The energy industry, multinational corporations, traders and commodities trading platforms are experimenting with and implementing blockchain technology in order to streamline processes and allow for new forms of energy delivery. Energy market participants anticipate that blockchain technology will help standardize and streamline field processes and back-office operations in order to reduce the cost of energy extraction, processing and delivery, and to make physical and cash-settled trading more nimble.
The terms “blockchain” and “distributed ledger technology” generally refer to databases that maintain information, secured with cryptography, across a decentralized network of computers. Blockchain enables users to record transactions on a shared ledger that is duplicated across the network, rather than each user having to maintain their own proprietary ledger. Public blockchains can be used by anyone with an internet connection and the requi- site software and hardware. Private or permissioned blockchains can only be used by those who have a validated invitation to interact with the network. For corporate enterprises in the energy markets, permissioned blockchain networks may be more appropriate because limits can be placed on who is allowed to participate in the network and the types of transactions the network will support.
This article describes three use cases for blockchain in the energy industry and the securities and commodities regulatory considerations that may apply to those use cases. Finally, we address other considerations that will impact the future of blockchain in energy.