As the number of sensors in vehicles, factory machinery, buildings and city infrastructure grows, companies are looking for a secure and automated way of enabling a mesh network for transactional processes. Blockchain appears to best fit that bill.

The total number of connected Internet of Things (IoT) sensors and devices is expected to leap from 21 billion this year to 50 billion by 2022, according to recent data from Juniper Research.

The massive growth in IoT connected devices over the next four years, Juniper claims, is driven mainly by edge computing services – the processing of data away from the cloud and closer to the source. A substantial portion of the estimated 46 billion industrial and enterprise devices connected in 2023 will rely on edge computing, Juniper said, so addressing key challenges around standardization and deployment will be crucial.

Blockchain, the electronic, distributed ledger technology (DLT) that also contains a business automation software component – known as self-executing "smart contracts" – could offer a standardized method for accelerating data exchange and enabling processes between IoT devices by removing the middleman. That middleman: a server that acts as the central communication spoke for requests and other traffic among IoT devices on a network.

"Fundamentally, the idea is you don't have a central agent – no one approving and validating every single transaction. Instead, you have distributed nodes that participate in validating every transaction in the network," said Mario Milicevic, a member of the Institute of Electrical and Electronics Engineers (IEEE), a leading authority on technology innovation that has more than 500,000 members.

Making a better supply chain

In a traditional supply chain setting, Milicevic explained, a central server authenticates the movement of goods and materials from one location to another. Or a central authority could decide to halt certain processes based on pre-determined rules. In a distributed blockchain IoT network, the IoT devices on a peer-to-peer, mesh network could authenticate transactions and execute transactions based on pre-determined rules – without a central server.

Blockchain technology could also improve security through decentralized interaction and data exchange by bringing scalable, distributed security and trust to IoT devices, applications and platforms. The technology uses hashing algorithms to create an unchangeable record of transactions, and that information can be encrypted and only accessed through public and private keys.

Smart contract software, self-executing code that could be embedded on each IoT chip, could determine what action takes place when a condition is met. Those actions would only be executed when an incoming transaction authenticated. "So, you don't need central agency to tell each node when to do something," Milicevic said.

Blockchain ledgers decrease the time required to complete IoT device information exchange and processing time.

"It could be in an automotive manufacturing plant. As soon as a certain part arrives, that part then communicates that to other nodes at that destination, which would agree that part arrived and communicate that to entire network. The new node would then be allowed to begin doing its work," Milicevic said.

The rise of edge computing is critical in scaling up tech deployments, owing to reduced bandwidth requirements, faster application response times and improvements in data security, according to Juniper research.

Blockchain experts from IEEE believe that when blockchain and IoT are combined they can actually transform vertical industries.

While financial services and insurance companies are currently at the forefront of blockchain development and deployment, transportation, government and utilities sectors are now engaging more due to the heavy focus on process efficiency, supply chain and logistics opportunities, said David Furlonger, a Gartner vice president and research fellow.

For example, pharaceuticals are required by law to be shipped and stored in temperature-controlled conditions, and data about that process is required for regulatory compliance. The process for tracking drug shipments, however, is highly fragmented. Many pharmaceutical companies pay supply chain aggregators to collect the data along the journey to meet the regulatory standards.

Last year, SAP partnered with IBM to demo how IoT and blockchain could automate a pharmaceutical supply chain for both tracking and reporting purposes. SAP combined its Leonardo IoT software platform with IBM's blockchain cloud service to create a working model of a system that could track and manage pharma supply chains using smart contract rules.

One misconception about blockchain, is that it replaces legacy systems. "In fact, blockchain is a layer on top of enterprise applications."

SAP also recently completed two proof-of-concept (PoC) blockchain deployments with customers: one was a smaller supply chain test evaluating millions of transactions on a Hyperledger blockchain using smart contract technology in IoT devices; the second was a much larger one that represented billions of transactions among 15 different customers using MultiChain open-source blockchain software without smart contract code on the devices.

The smaller PoC with smart-contract technology worked well, but was more expensive to set up because it required a blockchain developer – someone that's in short supply – to write the code, said Gil Perez, head of Digital Customer Initiatives for SAP.

"In the small pilot, the cost of operations and overhead was rather high. So, functionally it exceeded expectations, but from financial perspective it was very challenging," Perez said.

The second PoC addressed both scalability and cost, in that it proved the blockchain could scale to enterprise levels and didn't require a developer to write smart contract code for the IoT devices; instead the business automation ran on servers separate from the blockchain.

The MultiChain PoC was not as efficient as the Hyperledger model, but it cost less and it met the busienss requirements, Perez said. He added that the smaller PoC required more complex logic in the form of smart-contract code on IoT devices.

"The fact that you put the logic on a server doesn’t mean it's not automated," Perez said, referring to the larger PoC. "We have the flexibility to put the logic in different places. The deployment and business use cases need to consider not only the technological capabilties but the business and commercial implications."

SAP has been working with about 65 of its customers to develop blockchain augmented software – something Perez said will soon be available.

"It just becomes a part of the upgrade cycle. It’s built into the standard software SAP provides them," Perez said. "If SAP has a standard application and we add the capability to extend or augment the application for blockchain capabilities, we believe it will help also accelerate the adoption of blockchain."

At its Sapphire Conference in May, SAP announced a blockchain cloud service for its customers -- something that's also becoming a popular option for companies that don't want to expend capital in order to test distributed ledger technology.

IBM also recently launched an IoT-to-blockchain service as an add-on to its existing IoT Connection Service. It enables IoT devices, such as RFID location chips, barcode scans or device-reported data, to be transmitted to a permissioned blockchain on IBM's cloud service. That blockchain-based network can then be used by a business network of computers to validate provenance.

Devices able to communicate data to blockchain ledgers can update or validate smart contracts. For example, as an IoT-connected shipment of goods moves along multiple distribution points, the package location and temperature information could be updated on a blockchain. This allows all parties to share information and status of the package as it moves among multiple parties to ensure the terms of a contract are met, according to IBM.

SAP

New uses for blockchain will continue grow because of the DLT's ability to provide new forms of security, according to B2B reviews platform G2 Crowd.

"Information security and corporate integrity have both taken a blow after events like the Equifax catastrophe, and companies are investing in blockchain as a precaution," G2 Crowd said in a report.

Blockchain enables secure access to IoT sensors

For example, global wireless network technology provider ABB Wireless adopted blockchain as a method for delivering decentralized security services for industrial systems in industries such as utilities, oil and gas, and transportation.

Cybersecurity for IoT is becoming more relevant as industries transition into the age of "smart" systems, which use tiny electronic devices to communicate with, and control, everything from building HVACs to international cargo shipments.

ABB Wireless is using a blockchain platform developed by Xage, a startup that officially launched earlier this month.

ABB Wireless used Xage's security application running on edge gateways within a number of components at power utility substations. The mesh network enables secure, remote access to IoT devices to control the substations, allowing for everything from viewing maintenance data to rerouting power.

On a system with thousands or tens of thousands of IoT nodes, the possibility of hacking the network is remote at best.

"If you add a million more smart meters to a wireless network, you've just made that network harder to hack. Whereas in a traditional network, the more units you add, the more exposure there is to hacking," said Xage CEO Duncan Greatwood.

The blockchain app contains an encrypted and immutable table of security credentials, which allows field workers to log into a device – even if the substation is disconnected from a utilities' central data center due to an accident, such as a wildfire.

"Everyone's scared to death that someone is going to get control of the grid," said Paul Gordon, vice president of engineering and operations at ABB Wireless. "This provides a solution in a scalable way, so security doesn't become a huge burden. It allows for a more scalable solution while meeting needs of highly secured environment."

Combining the immutability of a blockchain distributed ledger with encryption means that the more end nodes that are added, the more secure the network becomes, unlike traditional relational database systems that have a single point of access. Blockchain-on-IoT devices are more secure because a cyber attacker would need to break into a majority of the nodes to gain controllable access to a system.

Blockchain is under-researched; CIOs remain cautious

Blockchain itself is still a wildly understudied technology. In an IEEE database of 40 million research papers, only 480 contain the term "blockchain," said Milicevic, who is a staff communication systems engineer at MaxLinear, a provider of high-performance broadband and networking semiconductor products.

"There is research, but it's at a very high level from what I've seen. I haven't seen anything really deep," Milicevic said.

Many of the high-level level articles in the IEEE database are focused on potential applications, with many of those mentioning IoT networks and how a marriage with blockchain could improve supply chains. There are, however, "very few examples" of real-world blockchain networks that have been deployed; that kind of information could provide businesses with data about the number of nodes, power consumption, and the efficiency of an IoT network before and after blockchain was deployed.

It would also offer examples of project failures, Milicevic said.

"We don't understand the cost or the security issues, such as what would happen if rogue nodes could overtake the network. Today, you still have a centralized authority that can shut the network down," Milicevic said. "In decentralized network there is no central authority. I've yet to see a hard study on that. I think everyone is waiting to see what everyone else does. That's the challenge. No one really knows what everyone else is doing.

"When there's no central authority and only a mesh network of automated nodes, it's scary," Milicevic said.

For example, an IoT sensor manufacturer could place security backdoors in the device software that could be activated with a trojan horse or a virus. "In fact, someone may have paid me as an employee of that company to install a back door that may allow me to come into your network without you knowing," Milicevic said. "If you're able to have more than 50% of computing power controlled in rogue nodes then the entire history of the blockchain could be overwritten with whatever you want."

One strength of a blockchain ledger, however, is that it cannot be overwritten; it is a write-once, append-many technology. So, the history of all transactions on the peer-to-peer network remains regardless of any intrusion.

The lack of real world examples of blockchain deployments is one reason C-level executives are cautious about embracing the technology.

A recent survey of CIOs by Gartner highlighted that trend. Only 1% of the CIOs indicated any kind of blockchain adoption within their organizations, and only 8% said they were in short-term planning or active experimentation with blockchain, according to Gartner's 2018 CIO Survey.

Gartner

"This year's Gartner CIO Survey provides factual evidence about the massively hyped state of blockchain adoption and deployment," said Furlonger. "It is critical to understand what blockchain is and what it is capable of today, compared to how it will transform companies, industries and society tomorrow."