The amalgam of blockchain with the internet of things

Blockchain technology, a form of Distributed Ledger Technology, has been gaining enormous attention in areas beyond its cryptocurrency roots since more or less 2014: blockchain and the Internet of Things (IoT), blockchain and cybersecurity, blockchain and finance, blockchain and logistics, you name it. In this article we look at the IoT blockchain opportunities, evolutions and challenges.

As we wrote before it seems as if blockchain technology or, better, Distributed Ledger Technology, is about to change all aspects of digital business and according to some such as Don Tapscott, blockchain is a bigger deal than the Internet. Combine blockchain and IoT and you have two bigger deals than the Internet who need eachother for numerous reasons we explain in this IoT blockchain overview.

Blockchain (there are many blockchains in fact and it’s more than the technology powering Bitcoin), has been mentioned by virtually all research firms as a rapidly accelerating evolution and it’s not just about financial services companies, the scope in which we tackled blockchain outside of its cryptocurrency roots the first time (namely FinTech or financial technology). In fact, the convergence of blockchain and the Internet of Things is on the agenda for many companies and there are existing implementations, solutions and initiatives in several areas, outside of IoT and financial services too.

Blockchain and the Internet of Things
The distributed Internet of Things meets Distributed Ledger Technology
As Frank Gens said in IDC’s 2017 worldwide IT technology FutureScape webcast, blockchain is also becoming important in third generation security, to name just one example.

And since quite some time blockchain is increasingly being looked upon in an Internet of Things context. Blockchains have many benefits. They are not the answer to all challenges of the digital economy as sometimes is said but it’s certain that they will play an increasing role in the Internet of Things.

Forrester’s Dan Bieler mentioned blockchain’s potential for IoT solutions. In a nutshell:

As Internet of Things applications are by definition distributed it’s only normal that the distributed ledger technology, which blockchain is, will play a role in how devices will communicate directly between eachother (keeping a ledger and thus trail of not just devices but also how they interact and, potentially, in which state they are and how they are ‘handled’ in the case of tagged goods).

Blockchain is designed as a basis for applications that involve transaction and interactions. These can include smart contracts (smart contracts are automatically carried out when a specific condition is met, for instance regarding the conditions of goods or environmental conditions) or other smart applications that support specific Internet of Things processes. This way blockchain technology can improve not just compliance in the IoT but also IoT features and cost-efficiency.

The industry is not waiting and takes initiatives
It is still early days, Bieler says. That is certainly true. However, at the same time big tech companies are not waiting, probably one of the reasons Bieler advices to start looking at the combination of blockchain(s) and the Internet of Things. And they did and will continue to in 2018 and beyond.

IBM Blockchain, for instance, already allows to extend (private) blockchain into cognitive Internet of Things. In fact, ultimately it will be the combination of artificial intelligence, IoT and blockchain that will prove most interesting across industries and in myriad possible IoT applications. With blockchain we are pretty much adding to the changing digital infrastructure that powers so many evolutions and impacts so many areas, from analytics to security, in an environment that thus far was centralized.

To illustrate the benefits of blockchain and Internet of Things convergence, IBM gives the example of complex trade lanes and logistics whereby smart contracts can follow (and via blockchain technology register), everything that has happened to individual items and packages. The benefits: audit trails, accountability, new forms of contracts and speed, to name a few.

In the image below from an IBM infographic, the company sums up three key benefits of using blockchain for IoT. They are also often mentioned as other blockchain benefits but in other parts of the infographic and the IBM video below, there is more in-depth information about the topic. The three benefits of blockchain for IoT, according to IBM: building trust, cost reduction and the acceleration of transactions.

Three key benefits of using blockchain for IoT according to IBM - source
Three key benefits of using blockchain for IoT according to IBM – source IBM infographic
IoT and blockchain challenges to solve
Forrester’s Martha Bennet confirmed that it’s time to start looking at that IoT and blockchain convergence, even if the combination of both might not be for today.

Security is a major concern with IoT that has hindered its large-scale deployment. IoT devices often suffer with security vulnerabilities that make them an easy target for Distributed Denial of Service (DDoS) attacks. In DDoS attacks, multiple compromised computer systems bombard a target such as a central server with a huge volume of simultaneous data requests, thereby causing a denial of service for users of the targeted system. A number of DDoS attacks in recent years have caused disruption for organisations and individuals. Unsecured IoT devices provide an easy target for cyber-criminals to exploit the weak security protection to hack them into launching DDoS attacks.

Another issue with current IoT networks is that of scalability. As the number of devices connected through an IoT network grows, current centralised systems to authenticate, authorise and connect different nodes in a network will turn into a bottleneck. This would necessitate huge investments into servers that can handle the large amount of information exchange, and the entire network can go down if the server becomes unavailable.

According to Gartner's Forecast, Internet of Things endpoints are expected to grow at a compound annual growth rate of 32 per cent from 2016 through 2021, reaching an installed base of 25.1 billion units. With IoT devices expected to be such an integral part of our daily lives in the coming years, it is imperative that organisations invest in addressing the above security and scalability challenges.

Another breakthrough technology, blockchain or distributed ledger technology (DLT), has the potential to help address some of the IoT security and scalability challenges. Blockchain is an ‘information game changer’ due to its unique capabilities and benefits. At its core, a blockchain system consists of a distributed digital ledger, shared between participants in the system, that resides on the Internet: transactions or events are validated and recorded in the ledger and cannot subsequently be amended or removed. It provides a way for information to be recorded and shared by a community of users. Within this community, selected members maintain their copy of the ledger and must validate any new transactions collectively through a consensus process before they are accepted on to the ledger. For more detailed information on blockchain technology, please refer to Deloitte’s previous publication The Blockchain (R)evolution.

How can blockchain solve IoT security and scalability challenges?
The IoT network can process data transactions across multiple devices that are owned and administered by different organisations, making it difficult to pinpoint the source of any data leakages in case of an attack by cyber-criminals. Additionally, the IoT generates a vast amount of data, and with multiple stakeholders involved, the ownership of the data is not always clear.

Blockchain can help alleviate the security and scalability concerns associated with IoT in the following ways:

The distributed ledger in a blockchain system is tamper-proof and this removes the need for trust among the involved parties. No single organisation has control over the vast amount of data generated by IoT devices.
Using blockchain to store IoT data would add another layer of security that hackers would need to bypass in order to get access to the network. Blockchain provides a much more robust level of encryption that makes it virtually impossible to overwrite existing data records.
Blockchain provides transparency, by allowing anyone who is authorised to access the network to track the transactions that happened in the past. This can provide a reliable way to identify a specific source of any data leakages and take quick remedial action.
Blockchain can enable fast processing of transactions and coordination among billions of connected devices. As the number of interconnected devices grows, the distributed ledger technology provides a viable solution to support the processing of the large number of transactions.
By providing a way to enable trust among the stakeholders, blockchain can allow IoT companies to reduce their costs by eliminating the processing overheads related to IoT gateways (for e.g. traditional protocol, hardware, or communication overhead costs).
Smart contracts, an agreement between two parties that is stored in the blockchain, can further allow the execution of contractual arrangements among stakeholders based on certain criteria being fulfilled. For example, smart contracts can authorise payments automatically, without any need for human intervention, when the conditions for providing a service have been fulfilled.

Some current blockchain-IoT players and their use cases
The technology behind sensors and smart chips is evolving rapidly, making them increasingly portable and applicable for real-time interactions with blockchain ledgers. The combination of blockchain and IoT has broad potential for the creation of a marketplace of services between devices, and gives companies the opportunity to create value from collected data. The growing number of emerging blockchain protocols, partnerships and IoT device providers already indicates that there is a good fit for blockchain in the IoT sector.

Some current Blockchain-IoT players and their use cases are described briefly below. (Please note that the partnerships and companies mentioned in this article should not be considered as endorsements by Deloitte.)

Chain of Things (CoT) is a consortium of technologists and leading blockchain companies. It investigates the best possible use cases where a combination of blockchain and IoT can offer significant benefits to industrial, environmental, and humanitarian applications. So far, CoT has built Maru, an integrated blockchain and IoT hardware solution to solve issues with identity, security, and interoperability. There are three developed use cases named Chain of Security, Chain of Solar and Chain of Shipping.

IOTA is a protocol for fast transaction settlement and data integrity, with a Tangle ledger that eliminates the need for expensive mining (validation of transactions). IOTA is a promising infrastructure for IoT devices that need to process large amounts of micro data. Features of the Tangle ledger, which is the distributed ledger that supports IOTA, are machine-to-machine communication, fee-less micropayments, and quantum resistant data. IOTA has built a sensor data marketplace and is entering the market for data-driven insights, supported by more than 20 global corporations.
Riddle&Code provides cryptographic tagging solutions for blockchains in smart logistics and supply chain management. Working on the integration between IoT devices and distributed ledger networks, Riddle&Code offers a combined, patented hardware and software solution that enables secure and trusted interaction with machines in the IoT age – by giving machines and any physical device a ‘trusted digital identity’. This technology breaks through the physical/digital divide to strike a balance between the demand for paper documentation and the advantages that blockchain technology has to offer.
Modum.io combines IoT sensors with blockchain technology, providing data integrity for transactions involving physical products. The modum sensors record environmental conditions, such as temperature, that goods are subject to while in transit. When the goods arrive at the next transit point or end customer, the sensor data is verified against predetermined conditions in a smart contract on the blockchain. The contract validates that the conditions meet all of the requirements set out by the sender, their clients, or a regulator and triggers various actions such as notifications to sender and receiver, payment, or release of goods.

She defines three categories of challenges that Internet of Things and blockchain ecosystems participants must address.

In a nutshell the key challenges for IoT and blockchain ecosystems participants, according to Forrester, are:

Technology, whereby mainly security comes in the picture. In an Internet of Things context where IoT security is already a challenge, it’s clear that security needs to be even more looked at. It is important to note though that blockchain is also seen as a way to secure the Internet of Things and, as mentioned, security overall but that is another discussions with several opinions and aspects to cover.

Operational challenges: the business model and the practical aspects as this requires many agreements and of course many actors too in a broad ecosystem. Just think about that IBM logistics example.

Legal and compliance issues. Bennet among others refers to responsibility issues in case of actions that are taken by devices, based on a rule that is automatically executed by a blockchain-based application, triggered by another blockchain-based application (you see the complexity). And then there is the mentioned example of smart contracts. As you know contracts are far from easy, even outside this IoT and blockchain context.

In its report, The Internet of Trusted Things: Blockchain as the Foundation for Autonomous Products & Ecosystem Services, released early 2018, Kaleido Insights looked at how blockchain enables to bring trust on a product and application level and on the level of the broader ecosystem of ‘untrusting constituents’.

The report emphasizes how IoT and blockchain convergence obviously don’t stand on their own. Certainly when you think about the big players such as IBM and the way they are building their IoT platform roadmap to incorporate blockchain and AI, it’s clear that the bigger picture is one of several technologies coming together with IoT and AI, IoT and blockchain but also new deep learning algorithms, next-generation security, support for digital twins, edge computing and fog computing, high performance embedded chips, computer and machine vision, the list is pretty endless.

And so is the list of IoT and blockchain use case as the report confirms. Of course not all use cases and additions of technologies are entering at the same speed (you won’t see quantum computing entering the scene tomorrow, for instance) and aren’t valid for all industries, applications, organizations and their use cases and corresponding goals.

However, many of the use cases in the ongoing convergence of IoT and publication definitely are already there be served, both on a product/application use case level as a broader ecosystem use case category level.

The five main use case categories (with ample examples and use cases per category) are supply chain, IoT network management, end-user authentication, asset sharing networks and smart contracts and compliance – with security, identity, interactions and transactions as the core elements.

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