Jose: Hi, I’m Jose Balderas and this is The BusinessMakers Show. Our topic today is blockchain, and with us today is Tyler Smith, Director of ConsenSys Energy. Hi, Tyler.
Tyler: Great to be with you.
Jose: Can you tell us a little bit about ConsenSys Energy?
Tyler: Well, ConsenSys is currently the world’s largest development studio building on Blockchain technology. When I say development studio, we are a software development company that builds solutions, both in products and also for business applications. But ConsenSys, in general, was founded by Joseph Lubin, who was one of the founders of Ethereum. And he had been a long-time investor in Bitcoin and other blockchain related activities. And so, he decided to do a for-profit venture, and that’s the birth of ConsenSys. We’ve been around for about two and a half years. So, energy, ConsenSys Energy is a new thing within ConsenSys. What we found is that there’s a lot of oil and gas and energy companies in terms of renewable energy, grids, and all these other applications that have come to ConsenSys wanting new Blockchain solutions.
Jose: So, how big is the energy space within Blockchain?
Tyler: So, ConsenSys Energy is starting here in Houston. We are growing extremely fast. I think we’re going to plan on hiring about five people a month for the next several months. We have a large number of oil and gas clients already, but so far, we’ve been putting them into certain product lines. For instance, when a company comes to us and wants to do a supply chain, we’ve been putting that kind of indoor supply chain product line and servicing them through that. But we’re also seeing a lot of other opportunities for these companies to use a blockchain, say, in their accounting function, or their HR function, or their trading group. And so, we want to create a better interface into ConsenSys than what we had originally. I was brought in to be the director and we’re sourcing more and more resource from ConsenSys as needed, as we grow.
Jose: So, you actually have quite an interesting background. You were at BHP Billiton and now you’re at ConsenSys, specifically ConsenSys Energy. Tell us a little bit about what you did at BHP.
Tyler: Well, so this is going to be talking about my journey, right? My journey into the blockchain space. I graduated with a Ph.D in Geophysics from Rice University. I started work in the oil industry, I worked for about 9-10 years for BHP as I found oil and gas all around the world. In 2012, I caught wind of this incredible new financial experiment happening on the internet called Bitcoin, and I was fascinated. I didn’t really know if Bitcoin was actually going to become something viable for the financial institutes of the world, but I knew that it was something interesting. And so, I did what we call in the blockchain world, I went down the rabbit hole, right? I was like Alice in Wonderland going to Wonderland.
The more and more I learned, I got intrigued by this concept of colored coins, or taking a little sliver of a Bitcoin and tagging it using metadata. I thought if that’s something that the oil and gas space really needs, what if we could track barrels of oil in a more efficient way around the world. Or track the pricing mechanisms for oil around the world. And so that was really what got me interested, and I spent 4-5 years, basically, just throwing myself into the space after work. Until finally, I came up to a place where I said, if I don’t build a business case for BHP I’m going to have to leave. So, I presented a business case for them to build a pilot blockchain, and it was the very first supply chain, production supply chain using a blockchain for any enterprise in the world. And we built it and it was an incredible experience.
Jose: I think a large majority of our audience probably doesn’t have a good foundation besides just hearing the buzzword Bitcoin. Can you tell us a little bit about what blockchain is?
Tyler: Sure. I think the way that people should kind of visualize the blockchain and the way that it’s going to affect their lives is, it’s like TCP/IP. That’s the communication protocol for the internet. That’s what enables all the amazing applications that we have in the internet; Facebook, Google, you know, all of these other things. These massive services are all enabled using a simple foundational protocol for communication. What blockchain represents, and what it is, is it’s a new foundational protocol that allows for the transfer of value; or, the creation of identity, or the registration of a vote, which are things that we can’t do on the internet because they’re siloed into servers.
So, what the blockchain does is it distributes what’s called a shared ledger. And all that is is a good sort of registry of a state. You call it a state machine. All of the nodes of the network act as auditors that are recording this data. You can kind of think about it like a spreadsheet. A big spreadsheet with columns and rows, but that spreadsheet is updated on every single spreadsheet in the network automatically every time there is a change in state. And so, everyone is on the same page and everyone can trust that that spreadsheet, or at least that blockchain is the truth. It’s the most recent and the most up to date truth that we have.
But there’s also a really interesting thing, that’s basically bitcoin, is a ledger, it just tracks value. Ethereum, you can see the shirt, right? I’m a big fan. Ethereum adds something really interesting on top of that. If you still have that mental image of an Excel spreadsheet, now add to that a macro or a little program that you can embed, but this little program is something that everybody can trust that it will execute properly and that it can’t get hacked. It can’t get changed so that you all the sudden lose money or somebody takes your identity. That can’t happen in the blockchain because all the different nodes are auditing it.
Jose: I see. Why can’t it be hacked?
Tyler: Well, so you might hear in a big media outlet, some big clickbait sort of headline, ‘Bitcoin’ or ‘Ethereum has been hacked’ and they lose X number of tokens and people are out of this money. The reality of is that these blockchains don’t get hacked. It’s user accounts that end up getting hacked. And the reason why the blockchain is so secure is it’s based on NSA level cryptography. The cryptography, which are just basically really complicated mathematical algorithms, make it so that each node is extremely secure and the accounts on the blockchain are extremely secure. Now, if you as a user are to, if you write down your password and place it on your Facebook, they’re probably going to steal your money. It’s in those user controls that people are accidentally exposing themselves; However, the blockchain itself is an incredibly secure instrument.
Jose: So, what different applications are we seeing in the energy industry?
Tyler: Besides supply chain, boy we could talk about all sorts of different things. For instance, companies are interested in maintaining a companywide identity. Just take, for instance, the threat that might exist if you run a refinery or a deep water platform, deep water oil production platform, what happens if a terrorist gets inside? What kind of damages could they do? And so, if you use a blockchain, you can secure the identities of, say for instance, people qualified to get on a helicopter, in a much more secure way than we’ve traditionally done. But let’s not stop there. Oil companies could look at new ways of monetizing oil in the ground, right? And issuing tokens that would be collateral for that oil. Or, you could think about new ways of running prediction markets to manage your risk on exploration targets where your people are not necessarily biased by their manager, but you give them a little fund that they can actually bet on the proper risk ratios for the different exploration targets, and through that betting mechanism, which is what we call a prediction market, you would get a much better result because they’re financially incentivized to appropriately gauge the risk. The blockchain is going to affect all levels of the value chain; upstream, midstream, downstream, energy grids and markets
Jose: Tyler, from my perspective, it seems a lot of companies are interested in doing a lot of pilots. From the energy perspective, would you say a lot of the majors are interested in blockchain?
Tyler: I would say that’s a correct assessment. I’m finding a difficult time meeting with everyone that’s making requests right now. Just about all of the biggest players are getting involved.
Jose: How high is the level of interest? Is it from the CFO, CIO, CEO? Who is calling you?
Tyler: You know, it’s all over the map, actually. I can get a call in the morning from the Minister of Energy from some country, I can get a call from the CTO of a supermajor, and at the same time I might get a call from an individual contributor on the trading floor. I don’t think that everyone has fully sort of organically encapsulated their approach to the blockchain, and so many levels are seeing the ability to capture value that I’m kind of getting shot gunned at the moment. And what I do is I try to work within the company to align all the proper stakeholders and get the right people, the decisionmakers to sign off on meaningful projects that will help demonstrate the value for their corporation.
Jose: Tyler, thank you so much.
Tyler: It’s been my pleasure.
Jose: And that wraps up our discussion with Tyler Smith.
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