The Impact of Transaction Costs on Stock Returns in Energy Sector Introduction «I have no problem with the financial industry inviting the Trojan Horse of blockchain technology into their walled garden

The Impact of Transaction Costs on Stock Returns in Energy Sector
Introduction
«I have no problem with the financial industry inviting the Trojan Horse of blockchain technology into their walled garden. Because I know how powerful the technology is.»
Erik Voorhees, CEO of the instant bitcoin and altcoin exchange ShapeShift.ioPeople’s well-being, industrial competitiveness and the overall functioning of society are dependent on safe, secure, sustainable and affordable energy. It’s quite comprehensive to imagine today’s economics without smart technologies invented to simplify and accelerate global economy processes, that’s why the production and consumption of energy resources is extremely important. All economic activities are dependent on energy resources, whether to provide transportation, to manufacture goods, run computers and other machines, everything requires the energy resources. Being an essential part of the infrastructure and maintenance of the society the energy sector needs a technology enabled to change the ordinary transaction mechanism by reduction of unavoidable transaction costs. The blockchain technology is expected to  revolutionize the way business is conducted today by reducing transaction costs among all participants in the economy.

Blockchain is a special technology for peer-to-peer transaction platforms that uses decentralised storage to record all transaction data. The first blockchain technology was used as a basis for cryptocurrencies, such as “Bitcoin.

The most crucial advantage of the Blockchain theory is an underlying transaction model shifting away from a centralised structure (banks, exchanges, trading platforms, energy companies) towards a decentralised system (end customers, energy consumers). According to the theory, it affects third-party intermediaries, who are no longer required in such systems. The emerged absence of a third party reduces transaction costs almost to zero. By speeding up processes and cutting costs, the entire system becomes more flexible.
According to investigations, energy sector is prone to high transaction costs, intermediaries and complex processes negatively impact overall costs. Conceptually introduced in Ronald Coase’s 1937 paper “The Nature of Firm”, transaction costs were introduced as the unavoidable cost of doing business. Coase showed that with each transaction it is necessary to negotiate, monitor, establish relationships, and resolve dissidences. Initially, transaction costs were defined by Coase as «costs of using a market mechanism».
«Nature of Firm» opened an entirely new field of economic research. Thanks to that theoretical basis, a whole family of concepts has appeared, developing the ideas of a transaction approach and aimed at a fuller and deeper understanding of the phenomenon of the firm.

Transaction costs determine the market liquidity that crucially affects the financial performance. In my thesis I want to analyze how the change of transaction costs might affect the financial performance of companies in Energy Sector (a. how does transaction costs reduction affect the stock returns; b. how does the reduction of transaction costs influence stock returns of small and large companies). In order to evaluate this influence, model for estimation the effective transaction costs presented in the above mentioned paper (Lesmond, Ogden, Trzcinka, 1999) (LOT) will be applied, including regression of stock returns on the transaction costs.
The theoretical background of the research are the materials of such esteemed authors as Abdi F., Ronaldo A., Amihud Y., Allen B., Berkowitz S., Logue D., Noser E. Jr., Bhushan R., Collins B., Fabozzi F., Marshall B., Nguyen N., Visaltanachoti N., Copeland T., Galai D., Demsetz H., Dumas B., Luciano E., Goyenko R., Holden C., Grossman S., Miller M., Harris L., Hasbrouck J., Huang R., Stoll H., Roll R., Wood R. and others.

The data on daily security returns and trade volumes of about 30 publicly traded energy companies will be obtained from Bloomberg.

Chapter 1. Transaction costs.

The term “transaction costs” is a complex concept related to the exchange of resources with the external environment. In order to introduce clarity it is essential to analyse the term “transaction”.
“Transaction” means a process, an act of transferring of any ownership interest in property (the nearest equivalent scope has a concept of the term “deal”). However, they are not equal, because the concept of “transaction” comprises more economic phenomena. This thesis can be confirmed by the J. Common’s classification of transactions.

According to the classification there are three main types of transactions:
Bargaining transaction. The key aspect of the transactions is an absence of imperative approach between the parties. In this case the conveyance of property rights appears as a result of a voluntary agreement between two equal parties. It should be mentioned that a bargaining transaction coincides with the concept of deal, which is defined as a specific case of a transaction.

Managerial transaction. This type assumes an imperative nature of relations between contracting parties. When this occurs, the conveyance of property rights appears as a result of expression of will from one party and a consent to obedience from the other.
Rationing transaction. This type is also based on an imperative model of relations, but the expression of will comes from a collective institution.
Prior to a contract formation and regardless of the transaction type it is urgent not only to analyze all potential risks but also to measure costs, such as research costs, contract making costs, goods delivery costs, etc. All mentioned costs have an unavoidable character, that is why they should be measured correctly in order to evaluate the economic expediency of the particular transaction and the financial liquidity of the other party. Having analyzed all this factors, Ronald Coase introduced the term “Transaction costs” which he defined as «costs of using a market mechanism». The essence of the Coase argument in his theorem was that under conditions of zero transactional costs, the market itself is able to cope with any external effects. Coase’s theorem says: “If property rights are clearly defined and transaction costs are zero, then the allocation of resources (the structure of production) will remain unchanged and effective regardless of changes in the distribution of property rights.”
In such a case, a preliminary analysis of transaction costs in each specific case is a way of assessing not only economic feasibility, but also liquidity of companies and markets.

On the basis of all the above-stated the term “transaction costs” can be defined as the costs establishing and maintaining property rights and also the costs resulting from the transfer of property rights. Thus, there are two definitions prevailing in the literature. The first one defines transaction costs as only occurring when a market transaction takes place; the other defines transaction costs as occurring whenever any property right is established or requires protection.
Transaction costs as a source of market mechanism limitations
Due to the existence of transaction costs, there are the following limitations on the effectiveness of the functioning of the market mechanism:
1. The mutual benefits of exchange are not fully extracted, due to the difference between individuals in the marginal utilities of the goods they exchange. Part of the potentially profitable exchanges will not take place due to the fact that transaction costs will surpass the overall increase in utility provided by these exchanges (Figure 1).
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Figure 1. Edgeworth Box, illustrating lost profits as a result of the inconsistent exchange
Fig. 1. shows the potential benefits of the exchange, expressed as if all the benefits were received by one of the exchangers. Thus, ???????? ??????? ?? ????? ??? ?
where Ba – the general benefits of exchange received by one individual a, B?x – the increase in consumption by the individual a of the good X, Bay – the increase in consumption by the individual a of the good Y; Bu – the total benefits of exchange received by one individual b, Bx – increase in consumption by the individual b of the good X, By – increase in consumption by the individual b of the good Y; B – the general benefits of the exchange, regardless of their distribution between the two individuals. If TC (cost of exchanging) ; B, then the exchange will not take place and the amount of lost profits will be equal to B.
The economic effect of the existence of transaction costs is also usually compared with the effect of tax imposing. (Figure 2).

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Figure 2. The impact of transaction costs, similar to tax imposing. Ltc – losses associated with transaction costs, indicated in the graph with a gray triangle
Transaction costs are put in the price by sellers, which is illustrated by the shift of the supply curve to the left. As a result, a new equilibrium arises at a higher price and a smaller output. Profits that are not received due to failed exchanges are indicated in the graph with a gray triangle. They can be identified with B (Figure 1).

2. The principle of comparative advantage is not fully realized. According to this principle, the basis for specialization are differences in alternative costs. However, where the benefits from specialization, expressed in the saving of unit costs of production of the goods to be exchanged, do not exceed the costs of exchanging the output growth caused by this specialization, it will not be used. Thus, the most efficient allocation of resources is not ensured.

3. The possibility of changing the existing rules is limited, i.e. transaction costs apply to institutional transactions.

Transaction costs classifications
Classification given by T. Eggertsson
This list of costs is one of the most ubiquitous, although it is not divided into blocks, as in the classification below.
1. The search for information about the distribution of price and quality of commodities and labor inputs and the search for potential buyers and sellers costs.
This type of costs is divided into four types associated with the search for a) a favorable price, b) adequate information about existing products, c) adequate information about sellers, d) adequate information about buyers.

2. ?h? bargaining needed to find the true position of buyers and sellers when prices are endogenous costs.
This type of costs is also commonly associated with negotiating, since the purpose of negotiations is to maximize the partner’s reserve price. Reserve price – this is the maximum price that a partner can agree to, that is, the price of demand for the buyer (the highest price for it) and the offer price for the seller (the minimum price for it).

3. The making of contracts costs.
The main objective in drafting a contract is to determine what circumstances may arise in the future and how both sides should react to them. Moreover, some structure for disputes settlement is usually provided.

4. The monitoring of contractual partners to see whether they abide b? the terms of the contract costs.
Due to the divergence of the parties to the contract interests, each of them may have an incentive to breach contractual agreement. As a result, there is a need to control each other. In addition, each side can also control itself in order to preserve its reputation. An example here is the manufacturer’s recall of his products from the market when he receives information about its low quality.

5. The enforcement of ? contract and the collection of damages when partners fail to observe their contractual o?igations costs.
This kind of costs, first of all, bears the state, in particular, judicial and law enforcement systems, and then these costs include taxes. In the case of inefficiency of the state in terms of protection of contracts, its functions are performed by alternative structures, for example, private security firms or criminal groups.

6. The protection of property rights against third-party encroachment costs.
The aim of any transaction is to get some benefits from both sides. However, individuals and groups not participating in the contractual agreement, for example, the state, criminal groups or rogues, can try to claim these benefits. Thus, there is a need to protect newly arising property rights.

Classification given by P. Milgrom J. Roberts
This classification has a deeper theoretical content, as it represents not only a list of costs, but also their breakdown into groups based on certain criteria. One of these criteria is objectivity of costs, that is, they are either related to external conditions for counterparties, or are determined by their behavior. As another criterion for this delimitation of transaction costs we can suggest the object of interconnection with which they are connected. Accordingly, coordination costs are implemented to ensure the matching of the plans, and the motivation costs – to combine the incentives.

Classification given by O. Williamson
The classification of O. Williamson highlights such aspect of transactions
as their contractual nature, so that all transaction costs are considered
to be connected with the contract process. The main criterion of this
classification is the contact conclusion time whereby transaction costs can be divided into costs arising before (ex ante) and after (ex post). Ex ante transaction costs are linked with an intention to conclude a profitable contract, ex post transaction costs reflect a desire to perform the already formed contract.
As mentioned above, these classifications are useful in the process of commercial importance measurement. But what is sufficient here, they can also be used for the purpose of liquidity measurement.
What is “liquidity”? Liquidity is one of the most essential economic terms. Liquidity describes the degree to which an asset or security can be quickly bought or sold in the market without affecting the asset’s price.
The ratio of liquidity and transaction costs can be illustrated as follows: the higher the transaction costs are, the lower the liquidity of the project is and vice versa, the lower the liquidity of the counterparty is – the higher the transaction costs are. Thus, in order to assess liquidity, a special measure is required.
In 1999 a model for estimation of effective transaction costs was proposed by Lesmond, Ogden, and Trzcinka’s (LOT). In case of representing cross-country liquidity effects, LOT liquidity measures (which are price-based) are more applicable than volume based liquidity measures. Since the LOT model is based only on daily prices, estimates for any market are open and shut. The LOT model main idea is that the reservation price of informed trader must surpass each stock’s transaction costs before informed trade occurs. In case of transaction costs exceeding the information value for the informed trader, zero returns will take place.

According to LOT the trading process occurs only when the information value surpasses the marginal costs of trading. In this case trading costs are sizable, it takes trader a longer period to accumulate the necessary information, that is why zero return days occur more frequently and the informed trade affects price. However, this logic implies dependence between the zero return and the level of informed trade, which in turn implies the responsiveness of prices to liquidity trading. Thus, the effectiveness of the LOT method is justified only if both factors (i.e. long period of time and a number of zero returns) take place, otherwise this measure is inestimable.
Security Returns and Transaction Costs
As mentioned above, the LOT model is based on the limited dependent variable (LDV) model of Tobin (1958) and Rosett (1959). The LDV model prescribes, that in the absence of transaction costs, investors are able to trade in all securities. In reverse cases (if transaction costs are not zero), the marginal investor should analyze the costs of trading against the expected gains and the difference between the value of the information and transaction costs.
The basis of the LDV model stipulates on the case of zero return, which can be observed only if transaction costs maximum value is not exceeded. LDV also implies that result of zero returns depend on whether the marginal investor is informed or not. When the value of the information is insufficient to surpass the costs of trading, informed investors will have to either reduce their aimed trades or abandon the trade. This also means that there will be no price movement. For liquidity traders, in case of low need for liquidity and high rates of transaction costs, there is no point trading and that is why there is a zero return.
However, some traders do not pay attention to transaction costs and trade regardless on the possibility of non-zero returns. The value of their trades is specific and the average return resulting from their trades will be zero. It is possible to treat zero returns as evidence that the transaction cost key figures cannot be exceeded by the marginal trader. In the LDV model they result from transaction costs that include both the expected price impact costs and opportunity costs.
The model also shows that marginal investors use the return on a market index as a crucial factor to augment their private information set.

According to LDV, the common “market model” considered to be correct model of security returns, however, is suppressed by the effects of transaction costs on security returns. The market model term “intercept” is now subsumed by transaction cost intercept terms. In the market model thanks to intercept it is possible to capture any misspecification in the market index, that seems to be not mean-variance efficient. Thus any discrepancy in the alpha’s across assets may arise because of inapt mean-variance market index, not because of transaction costs. However, the suppression of the intercept term does not affect our estimate of transaction costs, as a free intercept would be additive to each alpha term.
The LDV model of the relation between measured returns, Rjt, and true returns, R*jt is given as
R*jt= fRtt,t + jt (1)
where
Rjt = RJ*t- lj if RJ ; ?lij Rjt = ? if ?lj ; R ; ?i2j Rjt = RJt- U2j if RJ ; 0U2j For firm j, the threshold for trades on negative information is ?lj and for trades on positive information is U2j. If a?lj ; PjR,,t + Ejt ; cr2j, ??????? ? ????? ???? the measured return on the security will be zero. Thus the marginal investor will make trading decisions based on both marketwide and “other” information, which involves past marketwide and firm-specific information still not included into the price.
With external buyers or sellers initiating the trade, the source of the trade may be liquidity traders, who sell into a rising market or buy into a falling market, or informed traders, who trade because the information value exceeds transaction costs. It is assumed that the information value relative to the transaction costs happen to be the cause of price adjustments. In case when external sellers or buyers initiate the trade, liquidity traders, selling into a rising market or buying into a falling market, or informed traders, trading because the information value exceeds transaction costs, may be the trade source. The main thing to determine here is whether the information accumulation costs exceed transaction costs. In accordance with this assumption it becomes possible to ascertain buyer’s and seller’s transaction costs limits.
However the LOT and the LDV models are also not a panacea. The majority of the literature employs liquidity models on monthly or annual data. Thus, it is not surprising that there are conflicting points of view about the effectiveness of any measure. Existing arguments cause uncertainty of whether transaction cost proxies measure what researchers claim they measure. But one thing is clear, there is no point demuring at the impact which transaction costs have on the liquidity. Despite its general unobservability it can be raised by the aid of transaction costs reduction.

Having analyzed such phenomena as transaction costs (historical background, various approaches and classifications etc.), liquidity and possible assessment measures, we have come to the following conclusions:
The concept of transaction costs is closely connected with the term “transaction”;
Transaction costs are used as a source of market mechanism limitations;
During the past century several methods of measuring both transaction costs and liquidity were suggested, but none of them is omni-purpose;
Transaction costs do affect security returns: in case of security trading, information accumulations costs are included in transaction costs, that is why the lowering of the rest (excluding information) transaction costs affects informed traders desire to trade.

Chapter 2.

Introduction
The beginning of the twenty-first century was marked by multiple innovative technologies. Cloud Computing, Big Data, the Internet, Augmented Reality, and Blockchain have produced a substantial impact on the new data-driven economy. Initially introduced as a technological backbone of cryptocurrency Bitcoin, the Blockchain technology enjoys pride of place. Companies across the globe use all possible implementation of Blockchain technologies in many areas of life. One of most high-potential implementation spheres of Blockchain is its use for creating automated contracts (‘Smart’ contracts) – agreements performed without human involvement.
What is Blockchain?
This is the first issue which a person faces dealing with “Smart contracts” for the first time. For better understanding, one has to study the origin of Blockchain technology and its evolution. The blockchain development history can be divided into three broad categories (namely stages 1.0, 2.0 and 3.0). The category “Blockchain 1.0” includes cryptocurrencies such as Bitcoin that is not only an alternative to real currencies, but has already replaced them on some online-trade platforms. Despite both the fact that cryptocurrencies are still the best known blockchain application and also the aspiration of international exchange markets to adopt it, the absolute share of Bitcoin transactions is still minimal. At the moment there is no indication that Bitcoin may ever be comparable to international currencies dimensions.

The sequent development stage deals with smart contract models and referred to as “Blockchain 2.0”. “Smart contract” is a digital protocol, automatically executing predefined transaction processes. What is crucial here is that no third party (e.g. a bank) is required. In such a manner a fully automated and autonomously and securely regulating both energy producer and consumer smart contract can be created. For example, if the customer fails to make payment, the smart contract will automatically, until payment is received, arrange for the power supply to be suspended. It makes sense, if parties agreed to include such a mechanism in their contract beforehand. but it poses a threat to the banking systems, because they will be expelled from the market payments segment.

Companies may also take into account that they are able to choose between public and private blockchain systems. Public blockchain is held to imply the anonymity of all participants. The private blockchain systems means transparency of all participants, because they have been identified before they are given an access. However, in comparison with the public system the private one is simpler as a structure and can be operated at lower cost. Banks and payment service providers are therefore bound to use private blockchains for their existing business models, among other reasons because this will allow them to retain some degree of control as well as revenue potential.

The third blockchain generation (“Blockchain 3.0”), remains a vision for now. Currently, Blockchain 3.0 is a turn of a tide in smart contract history, because it provides an opportunity to create decentralised autonomous organisational units, working with a the maximum level of autonomy.
Based on the foregoing, blockchain technology can be defined as decentralized distributed database of all verified transactions that take place across a P2P-network system operating on cryptographic algorithms. Two key innovative qualities: (1) this technology allows fixing reliable information about the ownership of a digitally existing asset to a specific person without necessity to involve any trusted intermediary (registrar, financial institution, notary, etc.), which is why it is a core factor of economy disintermediation; (2) this technology makes it possible to transfer such digital asset (or a virtual representation of a physical offline asset) to another person directly.
The obvious advantages of blockage technology allow to suggest that the use of both private and public blockage models can significantly reduce or feasibly completely eliminate from the entire amount of transaction costs unavoidable and highly costly costs as single administrator of transactions and amenability to data manipulations from outside.
Absence of single administrator of transactions.
It is a well-known fact that electronic money is subject to the risk of double-spending. Inasmuch as electronic money are, unlike physical coins, intangible, they can be simultaneously transferred to several persons and thus be used more than once. In order to exclude the possibility of simultaneous transfer of electronic money to several persons, it is necessary to involve a third party. In blockchain system this approach is impossible because of the decentralized nature, however, an alternative solution was proposed – all the transactions ever performed with any electronic units are included in a publicly available database: information about each payment is distributed through the whole payment system, then is verified by miners, and then is fixed with indication of the time it was made (the timestamp) and the unique number. In this transaction the information about parties and the subject of its data is confidential.

Resilience to data manipulations from outside.
Asymmetric encryption technology used creating records process in the Blockchain database prevents any possible manipulations with the content of such records and ensures their perpetual nature. Technically, this is achieved by sequentially encrypting data about each transaction. As a consequence, it is impossible to intervene and change the information, that is already in Blockchain system. Such information will be rejected by the network, unless the intruder possessed more than 50% of the overall computational power of the Blockchain network. As a result, all the members of the Blockchain community have a single version of “truth”, which is irreversible. That is why Blockchain system is sometimes called consensus-based system.

Definition of ‘Smart’ contract and its key features
There is no universally agreed definition of ‘Smart’ contracts, what is not a surprise, both in view of the very novel nature of this phenomena, and of its complex technological basis. According to the simplest definition, a Smart contract is an agreement whose performance is automated. According to Nick Szabo, one of the pioneers in analysis of automated self-performed agreements, a Smart contract is a computerized transaction algorithm, which performs the terms of the contract.

However, this definition may hardly identify the difference of ‘Smart’ contracts from some already well-known contractual constructs implementing automated performance, such as vending machines. Vending machines are defined as self-contained automatic machines that dispense goods or provide services when coins are inserted or payment in other forms (e-cash, credit card) is made. as an example – exchange markets, where so-called automated trading systems are widely used. For example, in foreign exchange markets trades are frequently executed not by the trader himself, but by a computer system based on a trading strategy implemented as a program run by the computer system. As of 2014, more than 75% of the stock shares traded on United States exchanges originate from automated trading system orders.11
another definition of Smart contracts provided by Gideon Greenspan: ‘A smart contract is a piece of code which is stored on an Blockchain, triggered by Blockchain transactions, and which reads and writes data in that Blockchain’s database’. 12 When both parties’ performance can be fully automated, a new quality arises in the contract, even triggering a question whether there is still a contract in a legal sense and not some other kind of phenomenon. Another peculiarity of Blockchain-based contracts is that they allow not only automation of contractual performance, but also of the process of conclusion: the contract can be concluded by electronic agents, employed by the parties.
In some cases, a contracting party can be represented by a so-called Decentralized Autonomous Organization (DAO).13 This concept has not yet received universally recognized definition. According to one position, DAO is nothing more than a set of longlasting ‘Smart’ contracts, as opposed to a regular ‘Smart contract’ having specific purposes and coming to an end once they are achived. Firms are created using a series of contractual agreements, ranging from employment contracts and employee benefits, to deals with vendors and suppliers and obligations to customers, to building leases and sales and purchases of equipment. Traditionally, these contractual obligations are quite costly because they need to be enforced externally by society in the form of a trusted legal system and through legal enforcement. Courts, lawyers, judges, and investigators all form this system of contract enforcement. With a Blockchain-based ‘Smart’ contract, however, much of these costs are greatly reduced or eliminated. This promises to make Blockchain-based organizations more efficient, cost-effective, and competitive, compared to traditional firms in the marketplace.
Smart contract provides a high degree of transparency and auditability, mitigating the risks associated with an intermediary’s decision-making process and ‘human factor’, as well as with time delays. As an additional ‘bonus’, such payments occur seamlessly across borders.

The transfer of a digital Blockchain-based asset from one person to another is a typical subject matter of a Smart contract and may qualify as a ‘legal effect’, being one of the constitutive elements of a contract. Secondly, although the performance of a Smart contract is automated, such a contract still requires the presence of the will of its parties in order to become effective. Such will is manifested at the moment when an individual decides to enter into such an agreement on the terms specified in advance; or, in cases involving electronic agents, when an individual decides to use such an agent for conclusion of certain agreements and agrees to be bound by their actions. The person expresses his consent to the terms of the contract and mode of their performance at the moment of conclusion of the contract. Taking into account that such a person will not be able to influence the performance of the agreement, once it is entered to, there should be a certain trust in place, which gives rise to a kind of ‘fiduciary’ relation in Smart contracts. But in contrast to classic contracts, where trust is put in the personality of the other party to the contract, in Smart contracts such trust is put in the computer algorithm standing behind the agreement (‘trustless trust’). It is also possible to find offer and acceptance in the process of Smart contract formation.

Based on the current understanding of Smart contracts, it is possible to identify the following features: (1) solely electronic nature; (2) software implementation; (3) increased certainty; (4) conditional nature; (5) self-performance; (6) self-sufficiency. Let’s take a closer look at each of them. (1) Solely electronic nature. Classic contracts may exist in various forms, e.g. in oral form or in writing. Of course, the development of e-commerce has substantially increased the quantity of agreements concluded in electronic form, the most obvious examples of which are various click-wrap agreements.

Thus not every contract embodied in a computer language can be regarded as a Smart contract, but only the one based on Blockchain technology, and having a self-enforcement nature. Situations where Blockchain technology is used for securing real-world transactions are also possible;
Other possible uses of blockchain technology in the energy sector
Besides being used as a creator of a decentralised transaction model, the blockchain technology may be applied in the energy sector in various ways.
1. Blockchain helps remove difficult billing model. For example, one of the largest barriers preventing users from adopting electric mobility on a large scale is an absence of a clear billing system. Electric vehicles drivers having an access to charging stations almost everywhere, need to be sure, that there is an option on which their cars are recharged and the charging station bills them for the electricity received automatically. Using blockchain technology can easily simplify the whole process.

2. Blockchain technology as a distributed record of transaction data. The integration of Blockchain in the area of smart devices could be used as a medium capable of storing, transmitting and distributing of transactions related information. Using blockchains for this purpose could be a good option. Moreover, it can be used to create a comprehensive archive of all electricity billing data, becoming a new tool consumers can use for meter reading and billing purposes in connection with their digital electricity meters. Thus, they would have the added control over their electricity supply contracts and consumption data.

3. Blockchain as an intelligent measurement of metering and transmitting the energy demand of consumers and the energy output of producers. In June 2016 the German Act on the Digitisation of the Energy Transition entered its final reading stage. The main purpose of the Act is to install a brand new measurement equipment based on the Blockchain technology. In a blockchain-based system, there is no need in any provider of meterreading services and when it comes to billing customers for the energy the blockchain can bill it and exchange smart meter data automatically in a transparent way.

Chapter 3. Data 
Chapter 4. Methodology and Model specification (LOT model)
Chapter 5. Empirical results 

Chapter 6. Conclusion
While electricity companies and grid operators see huge potential in digitalization in general and blockchain in particular to make power stations and grids more efficient, for example, the oil sector is keeping an open mind.

The main advantage (from my perspective) the elimination the need for a trusted intermediary in many areas of financial relationships that results in reduction of transaction costs. I think it is very important for the investors, shareholders and management of energy (oil) companies to understand how profitable it is to adapt blockchain technology (BT), since notion of blockchain being used is most extensively covered by accounting firms (Deloitte, PWC) in their industrial reports. In this sense, industry is ahead of academia in the attempt to create a comprehensive theoretical framework for implementation of the technology.