Blockchain and Internet of things (IoT)

What is blockchain?

In order to determine how blockchain has the potential to revolutionize the Internet of things (IoT), you must first understand the basics of how blockchain technology operates.

The goal of blockchain is to create a chain of independently verified records that cannot be altered and corrupted. To do this, the same transaction is verified by hundreds or thousands of independent computers across a decentralized network. Once the data is validated, it is timestamped and encrypted – each of these data blocks is then linked together to form a chain. 

Once the blockchain has been formed, data cannot be manipulated, and the result is a complete audit trail that can be trusted. 

Application of blockchain technology with Internet of things (IoT)

Internet of things is a term used to describe the connection of a device to the internet through the use of embedded software or sensors that collect and exchange data with one another. This includes anything from your cellphone and smart home devices to the navigation system in your car. 

A research study conducted by Gartner estimates that the number of IoT devices installed by 2020 will reach over 20 billion, which is a staggering number considering that traditional IoT systems are dependent on a centralized structure. Currently, data is transmitted from a device to the cloud for processing and then sent back directly to the device – a process that has limited scalability and endless weak points that can compromise security and privacy. It is also set to become very expensive as the amount of data third-parties have to authenticate grows exponentially. 

With the decentralized nature of blockchain, this process can be spread out and duplicated over millions of devices and scaled rapidly. The blockchain could allow peer-to-peer certification of IoT transactions and even allow two devices to directly exchange information through a secured, timestamped chain. 

Data security is another major application of blockchain technology in IoT. Within the current centralized IoT system, a single failure can expose multiple devices that hold personal data and other information. Through the use of blockchain, your information would be completely secured because the data stored within the blockchain is unalterable. 

Imagine the implication this could have for companies like Uber that rely on IoT to connect drivers to customers, track routes, and manage payments. With blockchain, they can secure mapping and ride data instantly and securely without having to explicitly trust one source. 

An additional application is the use of smart contracts, which are automatically performed when certain conditions are met. These contracts, in combination with machine learning, can promote the autonomous function of smart devices without reliance on a central authority.

Examples of blockchain within IoT

The use of blockchain technology is already growing quite rapidly in the world of IoT. One of the first platforms to introduce blockchain is IOTA, which was designed to provide a data transfer and transaction settlement layer for IoT devices. Through their Tangle platform, data verification is performed on a peer-to-peer basis using a cryptographic, decentralized network. This allowed for greater scalability and eliminated the need to pay large transaction fees to data miners.

Volkswagen has recently partnered with IOTA to create a “Digital CarPass” that acts as a report card for cars. It uses blockchain technology to verify and store factors like mileage in a reliable and secure way.

In another example, IBM is working to combine blockchain, IoT, and artificial intelligence to transform digital infrastructures that have analytical and security implications. Their goal is to use smart contracts to allow blockchain to facilitate complex trade and logistics transactions while also maintaining audit trails and speed. 

Challenges for Blockchain in IoT

While blockchain technology in IoT seems promising and is already being implemented, there are still some challenges for replicating the processes on a massive scale. These challenges include technology, as even with years of development IoT is still lacking a universally shared architecture to interconnect devices. Without this, setting up the technology to authenticate or monetize distributed machines will be very difficult.

Other major challenges include legal and compliance issues, as well as operational hurdles – how do you set up a safe, secure process for millions of variations of potential transactions?

Introducing blockchain into your processes

A report by IDC predicts that IoT revenue will reach $357 billion by the end of 2019, and the McKinsey & Company management consulting firm estimates that it will have an $11.1 trillion impact on the world’s economy by 2025. In other words, this industry is growing exponentially and is here to stay. 

In order to stay relevant and keep up with the competition, it is important to understand blockchain technology and what that could mean for your business. Work with a consultant to help you analyze your current processes to see where blockchain can be implemented and set the groundwork for your firm’s success in the future.