Blockchain

A blockchain is a decentralised, immutable ledger. It can be used to record transactions involving digital assets without a central authority. Each transaction is organised to form a block. Each block references the previous block to create a “chain”. Participants in the system verify the transactions in a block before it is added to the chain in a way that creates consensus such that participants can agree on the authenticity of the transaction. This is how a blockchain provides a decentralized protocol to control digital assets.

Blockchains add a verification layer to the internet that allows people, devices and algorithms to transact with each other directly. The trading, verification and governance of data is managed today through Trusted Third Parties which are not necessary in a blockchain-based network.

Blockchains are a significant next step in the digitalisation of business, government and society. In the digitalisation of the energy industry, blockchain will not only enable automation but will create digital autonomous systems. Blockchain will enable a further reduction in intermediaries in value chains.

Blockchains solve a very fundamental problem in computer science: the double-spend problem. This means that any digital asset can be duplicated and spent infinitely. But it is not a computer science problem alone, it is a very realistic problem for transactions involving online data.

The essence of that problem is that there is no such thing as digital continuity: the unbroken and consistent existence of a digital object over time. Or in plain English: How can you prove that a digital asset is real? This is now solved by using intermediaries taking on the role of Trusted Third Parties and (manual) reconciliation of data between disparate databases and systems.

On a blockchain, we create a unique ID of a digital asset and record any and all state changes to that digital asset. This makes the digital asset real, because we can verify that it exists from inception until the present. And we do not need any intermediary to guarantee the existence or authenticity of the digital asset. We also do not need reconciliation if we move the digital asset between parties, because there is only asset with one reality. Nothing is lost in translation because there are no translations!

This can significantly reduce transaction costs associated with the exchange of assets and information. It enables a single source of “truth” and transparency and traceability to all transactions and records without the need for a central owner or database. Also, because it is cryptographically secure and distributed, it is less susceptible to data breaches compared to today’s current model of large databases and information maintained by a central entity or intermediary.

The impact of blockchain on processes is straightforward: less intermediaries and less need for reconciliation which means lower costs, more real-time and increased efficiency. Processes will become more digital as the need for manual reconciliation between databases will be removed. This is not only true for digital assets, but also analogue assets with corresponding data obtained through sensors. The real asset and its digital representative can become one. This is valuable in, for example, logistics or provenance.

An example of a blockchain project underway in this space within Shell is the Digital Passport system for equipment. We have initiated a pilot project to create a decentralized digital passport system for the authentication of equipment, parts and products. Blockchain technology makes it possible to create a digital passport for a piece of equipment by providing a system that enables data to be disclosed between certain parties in a supply chain. In turn, this enables us to enhance tracking and management of safety-critical process equipment or products throughout their life cycles.

Many Shell processes rely heavily on paperwork for records and transactions relating to procurement, inspection, certification and tracking of hardware and materials. This paper-based approach results in higher costs and longer delivery times. The decentralised digital passport provides a record of all the relevant events and checks in the life cycle of each piece of equipment. These details can be verified by everyone in the supply chain. They present a single source of truth and are selectively visible to relevant parties. Encryption enables secure data sharing and shielding of sensitive data. In this pilot, Shell is working with industry partners such as manufacturers, inspectors and contractor companies to redefine the way it collaborates in its supply chains. These technologies are expected to reduce costs, increase productivity and ensure safer operations for every party within the ecosystem.