By Bitfury’s Lightning Peach team (edited by Rebecca Campbell)
The Internet of Things (IoT) is made up of billions of Internet-connected devices. By using sensors or WiFi, each connected device constantly collects data that it then analyzes and exchanges. This is also known as big data, which can be used for predictive analysis, product marketing and more.
Right now, however, the IoT economy (and data market) is centralized. The Lightning Network is a viable technology platform that could help the market decentralize and operate more efficiently.
The Growth of the IoT Market
As our world becomes increasingly connected, the IoT industry is growing exponentially. According to Zion Market Research, by 2020 there will be as many as 30 billion devices connected; and the IoT market value is expected to grow to $232.15 billion.
IoT has the potential to offer many economic advantages to consumers and vendors far beyond normal machine-to-machine (M2M) communications (such as your Google Home/Alexa to smart lightbulbs). Other anticipated innovations include the use of IoT to power self-driving cars, power supplies, smart grids, and smart cities. According to a 2017 Cisco report, the M2M connections that support IoT applications are expected to account for more than half of the 27.1 billion devices and connections and will make up five percent of global IP traffic by 2021.
While the IoT industry is growing rapidly, it still suffers from a lack of privacy and security. Not all internet-enabled devices are held to the same cybersecurity standard as our phones, laptops and internet connections. In addition, as more data leaks occur, consumers are becoming increasingly wary of the information they share with their devices and apps.
One area this particularly affects is the use of IoT devices, especially for payments. How can a consumer/user engage with IoT devices without sacrificing their privacy, and how can IoT devices continue to access the data they need to operate without putting consumers’ security at risk? This is where the Lightning Network comes in.
A Decentralized IoT Ecosystem
Right now, most IoT communications and systems are centralized in order to store and protect data (for example: Amazon owns Alexa-enabled devices and the data; Google owns Google Home, and other companies own their own operating systems and hardware). This is a risk both for the consumer (if they use multiple devices, for example, or have privacy concerns) and the corporations, since there are centralized points of failure.
If all IoT devices were able to connect to one another in a decentralized network, data could be shared and used to improve all devices. IoT devices could pay to receive the data they require, enabling them to operate better for each individual user. A decentralized network would also eliminate central points of failure, making IoT data more secure. For this to be possible, a strong payments infrastructure is required.
Creating an IoT Economy on the Lightning Network
The Lightning Network a second-layer payment protocol built on top of the Bitcoin Blockchain. Hailed as a solution for bitcoin’s scalability issues, the Lightning Network enables instant micropayments and lower payment fees. This network could also be used to implement a decentralized peer-to-peer (P2P) payment layer for transactions between IoT devices, utilizing seven key features: decentralisation, trustlessness, efficiency, innovative pricing models, instant settlement, scalability and security.
Decentralization: In the Lightning Network, no central authority is required to process transactions, nor is it controlled by a single financial institution. It does this through a network of nodes, which allows participants to conduct transactions amongst each other directly. This also removes the need to delegate custody of funds to third parties (like banks and exchanges).
Trustlessness: The design of the Lightning Network means that two or more people who want to transact do not need to know or trust each other — the technology protects the funds and identities of each person throughout the transaction. In an IoT network, this means that the manufacturers and service providers of IoT devices would not be required to have existing, trusted relationships to exchange funds and data.
Efficiency: When the Lightning Network takes transactions off-chain, congestion on the Bitcoin Blockchain is reduced. It also helps create a competitive liquidity market for transactions, leading to lower fees.
Innovative Pricing Models: The Lightning Network is touted for its support of micropayments. Micropayments will enable increasingly innovative pricing models, such as per-second or per-minute transactions. This flexibility will be a boon to the IoT network as it grows.
Instant Settlement: With instant settlements of transactions, IoT devices can earn funds for its own operations. For instance, self-driving cars can put the money toward charging services, tolls or parking. As a result, capital turnover will lessen.
Scalability: The Lightning Network is currently designed to be interoperable with other blockchains — meaning it will soon be able to handle millions of transactions per second across various cryptocurrencies. IoT devices will not be locked to a certain digital currency or blockchain in order to transact with the other devices in the network.
Security: The Lightning Network relies on cryptography for its security. The IoT industry, struggling itself with security breaches, can benefit from cryptography’s use of private keys as well as other cryptographically protected operations.
In summary — the innovative payment structure of the Lightning Network is well-suited to the infrastructure of the Internet of Things. The Lightning Network can provide the efficiency and security that the IoT currently lacks, as well as a better framework for our digital device ecosystem.
About Lightning Peach:
Lightning Peach is Bitfury’s team of engineers dedicated to advancing the Lightning Network.