Blockchain technology, the software behind the massively popular cryptocurrency Bitcoin has now officially entered the oil and gas sector.
This distributed ledger technology for digital currency payments is gaining confidence with real-world applications towards improvements in operations and finance.
Executives in the oil and gas industry are yet to access its potential benefits adequately. But, before we delve further, let’s understand more with a small frame of reference.
What is Blockchain Technology?
The blockchain database is shared across millions of computers simultaneously, with the public, and data stored remains incorruptible. How? Data in records are broken down into fragments which is then stored in multiple server locations.
While the database is decentralized, and all economic transactions are accounted for and authenticated at every touch point, known as ‘nodes.’
Data can only be altered when there is an agreement among a majority of these nodes. This agreement ensures that records cannot be hacked or violated – and any change in the record is automatically made public across the entire network.
How are Transactions Made?
Blockchain eliminates the need for third-party businesses like legal firms or banks. The transaction is conducted directly between the owner and the buyer. A combination of public and private keys is used during a transaction.
For example, a consumer requests access by using his private key and the producer’s public key. The producer then accepts the invitation by using his private key. The nodes connected in the network can see that a transaction has taken place, but since they cannot decrypt data without the private keys of the consumer and the producer, they are unable to view the details of the transaction. This makes the cryptographic algorithm used in Blockchain secure.
Potential Uses in the Energy Market
Oil and gas market, with their ever-growing concern to struggle with price fluctuations, has found an innovative technology in Blockchain which can now meet the acceptable margin of costs.
The energy sector can potentially benefit from the supply chain, purchase orders, payment invoices and validation of documents before the final delivery of goods. All these can be managed through the ledger which gets updated in real time and is synchronized across all platforms in no time. Supply chain, proof of origin, managing the assets can be done without the need of a central intermediary.
The significant leverage that is brought about in utilizing Blockchain technology for this market is:
- Reduced cost
- Transparency and authenticity
- Security and elimination of fraud, and
- Smart contracts
Stamped documentation and validation can be updated instantly for all the participants’ knowledge, thereby reducing administrative procedures regarding auditing or taxation. The absence of a third party participant means a reduction in legal fees or broker’s commission. Since there is no scope for fraud or human error, there would be no lapse of time.
Transparency and Authenticity
Blockchain provides a platform where every stage of the transaction performed can be tracked and stored permanently for your record. Digital tokens represent the goods involved in the transfer and can be tracked at any point of supply chain journey. Moreover, this record is accessible to every computer connected to the network. The sophisticated algorithm is secured from unapproved parties by preventing them to access/alter invoices.
Security and Elimination of Fraud
Emerging IT solutions that claim to provide all-around security can fall flat because of one main reason. The database is encrypted and hosted on a single server. Unlike these, Blockchain uses the fragments of data encrypted and stored in disparate locations. Even if you can consolidate them somehow, you would be unable to decrypt, owing to the absence of private keys. A combination of private and public keys is used by two or more participants to get the transaction approved. Hence, there is no chance of data being hacked.
The tremendous volume of the transactions made in oil and gas projects consume a significant time for documentation, verification, and execution. Using automation techniques can ease these procedures. Blockchain can provide smart contracts which are automated much before the actual time of execution, sometimes years earlier. This facilitates for smooth execution.
Business models, especially the energy sector, are open to rethinking their tried and tested transaction processes. Oil and gas sector deals with overseas payments and tax laws governed by various nations. Joint ventures take up a whole share of the market, which makes transparency a necessity. As with any new revolutionary innovation, Blockchain’s entry into the energy market is gaining momentum, and we at Terra ATS are at its forefront. With such advantages, this technology is here to stay.