If the Internet of Things (IoT) is to be the quantum leap in computing that many people are predicting, then to start with it needs to prove that it is feasible to link up billions of devices on networks around the world - without running into cost and privacy concerns.

One development that could make this possible is the 'blockchain' system pioneered by Bitcoin.

IBM and Samsung are working together to build a proof of concept system for the next generation of the IoT. This will be based on IBM's ADEPT (Autonomous Decentralized Peer-to-Peer Telemetry) concept that uses the BitTorrent peer-to-peer file sharing protocol, the Bitcoin cryptocurrency, Ethereium, and the peer-to-peer comms protocol Rehash.

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According to IBM, the aim is for the technology to serve as ledgers, or record-keepers, for many billions of transactions which the IoT will generate.

In a recent report, IBM argues there are a number of issues that need to be dealt with if the IoT is to succeed. These include broken business models, lack of privacy, high cost, lack of functional value, and inability to withstand change.

"For the IoT to survive the end of trust and successfully scale from billions to hundreds of billions of devices, executives need to rethink the technology strategy, business models and design principles at its foundation," the report said.

A blockchain is a universal digital ledger that functions at the heart of decentralized financial systems such as Bitcoin, recording every transaction made by every participant. Cryptography is used to verify transactions and keep information on the blockchain private. Many participants verify each transaction, providing highly decentralised and redundant verification.

Applying the blockchain concept to the IoT offers fascinating possibilities, the report said. "Right from the time a product completes final assembly, it can be registered by the manufacturer into a universal blockchain representing its beginning of life. Once sold, a dealer or end customer can register it to a regional blockchain."

"By creating and matching the supply and demand for physical assets in real time, the IoT will create new marketplaces," the report continued.

The combination of complex, real-time marketplaces with mobile phones and social media will expand the reach and the transformation very quickly, it said, and blockchain is a way of detailing that.

New peer-to-peer networks will foster "highly efficient digital networks," the report said. As an example of what can be achieved, it points to the airline management system Sabre and its modern descendants Uber and Airbnb which would make international travel (from flight and hotel bookings, to taxi hire and apartment lettings) accessible immediately through your mobile or other device thanks to the IoT.

The combination of instrumentation and digitisation "that is enabled by mobile phones and the IoT promises a revolution in pricing risk and credit," the report explained. Combining device instrumentation with mobile phones, GPS logs, and social networks will make it possible for companies to build a much more realistic picture of "real risk".

As IBM puts it, the technology currently is not doing enough to benefit individual users. Take cars, for example. Adding internet connectivity to a car could help to increase its sales and benefit the manufacturer, the report said, but it does not make the car any better as a means of transportation. Instead the IoT could provide real-time information to make driving safer, faster, and more efficient.

Perhaps most controversially, the report challenged the motivation and impact of the vendors. Many companies, such as Google and Facebook, generate revenue through selling user information and/or selling targeted advertising. IBM believes this trend is unsustainable because it sacrifices the privacy of users.

In addition, there is the problem of upgrading these systems. As the report made clear, because alarm systems and refrigerators are expected to last for a decade or more, they can't easily be updated to accommodate changes in future technology. "It is not guaranteed that a television will still be able to connect with a smart phone released five years from now," the report said.

One example of a home appliance which could benefit individuals thanks to the IoT is Samsung's WW9000 (a washing machine which will set you back approximately £1,700). When the machine detects it is low on detergent, ADEPT finds existing contracts with a detergent supplier, then places an order automatically. Both the owner of the washing machine and the detergent supplier can view the process of the order, transfer payments, and message each other through a tablet or another internet-connected device.

The report, Device Democracy: Saving the future of the Internet of Things, was written by Paul Brody, vice president & North America leader, mobile and Internet of things, IBM Global Business Services; and Veena Pureswaran, global electronics industry lead, IBM Institute for Business Value. It is available from IBM's website.

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