Interest in Blockchain and IoT has never been so high. While still in their infancy, IoT solutions are already part of our living rooms and lives. We are surrounded by smart speakers, smart home appliances, smart TVs – and autonomous cars are no longer a far-off dream. In contrast, blockchain hasn’t been scaled for mainstream use yet, and most blockchain-related projects are still proof-of-concepts or trials without any DApp being used at scale. However, we believe that these two technologies have the potential to be the perfect match.

IoT is the interconnection between objects, sending data back and forth, on the internet. The “Things” in IoT can be anything you can think of. The only prerequisite is that a sensor, integrated within the object, is fully or partially connected to the internet. These sensors will be implemented across all industries from the supply chain and health industries, to automobile and transportation.

For instance, VeChain (VEN) and Waltonchain (WTC) both develop chips – to be used in smart retail and supply chain management. We already covered how blockchain solutions enable trust between 3rd parties, increase transparency, and enable cost reduction in the supply chain industry due to the removal of third parties and the need for traditional documents. In short, IoT enables the tracking of goods within the supply chain. Chips or QR codes are added to the product which signals the blockchain each time there is a change in the product’s state (opening, location, temperature, etc). These chips not only enable people to check what happened to their products along the supply chain, but also enable businesses to benefit from smart contracts (pay X, when Y happens).







This increased connectivity will certainly not only oblige companies to adapt and cut costs due to increased efficiency, but will also reshape society with so-called smart cities. Alibaba, in conjunction with Hangzhou (9 million citizens), is developing City Brain, a cloud-based AI aiming to make life easier for its inhabitants. According to New Scientist, the project has been a success, as it has led to a decrease in crime and traffic jams, among other things. Now, City Brain is about to be exported internationally, with its first deployment outside of China taking it to Kuala Lumpur, Malaysia. Blockchain-based projects such as VeChain in Gui’an (national level partnership) and WTC in Xiong’an (with their “partnership/collaboration” with Alibaba), also target IoT integration within cities, but using blockchain technology.

Current IoT infrastructure works in isolation. IoT devices are interconnected within their own ecosystems (Google, Amazon, Apple, Tencent, Alibaba etc). The problem is twofold. Firstly, they do not connect with services outside of their own realm, obliging consumers to stay within the ecosystem of the company providing their services (and their partners). One solution to this problem is to have open APIs to enable any device to connect to the others; however, this could lead to security issues.

Secondly, IoT hasn’t reached mass adoption yet. In the future, most of our appliances (cars, fridges, phones, TVs) will be connected to each other, and data will have to flow from one appliance to another frictionlessly. Centralised servers will need to cope with the increasing amount of data and computation, which might not be sustainable, given current infrastructure. TechCrunch develops well on the current infrastructural problems IoT may face in the future.

A second problem with current IoT infrastructure, due to its centralisation, is that it exposes many devices but also the data they process. The recent scandal surrounding the use of Facebook’s user data from Cambridge Analytica demonstrates that the services we currently use have points of failure. Using blockchain, the data is sent privately, and users are aware of what they are sending as the data is transparent. Thereby, companies can gain insight into your consumption patterns, without knowing exactly who you are – though of course companies may find ways around this anyway.

As we will see, blockchain and IoT technologies turn out to be highly complementary. Firstly, blockchain allows users to access and supply IoT data without the need for a central party, as privacy and transparency are taken care of by the network.

Ref: IOTA, a primer on IOTA.

Benefits of combining Blockchain and IoT

1) Increased privacy and integrity

Privacy is becoming increasingly important for people in the age of Big Data. These days we are tracked by powerful companies, who know almost everything there is to know about us. Research conducted by the University of Edinburgh found that health trackers such as Fitbit could have their data being intercepted when the data was transmitted to the “cloud-based” storage. Additionally, they also found that the data was not correctly encrypted – meaning that it wasn’t protected and could be read by anyone who might’ve intercepted it. Another study found that 8 widely known fitness trackers (Xiaomi and Garmin being on the list) allowed third parties to track you through Bluetooth, even when the device was not paired with the tracker.

Ref: OpenEffect, Every Step You Fake.

This problem not only leads to individual leaks but also might cause problems to industry-wide business models. For instance, the insurance industry is trying to move into the InsureTech era, and to this extent, they create applications which rely on the data provided by sensors in order to offer tailored insurance packages. However, the model relies on the fact that the data is accurate and hasn’t been tampered with. The problem is that the study described above also found an easy way to tamper with the data, making the commercialization of tailored packages hard to implement due to the lack of trust between parties.

For instance, CPChain sealed a partnership with Zhichao Medical, a company using AI and Big Data to diagnose illnesses and diseases. The algorithm developed by the Zhichao team scans and diagnoses 100 medical records in 4.8 seconds, with an accuracy 20% higher than the ones performed by humans. Using blockchain technology, patients are ensured that the data being sent to the company is used to the unique purpose of the diagnosis, and that these are not sold, or used by third parties without their consent. Additionally, patients have full control over the data being sent – allowing them to send solely the data required for the diagnosis.

By using blockchain and IoT, not only is the data verifiable, transparent, tamper-proof, and immutable – but also encrypted, bringing true user privacy. Moreover, anyone is able to be aware of the data which is being sent, removing possible company misconduct and unlawful data gathering. In case of issues, authorities would be able to pinpoint points of failure. This would help hold companies accountable for their mistakes, and incentivize them to watch out themselves.

2) Improved security

IoT exposes many devices but also the data they process to the internet. Some future IoT applications will demand more security; for instance, cars will become increasingly more independent from their “driver”, where a single point of failure could lead to injury or worse.

CNN reported that implantable cardiac devices had security vulnerabilities – allowing someone to deplete the devices’ batteries and administer incorrect pacings and shocks remotely (thankfully, the vulnerability was not exploited). Another vulnerability lies within the WiFi connection of a Chrysler’s dashboard. A Jeep Cherokee was also remotely hacked in a Wired experiment, in which hackers cut the transmission of the car while the car was driving down a highway.

Given the increasing number of IoT devices, and the current state of the industry, all companies would have to ensure that not only is their hardware secure, but that the network or cloud on which they operate is secure as well. Both these points are primary targets for hackers, and with the increasing number of object being connected to the internet, the threat will grow exponentially. Using blockchain technology, the networks themselves are much more difficult to break into, enabling companies to focus uniquely on the hardware aspect.

In the case of fully decentralised blockchains, one would have to either own 51% of the network’s computational power, steal someone’s private key, or to find a glitch in the underlying code behind the protocol. In contrast, private blockchains (where entrance has to be granted), or in public blockchains where nodes are determined, it is close to impossible to enter the system. Public blockchains may be close to impossible to crack due to their scale, but a private blockchain may have less distribution and therefore a higher probability of being successfully attacked, while being harder to gain network access to in the first place. Blockchains also enable the avoidance of DDoS attacks, as every transaction requires a certain amount of token to be used, making any attacks financially prohibitive for most would-be attackers.

Another way is to steal users’ private keys, which is an arduous task in itself due to the hashing cryptographic property of the private key and the asymmetrical cryptography (the combination of public and private keys). Besides, in the case of users having their private keys stolen, this wouldn’t jeopardize the full network.

3) Allows for fast and small transactions

With connected cars, heating systems, air conditioners, and smart fridges, consumers will have a lot of data at their disposal, some of which will have to be sent to the network and some which they may decide to sell, exchange, or keep private. As a reward for sending data, companies might decide to pay a percentage of your electricity bill, provide you with points, or pay you – opening a new route of earning a passive income.

Each time data will be sent via the network, a tiny transaction will be performed. The problem is that currently, it is impossible to send just a few cents from one person (or object) to another, as banking fees usually outweigh the transaction itself. Additionally, the card processing company has to verify that the money can be transferred, making people wait a few minutes, hours, and even days, which in the case of IoT is not feasible. Blockchain solves the latter problem with its innovative solution to the infamous double-spending issue while the former problem is solved by the removal of third-parties.

4) Allows for automated transactions

In an IoT world, where most devices are autonomous and do not need human interference, objects will need to transact with each other. For example, an autonomous car would need to be able to pay for a refill, pay for parking fees, pay the mechanic and so on. In the same sense, smart washing machines would need to order detergent online before it runs out.

The blockchain enables the use of smart contracts – electronic contracts which follow the “IFTTT (IF-this-THEN-that)” command. Basically, smart contracts can hold and conditionally send tokens and other digital assets (such as data), if certain conditions specified in the contract are met. In the autonomous vehicle case, the car could have an inbuilt wallet and smart contracts stating: “IF the car runs out of electricity, THEN go to nearest gas station AND refill the car AND pay the station when the battery is full”.

Within the supply chain industry, once the blockchain recognises that the chip arrived at a certain point of the supply chain, a smart contract can execute and pay the appropriate party. IF the product arrives at point A, THEN send 5 tokens to company Z. Naturally, these commands could be implemented across the complete supply chain, enabling these auto-payments to take place whenever a relevant action is performed.

Last but not least, the automation of transactions and smart contracts can also generate revenue for the owner of the IoT device. It wouldn’t be unimaginable to see companies rewarding users for the data they send, for example, to cover costs of broadband usage incurred while operating these devices.

5) Reduces infrastructure and operational costs

Centralised approaches require high operational, time, and R&D investments. Blockchain enables companies to outsource the infrastructure element of their projects. Companies would be able to let the network handle the cloud side of the IoT – enabling companies to truly focus on the hardware, application, and innovation side of things.

Costs that can be removed include network maintenance, supervision, and updates. Also, exactly in the same way as for supply chain, blockchain removes the middleman from the process – eliminating many legal and contractual costs.

Where the blockchain (currently) falls short

Despite all the advantages of using blockchain solutions for the IoT, the technology is still in its infancy and doesn’t come without its own flaws. First and foremost, as more people use a blockchain, networks will encounter congestion issues. Therefore, there is plenty to be achieved from the technological side to allow for high TPS (Transactions per Second), and low latency. Solutions, in order to scale blockchains, exist, one of our favorites is HPB, which aims to solve the scalability issue of blockchains by developing a blockchain where nodes are run through accelerated chips. Another solution is Aion, which, in contrast to HPB, doesn’t implement proprietary hardware into the blockchain ecosystem, but intends to link different blockchains together by allowing tokens to run on different blockchains, with, for instance, the data being processed on blockchain A and stored on blockchain B – separating transactions’ processes and final states.

Another issue concerns transactions fees. This relates to the congestion issue, as the more congested a network is, the more expensive the fees become. It also relates to the speculative nature of cryptocurrencies; in the current system, one pays flat fees in order to compute or process their data. However, with the internet of value which blockchains intend to create, one pays for usage. Prices can fluctuate tremendously for good reason, or simply due to speculation. However, it is also possible that we may see a decrease in purchase costs to offset transaction costs.

Conclusion

We see an increasing number of companies exploring blockchain technology, with IBM being one of the larger players leading the way. IBM has been actively involved in blockchain R&D as well as implementation. The IBM Watson IoT Platform, a private blockchain solution, has an inbuilt option which enables IoT devices to send data to private blockchains. Users can choose which IoT data they want to send, and the transaction is known only to the two parties involved – unlike on public blockchains. Whirlpool, the German firm manufacturing and selling household appliances, joined IBM to connect its washing machines to the internet via IBM Watson.

One risk for blockchain technology is that legacy companies will not let the blockchain take over their dominant positions. For instance, Visa and MasterCard might decide to change their business model and reduce their fees drastically in order to be able to process tiny transactions. Google, Tencent, Alibaba, and others might also decide to release developer toolkits, and give free access to databases and networks in order to maintain their dominant positions. Nevertheless, some of those companies are seeing the benefits of blockchain technology as they are currently developing blockchain solutions. For instance, Amazon recently launched a platform to propose Blockchain-as-a-Service (BaaS) to its clients while Huawei, Alibaba, and Tencent are developing in blockchain networks to accommodate their own services.

Given the advantages of combining blockchain technology and IoT in terms of transferring data, to the incentives for companies to cut costs, and for the privacy and security the blockchains creates, we believe that implementations will take place. However, we are still far off an ideal system, and the most effective technology for IoT hasn’t yet been chosen. Solutions could stem from public or private blockchains, the Tangle, or may remain with current cloud-based servers – only time will tell.