How Blockchain can Unlock the Power of the Internet of Things

The increasingly integrated requirements of emerging technologies require new modes of interaction between them. Here’s how using Blockchain could solve some of the current problems of IoT networks.

By Siva Kannan, Engineering Director, BCG Digital Ventures

In the past, it was possible to solve business problems with a few technological components. Building a web or mobile app was the cornerstone of the vast majority of solutions, and digitizing older business models or building new online infrastructure to come up with new ones was revolutionary. This approach required a limited scope of technologies, primarily needing just a few coding languages that operate on similar principles.

But heading into the third decade of the century, this is set to change. We are now in a world where multiple key technologies need to work together to provide business value at various stages of the supply chain, with technology advancing beyond the staple of Internet-enabled marketplaces and information repositories. Whether we’re building fleets of autonomous vehicles, automated IoT household appliances, or supply chain transparency infrastructure, the tech stack of the 2020s will look a lot different to that of the previous decade, likely to include not just IoT protocols, but Blockchain-based distributed ledgers, Artificial Intelligence and Machine Learning algorithms, and advanced robotics deployment.

“Building a new technology stack is vital: A combination of technologies is the only way to unlock the full potential of each component part.”

What’s more, these technologies will not remain siloed off but instead become increasingly interconnected, combining to manage different aspects of complex supply chains or networks, the relationship between hardware and software, and the distribution of information. Building this new stack is vital: A combination of technologies is the only way to unlock the full potential of each component part.

For the moment, I want to focus on one of the most immediate of these relationships, which can serve as an exemplar case.

To fully unlock the power of IoT, we need to move from a centralized system to one where previously siloed ecosystems interact in a decentralized manner.

In the decade since its introduction, the Internet of Things still lacks the universally shared architecture that will enable it to interconnect, authenticate, and monetize devices. In its current state, centralized platforms manage individual IoT networks, leading to a far from seamless relationship between devices and preventing the shared standard by which they can operate with greater ease.

This is where Blockchain or distributed ledger technology can play a transformational role, providing the shared framework required to fully unlock the value of IoT.

IoT has issues

The adoption of Internet of Things-enabled devices has been steadily growing, with the first few instances of mainstream adoption now a few years in and the big players, Apple, Amazon, and Google, heavily involved, the latter having recently acquired Fitbit. Despite this, the level of integration is not where it should be. There are a few reasons for this.

If IoT were to reach mass adoption and connectivity beyond the consumer sector, the demand for infrastructure to support the new devices would soar. This presents the issue of cost: Infrastructure providers alone might struggle to cover the costs of investment required to provide the increase in necessary support.

An even more pressing issue is that of trust and security. Over the last few years users have been growing more conscious of issues around data privacy and ownership. If they’re uncomfortable with sharing contact details and social interactions, they’re likely to be even less comfortable with sharing data about what they get up to at home without control or transparency as to what this data will be used for. There have also been instances of IoT devices running lower-security software, becoming botnets deployed in DDoS attacks.

Additionally, in the current IoT world centralized middlemen are required to manage IoT devices and networks, along with their associated data. Not only does this mean more trust issues, with users at the mercy of big companies, but it also leads to the real revenue opportunities going to aggregators and integrators, who charge access for the privilege of compatibility. Individual networks become siloed, which is a headache for the consumer. Furthermore, while consumers might be open to sharing their data between platforms to enable the extraction of real value from it, enterprises are not.

Enter Blockchain

Lucky, then, that a groundbreaking technology, admittedly still in a relatively nascent state, can provide a direct solution to many of these issues.

If IoT networks were to be integrated using a Blockchain or another instance of a distributed ledger, they’d become decentralized, trustless, and safe for sharing data without the need for middlemen. They could potentially be transformed into robust and scalable platforms for device communication. Blockchain technology holds records of each transaction made by every network participant, with advanced cryptography deployed to verify transactions rather than a central actor. By confirming transactions using decentralized consensus, there’s no need for trust. Blockchains could provide the framework for facilitating transactions and coordinating between interacting devices. Each device would be empowered to manage its own role and behavior, resulting in an Internet of Decentralized, Autonomous Things. We’re already seeing instances of this in action, such as Bosch’s recent project to encourage an “Economy of Things” with the specific use case of electric vehicle charging.

From a more businesses-minded perspective, the capabilities and potential of data could be truly unlocked. Exchange and sharing of data is key for innovation and transformation at scale across various industries, and IoT powered by Blockchain could create multiple data marketplaces across every sector.

Three aspects of interaction

Areas for IoT and Blockchain interaction

To sum up, I see the potential for Blockchain to facilitate IoT in three primary areas: Registry, monetization, and coordination. Blockchain provides the potential for an immutable way to authenticate data locations and registries, transaction settlements, and device events. If these abilities are properly leveraged, a decentralized Internet of Things could solve the operation issues faced by IoT and the application skepticism attracted by the latter.

But the complete decentralization of the Internet of Things will not happen overnight. To get started, we need to change our mindset and begin to look beyond individual organizations to collaborations between the three or four main companies. This might start with air conditioning or heating companies sharing their data with energy suppliers to ensure better grid efficiency, to take one example, or perhaps auto manufacturers sharing their telematics data with insurance companies in order to achieve better claims processing.

We need to create ecosystems based on capitalizing on the data currently sitting within silos. To make this feasible, private and permissioned blockchains need to be deployed. These networks will allow communication between IoT devices within their ecosystems and prevent unauthorized devices from hacking into their now-protected networks.

“The complete decentralization of the Internet of Things will not happen overnight. To get started, we need to change our mindset and begin to look beyond individual organizations.”

The future of technology will follow a path of integration, between devices and technologies. I hope this example provides a useful sketch of one path this could follow.

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BCG Digital Ventures - Part of BCG X

BCG Digital Ventures - Part of BCG X

BCG Digital Ventures, part of BCG X, builds and scales innovative businesses with the world’s most influential companies.