Unlinking Blockchain: What is it and what it can do for your business

By Krystle Holdegaard

With new technologies taking the world by storm, many drilling contractors are searching for ways to make their businesses more digital to be competitive, to make work easier and to stay ahead of trends. We sat down with Jon Trask, CEO and Chief Guru at Blockchain Guru to discuss blockchain technology, artificial intelligence and Internet of Things (IoT), and how these new technologies bring value to the drilling industry.

Hitch: What is blockchain and how can our members apply it?

Trask: Blockchain Guru does blockchain, that’s kind of our core business, but we also do IoT and robotic process automation (RPA). All three of these technologies probably fall into the digital technologies drilling contractors want employ, and quite often you leverage more than one technology at a time to improve a system or process. Most drilling contractors are all looking at how they can implement digital technologies. One of the challenges large enterprises have is that they have made huge investments into their Enterprise Resource Planning (ERP) system. All of them have spent millions. Some of them have spent tens of millions or maybe even more than that developing these business systems. They have also built drilling and rig control systems. In some case these systems talk to each other, in some cases they are stand alone.

Hitch: Are you talking about cloud computing or is it something different than that?

Trask: No. An ERP system is really a business system that does accounting, billing, or purchasing. It’s kind of the backbone of a business that may be in the cloud or on premises. Everything done on a drilling rig, such as, rig orders and what’s going on in the field, feeds into that from a business perspective.

Now companies want to implement these new digital technologies and feel it has to be done in isolation of their current business system. What we’ve created with Morpheus is a way to allow a business to implement these three new core digital technologies, which are taking off all over the world, without walking away from their current systems, and that actually interfaces with their system.

Hitch: Is Morpheus one of the companies that you partner with?

Trask: That’s right. We’re also working with PencilDATA and Blockchain Training Alliance among others. Last year I got to do a quick assessment with an oil and gas client in Calgary who wanted to look at implementing blockchain and other digital technologies. Essentially they came to me and said “we want to work with something that exists, we don’t want to build a new technology from scratch.” I looked at all the companies that I felt could possibly meet the needs of this corporation. There were two, one was called Morpheus and one was called ShipChain. Both have great products. We ended up partnering with Morpheus on this project which lead us to form a partnership and explore other business applications.

Hitch: If one of our members was interested in implementing blockchain, what would their process be?

Trask: I would always recommend that somebody start with training. I find is there is a lot of misinformation out there about blockchain that is driven by crypto-currency. Individuals read about Bitcoin. Bitcoin is the first application of blockchain, but people get mislead around the financial implications of it. The tokenization aspects of crypto-currency create a perceived risk for them, and it drives them away in some cases from blockchain. In reality, the solution is in the architecture of the system which allows all of the benefits of blockchain without the risk that crypto-currency presented.

So what I would do typically is take a small group of people, about 10 or 15 people from a variety of backgrounds in the company. There would be some finance people, some drilling people, and some business development people, and we put them in a room and set an even playing field from an education perspective.

We would do a one-day or a three-day training course and participants would learn how to apply blockchain technology to business in general. Then we would expand upon that and say how can we apply it to your specific business.

On the one-day course you just get the basic training. On the three-day course you get one day of basic training, and two days of guided business application for blockchain and digital technologies. We take actual use cases for that business, whether they’re a drilling company or a fracking company, or they’re upstream or downstream. We then tailor the training to look specifically at what they might do and how they might apply blockchain to generate value, save them money, increase revenue, or whatever their value equation is. At the end of that workshop their people come out with a framework or high-level business plan. Following that, what typically happens is, their IT group goes off and tries to build a blockchain. If they do this, we can support them and guide them through that process as consultants. The other option is that we can build it for them. In some cases, depending on their business needs, we won’t build it for them, we’ll just go find a Morpheus and help integrate that with their system.

Hitch: After that one-day or three-day course, the participants would go back to discuss if the benefits outweigh the risk, or the cost, and then what is the next step?

Trask: Some of them will go to their IT department, because they’ve got resources. The question is, does a three-day discussion give someone from IT without a blockchain background the capability of architecting a blockchain system? That depends on the person. If the company has that resource, they’ll very likely go try to do it themselves because they’ve already got that resource.

In those cases, we may just be on retainer to advise that person when he or she gets stuck on something. We would charge an hourly rate to help guide them through tokenization, or a consensus mechanism, of whatever they need help with. If they don’t have that resource, then they can bring us in as a project manager, and we’ll manage the project end-to-end. We have some of the top blockchain, AI and IoT minds in the country. We look to help corporations with their digital technology initiatives and will play whatever role the company needs.

Hitch: I know that every company is different, but for a drilling member, what are some of the benefits of blockchain?

Trask: There are some core benefits of blockchain. Blockchain is a decentralized technology. Most people currently work in a centralized database world. A decentralized technology mitigates risk by having more than one access point to the data. For example, say an oil company has a centralized server that they use. If something goes wrong, they have a backup somewhere, but the risk that that company takes is potential downtime. In a decentralized model, you have the same data set in many places and it’s managed in a secure fashion differently to the legacy systems. So decentralization creates a benefit from that perspective. The other piece is around sharing one set of data. In the consulting and IT world, we talk about the source of truth for data. Drilling contractors and corporations in general manage their own data set for their own benefit. So if you take Company A and Company B, they will have their own version of the same data.

If you’ve got a well that’s being drilled, you’ve got a drilling contractor and all these other contractors, and there are purchase orders and activities that tie everyone together. If you take one data set (a blockchain) and put it right in the middle of these contractors, everyone would have the same data, and there’s no disparity between the data.

The challenge here is the operator has their own version of what their data represents, and there isn’t precise data that’s being shared. Their interpretation of that data may just be a little different. It’s been proven time after time in business that some of the challenges people have doing business with other businesses is their interpretation of those data sets. It creates a lot of failures. If we have one data set on the blockchain and each company can access their own portion of that data, then it reduces the potential for misinterpretation.

Hitch: So then the key to blockchain is the collaboration
between these companies?

Trask: It is. In a lot of blockchain projects, you find we build consortiums. It’s like putting together two or three or ten companies and doing something that’s already being done, better. Some of those already exist today without blockchain. You don’t need blockchain to do that. Blockchain is a data mechanism that enables to do that better.

Hitch: Do you see any negative responses for blockchain
because companies are reluctant to work with their competitors?

Trask: Yes, but I would say that the world is changing. We have different views on sharing data today than we’ve have in the past. Protecting proprietary information is important but that may only be a small piece of the data. Consortiums often contain competitors these days.

Hitch: What if two oil companies were working on a specific project now, but don’t want to share their data sets moving forward?

Trask: That can be set in your blockchain governance rules. You can take that pie of data and chop it up however you want. In a private blockchain, you can decide who gets access to which piece of data.

When you design a consortium in order to do something like this, you really want to have well defined governance rules. You decide “as we share this data, what is going to be mine, what is going to be yours, what is going to be ours” and have a clear rule set around that.

Hitch: Does that include governing what the data is used for?

Trask: Yes, it can.

Hitch: Where does that blockchain data actually exist?

Trask: We load the blockchain on to what is called nodes. It can be private or it can be public, and there are advantages and disadvantages to both.  Because it is decentralized, there will be a number of these nodes in order to allow the consensus mechanism to work. So in theory, it exists in the cloud. It’s not on premises, but it’s not in the cloud in one location. It’s decentralized.

For example, if you take an on-premises implementation, say an oil company has offices in Calgary, Denver and Houston, they have one server maybe with a backup, and then they distribute their data all over the world.

Now, in a distributed model, Facebook for example, doesn’t own their servers. They outsource it all. Basically a distributed model is really an outsource model. There is a cloud provider that provides the same functionality. The challenge with the same functionality is if I hack that, it’s still hacked. If I shut this down or the power goes out there, we have a problem.

In a decentralized model, I take the same data but put it on multiple servers, and we call those nodes. The nodes communicate with each other. Then what we have in some cases is what’s called a consensus mechanism, which balances all of that data. Consensus is one of the other attributes of blockchain that creates security that we don’t have in most systems today.

How it creates security is that if I change a piece of data in a centralized or distributed model, that piece of data is changed and I would never know. The only way to tell if something is changed is through an access log.

Hitch: Like a Wikipedia?

Trask: Yeah, that’s right. In a consensus model, we use what is called a crypto-hash.  When we create a crypto-hash and chain them together it creates balance in between these data sets. If somebody hacks this and they change one piece of data, for example, change the price. It changes the crypto-hash and this immediately indicates that we have a problem. The mechanism is simple yet sophisticated in how it creates data integrity. Proof of work uses a basic 51% rule.

Hitch: When you say 51 per cent, is that the approval threshold that has to be met? For people to agree that the change is now warranted?

Trask: That’s right.  There is a balance created that more than 51 per cent of the nodes have exactly the same data set, and if they don’t something is wrong. The nodes will indicate that something is wrong.

Hitch: So for example, if I wanted to change the hourly rate from $28/hr to  $30/hr, you’re saying that if I do that on one node, all of the connecting nodes would be aware of that change, and then a notification is sent to somebody?

Trask: There is a smart contract. The smart contract governs the rules to decide if a person has the right to do that or not. The previous record never actually changes it exists forever.  The later version of the block may indicate the new hourly rate.

Hitch: So then the question would come up and say why are you changing it? Is there a dialogue that gets to the heart of why that change is being made? Or do people just vote on it yes or no?

Trask: It’s not necessarily a vote yes or no. There is a vote from the nodes as a computer. The computer system is going to execute the rules that are in the governance of the smart contract. When the original agreement is made, it is determined how it would be governed. If it was decided that when the average labour rate increased or decreased on the Alberta government website, you can change your labour rate to match it. The smart contract will follow this rule. If you are submitting a change that complies with the rule, it will push the change out to the whole network. If that rule is not in the governance, it’ll get rejected. This is a simple form of how blockchain works. In this example the control is really built around that smart contract.

Let me give you an example of a project we’re working on. We’re working with a company that buys gas from producers in Canada and the US. They buy it at a certain price plus or minus a certain discount that’s been negotiated. There’s a rate published somewhere, and then they do their calculation. They have a local rack rate. Today, you have a producer selling gas and it’s being loaded into the rail car. Let’s say that they loaded it at noon today. The rail company picks it up and says it wasn’t loaded at noon it was loaded at 5 p.m. The next day, the gas company says “we sold you gas and we filled up this rail car and you owe us this money.” They have it in their system a day later. Now you have three different times, and three different market rates.

What we’re doing with this project is suggesting that we can put a pressure sensor on this rail car. We are able to monitor when this rail car increases in pressure and see when it stops. I can write that data to the blockchain between the gas producer, the gas buyer and the rail company. There may be a trucking company involved as well. With the blockchain, there is no argument as to what time is correct. Now we can have all parties share the same record instead of each having their own version of the same record.

The other thing that we can do is add geolocation to it. One of the challenges when you load up a rail car with gas, or any commodity, is that you don’t know where it is. When you load up a rail car, the rail company will give you a timeline as to when your product will reach its destination. Sometimes they make that timeline, sometimes they are early and sometimes they’re late. One of the challenges associated with that, is who is responsible for the train being early or the train being late? We’re talking thousands of financial transactions, so it is difficult to monitor and it’s expensive.

There is a lot of variability in transport. Weather, traffic and derailments can all play a roll. Companies are kind of blind to where their shipments are. I can’t make the car get there on time, but I can tell them where it is at any one time by integrating blockchain, with an IoT GPS sensor and by writing that data and the pressure date to the blockchain.

The mechanism that we’re currently building is using machine learning, a form of AI.  We’re doing a predictive analytics module using artificial intelligence that says if you know the railcar is in Golden, BC and is on its way to the port three days ahead of time, it’s more than likely that it’ll be on time. If you know it’s not, it’s unlikely to be on time.

We can set up a mechanism that automatically emails somebody to tell them that.

Hitch: What are the ways that blockchain could save our members money?

Trask: From a drilling contractor perspective, blockchain will help save them money anywhere they are in this type of consortium arrangement, which is almost all the time. In drilling, there is so much information that could be shared, such as overtime and labour data, but they are in a distributed version, not a decentralized version. When you look at moving to a decentralized model, it may not be any more expensive than operating in a distributed model but it creates these additional benefits.

Now there is a cost of change, but there isn’t an additional cost of operating it. In some cases it’s actually cheaper to operate it because you do not own all the data yourself. You would share the cost with the other partners in the contract. You would no longer be paying three different people to key in the same data, and you’d be saving the time of debates.

Hitch: Does an organization who wants to make the change to blockchain need to have those partners lined up at that time?

Trask: Yes and no. The company can make the change and then make the data available to the other companies once they convince them to get on board. When you negotiate the contract, you’re already collecting the data. In an ideal world you would want to work with your partners and initiate that on creation of the contract. In a less than ideal world, you can make yourself ready for when your partners are ready.

You can apply this technology to everything a drilling contractor does. Every time their moving, spudding, tripping, any kind of downtime, you can write it to a blockchain.

What we do is try to balance blockchain, artificial intelligence and IoT to increase value. Our expertise is focused on how we enable your company to do that. What we bring to the equation is a little bit of drilling knowledge, and a lot of blockchain, artificial intelligence and IoT knowledge.

This interview has been edited for clarity and length. If you want more information about Blockchain Guru, visit www.blockchainguru.ca

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