The Intersection of the Internet of Things and Blockchain

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Imagine billions of devices talking to one another in real time and adjusting their behavior to respond to economic signals. Imagine a planet interconnected not just by devices, but by the events taking place across it – an ecosystem aware of its oceans, land, and air, as well as its industrial inputs and outputs.

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This so-called Internet of Things (IoT) requires a secure and efficient way to track all interactions, microtransactions, and activities of every “thing” in the network. It requires the awareness and sophistication of the network to identify its own vulnerabilities, threats, and attacks to mitigate them. It requires an architecture that is both scalable and interoperable enough to support a malleable evolution of the network itself. In the current IoT space, this does not exist.

Meanwhile, an emerging database technology called blockchain is demonstrating capabilities previously absent from the IoT’s development. Blockchain’s role as an enabler of the IoT lies in its ability to securely facilitate interactions and transactions between devices. Blockchain technologies could aid connected devices and infrastructure in compliance activities. Blockchain may also support certain processes related to architecture scalability, data sharing, and advancements in encryption and private key technology, enhanced security, and potentially even privacy.

While it is simply too early to predict its full impact, blockchain may offer device and infrastructure connectivity at least one path of acceleration. Consider the congruencies described below between the IoT and blockchain.

Overlapping Areas of Interest and Adoption

Like distributed ledger technologies, sensor capabilities and networked services applications cut across industries. While certain sectors are connecting products more rapidly than others, those actively adopting IoT technologies run the gamut and include:

  • Manufacturing: Discrete, process, machinery, equipment
  • Industrial: Utilities, energy, smart city infrastructure
  • Agriculture: Machinery, monitoring, infrastructure
  • Building Automation: Lighting, heating, ventilation, and air conditioning (HVAC), energy management, etc.
  • Aerospace: Aircraft, spacecraft, drones
  • Automotive: Cars, trucks, public transportation
  • Smart Home: Electronics, appliances, energy management
  • Healthcare: Surgical equipment, wearables, medical data
  • Logistics: Supply chain, distribution, packaging, scanning
  • Robotics: Commercial, industrial, and consumer robots

In industries such as automotive, logistics, or construction, suppliers often have a longer-term objective for the complete autonomous functioning of connected devices. Regardless of application, companies applying IoT technologies find themselves considering essential questions, many of which are addressable with blockchain technologies. For example:

  • If all devices share certain features, vulnerabilities, or use cases, how might we best mitigate risk, enhance security, and improve compliance adherence?
  • How and where will we manage data flow, processing, and storage: via chip-level, fog, cloud, etc.?
  • How might our autonomous devices (e.g., cars, trucks, solar panels) negotiate for themselves?

Blockchain providers like ConsenSys working with Innogy (a subsidiary of German utility RWE) are exploring how to enable an energy marketplace fed by distributed solar and other electricity-generating devices, which are run using a decentralized power grid. While much of the buzz around blockchain technology has been in the financial sector, companies like Filament, 21.co, IBM, Microsoft, Slock.it, and others are working directly with adopters in manufacturing, supply chain management, energy and utilities, agriculture, and construction; distributed ledgers may further automate, secure, and drive new services for these industries.

The Shared Technical Hurdles of Standardization, Interoperability, and Scale

While machine-to-machine (M2M) communications have been powering industrial automation applications for decades, the truth is that meaningful connectivity and interconnectivity between objects, people, and infrastructure, not to mention at scale across industries, are far from reality. Today, there is no shared platform that connects all devices. Limitations of network access, computing power, security, usability, standards, and how to make sense of all this data leave us in the proverbial dark ages of “ubiquitous connectivity.”

Hindrances are the result of both economic and engineering challenges associated with scale. Even current IoT solutions are expensive to adopt and maintain due to high infrastructure and maintenance costs associated with centralized clouds, adequate server support, and networking equipment. In addition, the fragmented vendor ecosystem and diversity of ownership render sharing of data, devices, cloud infrastructure, etc. limited in scope and in interoperability. Each of these technical challenges, in addition to an array of operational, regulatory, and social challenges, blurs the IoT’s immediate return on investment (ROI) and prospect of scale.

Blockchain should not be viewed as the solution to all of these issues. In fact, today’s blockchain space is even more nascent than the IoT in areas like standardization, power consumption, and data storage. But the fact that both the IoT and blockchain focus on the same existential challenges is sure to accelerate solution development. Worldwide, engineering talent, startups, large companies, and governments are increasingly investing tremendous time, energy, and money to innovate solutions to address the IoT’s and blockchain’s shared problems.

In the long term, shared solutions culminating in a fully decentralized approach to IoT networking and M2M interaction could provide a standardized communication model to process microtransactions between devices, and significantly reduce costs associated with scale (e.g., installation, integration, maintenance of large centralized data centers, etc.) It could also distribute computational and storage needs across devices in the network, instead of relying on central servers.

Blockchain Addresses Trust, One of the Internet of Things’ Greatest Challenges

A future of billions or trillions of devices communicating with each other efficiently requires that their interactions and transactions exist on an immutable database of shared, secure, and highly permissioned access. From a technical standpoint, these requirements constitute a tall order. What the IoT requires more than any technological or architectural advancement is trust: trust between stakeholders and the devices interacting with them, their customers, or on their behalf.

The IoT currently suffers from a variety of trust issues that hinder its adoption among enterprises and consumers alike, including:

  • Security
  • Privacy
  • Surveillance
  • Reliability and continuity
  • Ubiquitous advertising
  • Unclear business models (ownership, access, subscription, etc.)

Blockchain may serve as a key enabler for the IoT because it has the potential to facilitate commerce between connected devices in scalable architectures and ensure repeatable outcomes/expectations. This is required to: 1) establish value and 2) define trust between stakeholders and machines, both of which are essential for long-term value creation and sustainability.

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