With all the hype surrounding blockchain and its application in the electricity industry, we often get asked about the applications for this emerging technology in the water industry. So, here is a brief summary of some emerging thinking about what blockchain could do for the water industry.
What is blockchain?
A blockchain is referred to as a continuously growing list of records, called blocks, which are linked and secured using cryptography. Each block typically contains a cryptographic hash of the previous block, a timestamp and transaction data, which by design makes it inherently resistant to modification of the data. Blockchain is a form of open, Distributed Ledger Technology (DLT) which is useful to record the transfer of assets within a business network in a shared ledger that provides a single “source of truth” for the participants in the business network.
Potential applications in the water industry
There are a range of theoretical applications for this technology across most industries, involving the recording of events, and other records management activities such as identity management, transaction processing, documenting provenance, traceability or even voting.
Given these theoretical applications, potential areas of adoption within the water industry include:
- Water rights trading: Providing additional security and efficiency in regulatory compliance processes by enabling real-time monitoring and auditing of water trading activity that would provide regulators with visibility over the market and its outcomes.
- Smart contract payments and settlements: Reducing transaction settlement time by disintermediating third parties that support transaction verification or validation and thereby accelerating settlement so that trading forum participants can settle their accounts at any specified interval, in near real-time and with reduced (or nil) transaction fees.
- Peer-to-peer trading: Energy intensive water treatment and pumping processes could be incorporated into blockchain based peer-to-peer trading in energy.
- Capital raising: Initial Coin Offerings (ICOs) have been used to raise capital for projects through the purchase of blockchain-based cryptocurrencies and these funds could be used for water-based projects.
MHC’s study with AGL and IBM into the applicability of DLTs like blockchain to track peer-to-peer trading in the electricity industry found that DLTs are currently not suitable for high-frequency and very high-volume transactions. This means that, in the case of trading applications in the energy industry, the DLT would not directly record individual trades of energy (say every 30min) since the volume of such data would be too large. Instead, the DLT would record details of the trading instructions, including each participant’s history of instructions over the contract period. In the case of the water industry where water trades are typically less frequent and of less volume and generally centred on irrigation uses only, adoption of DLT may be more easily achieved.
Practical applications of this technology through commercial software solutions are only just starting to emerge so water utilities should be looking out for them and remain open to how they could be applied to their business. Getting involved in subsidised trials would be a good place to start. Like any projects and trials involving new and innovative technology there is a risk that it doesn’t work – or at least it doesn’t provide the benefits expected. Any involvement of cryptocurrencies or initial coin offerings in a pilot project introduces significant risk due to the unregulated and highly speculative nature of these things. However, there are plenty of opportunities for projects that incorporate blockchain technology without getting involved in cryptocurrencies.
Some early case studies
There are already several blockchain projects and trials occurring in the water industry, some of which are in conjunction with energy applications. With a strong energy-water nexus, there would be scope for more blockchain projects involving both energy and water. Projects currently underway in Australia include:
- Power Ledger’s project to integrate distributed energy and water systems in Fremantle, which received over $2.5m in federal government funding in late 2017; and
- Civic Ledger, which received $80k in government funding to develop “water ledger” a blockchain enabled peer-to-peer trading platform that leverages smart contracts and token management systems to monitor water trading and automatically update state registries. Civic Ledger has also reportedly secured a contract with South East Water to explore the potential of a blockchain based micro-trading platform for the trading of rainwater.
In the US, Origin Clear, a water treatment technology provider announced it was creating a new blockchain protocol called Water Chain. This protocol would be used in conjunction with smart contracts to make payments for international water treatment plant developments – avoiding delays and risks associated with traditional currency exchange. Similarly in China, NW Blockchain Ltd intends to use blockchain technology to raise capital for industrial waste water projects through the sale of asset-backed tokens.
The more the water industry explores blockchain technology the more it will learn. It is still very early in the evolution of the technology and breakthrough applications of blockchain are likely to occur in other sectors first. Keeping an open mind and looking for the opportunities in applications that emerge in other sectors will be key to transitioning the benefits to the water industry.