In three series, the consulting company conCBS asked Prof. Dr. Dr. Dietmar Janetzko the most important questions about two top digitalization topics. In the first part, Prof. Janetzko explains the opportunities and limitations of Blockchain technology.
What is Blockchain technology and for which areas can it be applied?
The Blockchain is a distributed database that works intensely with encryption technologies. The Blockchain was first introduced by Nakamoto (2008) in association with the Bitcoin. The initial objective was to store financial transactions, in a decentralized and forgery-proof manner, that could verify their validity. According to Nakamoto, confidence should be created without additional actors, such as banks. Meanwhile, there are many variations of the original concept of Blockchain, both inside and outside the financial world, such as the exchange of confidential medical information. Other projects using Blockchain technology are within the area of supply chain management (SCM).
A general challange of the SCM is that each actor uses their own system. Various data is entered and stored in this system but not forwarded. As a result, there is often no transparency between the actors. Blockchain technology, however, enables the flow of information between the different actors, facilitating the reconstruction of the happenings, in the first part of the supply chain, at the end of the supply chain, and within a very short timeframe. This allows for transparency of events which, for example, in the food industry, leads to greater consumer safety. As a result, Blockchain technology is on the rise in various industries or is being tested for its suitability. A number of experts compare the disruptive potential of Blockchain with that of the internet.
How can Blockchain technology support the sustainable business of companies?
The Blockchain currently used in Bitcoin is anything but sustainable. The reason for this is the proof-of-work consensus mechanism that is currently being used in Bitcoin but also in many other digital currencies. For the Mining of new Bitcoins, a cryptographic puzzle has to be solved, in competition with other miners, this requires tremendous computing power, which leads to enormous energy consumption. The website www.digiconomist.com shows that, worldwide, Bitcoin Mining consumes more energy per year than Portugal.
However, a Blockchain does not necessarily have to be operated with high power consumption levels and ecological alternatives to the current consensus mechanism are currently being tested. Once this problem has been resolved, the specific strengths of Blockchain can be put to use in the service of sustainable management. This includes transparency and traceability, creation of trust and avoidance of intermediaries. One of the many sustainability projects that succeed in using Blockchain technology is the Brooklyn Microgrid, from LO3 Energy and Siemens; a regional market for solar energy, where solar energy can be bought and sold.
In the second part of the series on Blockchain Technology and Crypto Currencies, Prof. Dr. Dr. Dietmar Janetzko, explains what cryptocurrencies are and how they work.