Portals

Aspiring platform providers must devote as much attention to the end-user experience as they do to their platforms’ underlying technology. Customers balance their own comfort levels, convenience, financial costs and profits, and societal or ethical goals when making decisions about electricity consumption. Automation and machine learning solutions have the technological capability to deliver on that balance, but optimizing behind the scenes won’t be enough to inspire consumer trust or purchasing power.

The reality is that the Energy Cloud customer won’t care whether their platform rests on blockchain or a centralized database or a traditional billing system. They’ll care about outcomes and will need on-demand access to a portal that elegantly consolidates and visualizes their Internet of Things (IoT) ecosystem’s performance: What are their profits from selling power to the neighbors? How well is their PV system performing and have they paid off the install costs? How efficient is their home? Positive, confident results will drive further investment into the platforms themselves (so might friendly rivalries between local users).

For TE platform providers, competition for users will be fierce, and consumers will have their pick of platforms vying for their attention. The TE leaders in the Energy Cloud future may not have the most advanced technology, but they will have a blend of technology, functionality, user interface design, and perhaps gamification that creates an attractive and compelling user experience.

 

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