2. Theoretical Background

2. Theoretical Background

2.1 Hackathon

The term hackathon is a neologism from the word "hacking" and "marathon" and refers to collaborative software and hardware development events. In recent years, the event format has also gained popularity outside of the hacker community. The goal of a hackathon is to create effective solutions and results in the areas of software development, hardware and open data projects, as well as in business and dealing with global social challenges, in small groups and in a short time. Due to the high influence, hackathons are conducted in the fields of Education, Bioinformatics, Marketing, Health Sciences and Big Data aswell. Hackathons are being introduced to generate business ideas and accelerate innovation processes. The four main characteristics of hackathons are the following:

  • Participants who are organized in small groups and work intensively

  • A short period in which the project is implemented from concept to prototype

  • A central place where teams meet, work and share resources

  • Assistance by organizers and sponsors in the form of technical equipment, catering and implementation

Hackathon characteristics

2.2 Blockchain-Technology

“The blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value.” Don & Alex Tapscott, Blockchain Revolution (2016)

Blockchain-based Transaction

There are two different kinds of blockchain technologies. The permissioned and the permissionless type. The permissionless blockchain (also known as "public") has open read and write access and has anonymous actors. The public blockchain is slower than its counterpart. The permissioned, or private blockchain is faster than the permissionless, has pre-approved and known participants and permissioned read and write access.

The distributed ledger is maintained simultaneously across a network of computers, called "nodes". The ledger contains a continuous and complete record of all transactions which are grouped in blocks. A block is only added to the chain if the nodes reach consensus, that the transactions in the next block are valid. To determine the validity of a block, "miners" solve highly complex algorithms to verify them. The first node to validate the block gets rewarded in form of the respective virtual currency.

The central component of the blockchain is the incorruptible digital and distributed ledger. This means, that the ledger cannot be changed, once the transactions are saved in the blockchain, because those transactions and copies of them are stored on multiple storages in the network for comparison. There are methods that ensure that only valid transactions are saved. By this, the blockchain technology can improve security, authenticity, privacy and accessibility in many different industry sectors. For the energy sector, the blockchain can enable decentralized transactions with lower costs and a very high level of security and confidentiality. By using smart contracts the process of the transactions can be automated.

Comparison between centralized ledger and distributed ledger

2.3 Ethereum

Ethereum is an open-source, public, blockchain-based distributed computing platform and operating system featuring smart contract (scripting) functionality. It supports a modified version of Nakamoto consensus via transaction-based state transitions.

Ether is a cryptocurrency whose blockchain is generated by the Ethereum platform. Ether can be transferred between accounts and used to compensate participant mining nodes for computations performed. Ethereum provides a decentralized Turing-complete virtual machine, the Ethereum Virtual Machine (EVM), which can execute scripts using an international network of public nodes. "Gas", an internal transaction pricing mechanism, is used to mitigate spam and allocate resources on the network.

Ethereum was proposed in late 2013 by Vitalik Buterin, a cryptocurrency researcher and programmer. Development was funded by an online crowdsale that took place between July and August 2014. The system went live on 30 July 2015, with 11.9 million coins "premined" for the crowdsale. Today, one ether equals about 401€.

2.4 Smart Contracts

Smart Contracts based on Blockchain technology enable automatic contracts that take effect on certain events. They do not need human monitoring. A smart contract not only defines the rules and penalties related to an agreement in the same way that a traditional contract does, but it can also automatically enforce those obligations. It does this by taking in information as input, assigning a value to that input through the rules set out in the contract and executing the actions required by those contractual clauses - for example, determining whether an asset should go to one person or should be returned to the other person from whom the asset originated. Smart contracts are complex, and their potential goes beyond the simple transfer of assets - they can execute transactions in a wide range of fields, from legal processes to insurance premiums to crowdfunding agreements to financial derivatives. Smart contracts have the potential to disintermediate the legal and financial fields; in particular, by simplifying and automating routine and repetitive processes for which people currently pay lawyers and banks sizable fees.

Smart Contract functionality

Even tough the European Comission is positively tuned towards distributed ledger technologies, many different European institutions are still reserved, because of the early development stage the technology is in. They see the risk, that early regulation can limit the further development. That is the reason why Europe claims to need more pilot projects and tests in order to proceed with regulatory campaign.

The central banks of Eu member states do not consider virtual currencies as equal to money. They only represent value as a digital type and are not issued by a central bank. Many member states do not have specific regulations towards virtual currencies. Although it is safe to say, that Germany has the most elaborate rules: in Germany the virtual currencies are considered as units of account - but this does not confer them the status of legal tender.

There are various legal challenges to be noted on why the regulation is so hard to realise. The blockchain has the ability to cross jurisdictional boundaries since the nodes can be located anywhere in the world. Because of different judicial regulation with regard to principles of contracts, it is hard to determine the right judicial regulation. There is inevitably value in the blockchain, and ownership of the intellectual property will likely play a big role in creating regulatory creations. One of the central unique selling points,of the blockchain is that once data is stored it cannot be changed any more. This clearly has implications for data privacy, particularly if personal data, that possibly reveals someones identity is stored in the blockchain. There is also an issue with the liability. The risk to customers of a systemic issue with trading related infrastructure such as a blockchain could be material if trades are not settled or are settled incorrectly. In case of a public blockchain it is not possible to stop its functioning after a issue is discoverd. This implies, that the allocation of risk and liability in relation to a malfunctioning blockchain service must be thought through carefully.

2.6 Matlab

Matlab (short for matrix laboratory) is a software environment for creating and simulating mathematical models. For this hackathon a Matlab model simulates the energy offerings and energy demands of various interconnected energy providers and consumers. The model generates fictious data that can be used instead of hard to get, real energy data.

To use Matlab, please follow the detailed instructions on setting up a matworks account. The instructions can be found here