Applications of Blockchain in Energy Trading

Blockchain systems address this issue by enabling trade confirmations and payments through smart contracts, eliminating the need for unnecessary intermediaries.

FREMONT, CA: In a financial market, energy trading helps buy and sell energy-producing commodities like crude oil and natural gas. Daily lives heavily rely on a steady supply of energy, and the demand and supply of energy products affect global prices. Energy trading holds significant importance in times of scarcity. Energy commodities are traded through "energy derivatives," contracts based on assets like crude oil. The contracts are used for trading options, swaps, futures, forwards, and swaptions. Blockchain technology has been recognized as a transformative force with its remarkable capabilities. Blockchain can bring about impactful changes. 

Blockchain, a decentralized ledger-based application, records and preserves financial transactions. It can be utilized in various ways, such as through "smart contracts." Smart contracts are digital contracts recorded and stored permanently on a blockchain. The contracts can be programmed to execute specific actions when predefined conditions are met. It enables the automation of buyer-seller relationships in the energy trade market. In payment-upon-delivery processes, smart contracts stored on blockchain systems can be linked to temporary escrow payment accounts, taking automation to the next level. Smart contracts can capture essential details of energy trade transactions, such as prices, receivables or payables, and dates. 

The details are stored securely on the blockchain, and the smart contracts are enforced once the specified payment and delivery criteria are met. Blockchain systems in energy trading facilitate seamless interactions between buyers and sellers, eliminating geographical and other inconveniences. It helps boost trading assets beyond cryptocurrencies and enables the establishment of rules for blockchain systems to operate. Blockchain technology can revolutionize energy trading by automating seller-buyer relationships, recording trade details securely, and harnessing the benefits of smart contracts. 

Energy trading often incurs high costs, mainly due to the involvement of intermediaries in the transaction process. Trade expenses like audits, record keeping, and verifications, often associated with intermediaries, can be significantly reduced as their involvement decreases. Time is as valuable as money, and blockchain's participation in energy trading removes the need for third-party facilitators. It allows faster completion of international and local transactions, even for overseas payments, leading to more efficient energy trading processes. Peer-to-peer (P2P) energy trading involves directly exchanging energy between grid-connected parties. 

Blockchain systems offer a secure platform for setting up P2P electricity trading by ensuring high data security and transparency levels. Blockchain technology provides scalability to participants in P2P energy trading and mitigates cyberattacks by eliminating a central server as a target for attackers. It prevents issues such as double-spending attacks and Denial-of-Service (DOS) attacks, which are common in traditional P2P energy trading. Blockchain adds a layer of protection to transactions and prevents data tampering by storing information in cryptographically hashed blocks. Blockchain secures this communication channel by preventing DOS attacks.