How Blockchain and Smart Contracts Can Impact IoT

Aug 21, 2018 · 6 min read

The Internet of Things (IoT) is one of the most exciting paradigms in new tech. The principle of connecting billions of devices to automate networks is absolutely thrilling and has considerable applications in agriculture, manufacturing, consumer tech, and virtually all mechanically intensive industries.

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In 2017, according to analysts Gartner, there were an estimated 8.4 billion IoT devices. By 2020 that number could exceed 20 billion, and by 2030 there could be more than 500 billion. According to a February 2018 IDC study, projected spending on IoT is expected to hit $1 trillion in 2020, which represents a robust, four-year compound annual growth rate (CAGR) of roughly 15%. It falls short of a December 2016 IDC projection, however, that forecast a market size of $1.29 trillion. The implications of this revolution in connectivity extend far beyond just smartphones and private houses. In fact, it’s about to be applied on an industrial scale to everything from fridges to farming to healthcare, in a manner people can hardly imagine.

Fully operational IoT devices interact with known and unknown devices. For example, autonomous machine repair is a big goal for the autonomous industry: when a mechanical failure or signs of deterioration is detected, the network responds by ordering new parts. In a trusted environment, such issues do not pose as a problem; in the real world, this is a major attack vector against the IoT network.

But thus far, researchers have demonstrated horrifying capability and creativity in breaching IoT devices. This problem may be solved by consensus protocols of the blockchain, protecting from all but the most extreme malicious actors. Each sensor forms its own node on a blockchain and record “possession” of the device to each individual sensor (and subsequent location). A barcode, NFC chip, RFID tag and other tracking device on the package will be read at each sensor on the way to your house. Tracking the actions of network components and provably verifying that record is another big goal for IoT. Such auditability improves analytics, network performance, legal compliance, and safety. The blockchain’s immutable record is ideal for creating reliable networks histories.

The blockchain model based on cryptographically secured, immutable distributed ledger technology and consensus could enhance IoT frameworks with more automated resource optimization and innate security by providing:

  • A distributed system of record for sharing data across a network of key stakeholder;
  • Embedded business terms for automating interactions between nodes in the system;
  • Hash-based security, verification of identity and provenance authentication;
  • Consensus and agreement models for detecting bad actors and mitigating threat;
  • Cost Reductions. Trusted data sets that can be shared among multiple stakeholders, thus replacing middlemen. This elimination of intermediaries, as well as the automation of transactions across the value chain, will result in cost efficiencies. Consider, for example, the automation of the customs-clearing process within a supply chain, which reduces (and potentially eliminates) the need for customs brokers.

With such features, a blockchain-enabled IoT deployment could improve overall system health and integrity by allowing devices to register and validate themselves against the network. Business logic could execute automatically via smart contracts. And with no central system to attack, threats like denial of service attacks could be inherently deterred at different layers in the architecture.

Applying a blockchain model in an IoT network could solve a host of real-world digital business issues, including:

  • Analytical model tracking: Allow the system to record metadata and results about logic executed at the edge of the network for the purposes of regulatory compliance, and create an immutable history of why certain “decisions” were made during IoT processing;
  • Secure software updates: The ability to publish software updates as a URL on the blockchain, along with a cryptographic hash of the update which can be validated by blockchain-connected IoT devices during the process;
  • Payments and micropayments: Automated payments to business network participants electricity), as well as micropayments between devices themselves in certain networks for functions and capabilities — all without human involvement.

Smart contracts are an amazing asset in IoT networks allowing for a high degree of coordination and authority. Particularly when it comes to managing transactions and interactions, smart contracts ensure proper cohesion. IoT is always built on the idea of being able to take the right amount of action at the right time. Put another way: suppose you want your house to be able to order a new light bulb when one burns out. You wouldn’t want your house indiscriminately ordering crates of lightbulbs. Smart contracts are a great way to protect against this.

Where blockchain distributes a ledger system, the contract concept extends the function of the ledger to include a language for terms of agreement and measurements to determine if certain conditions have been met. Those conditions could include that the price of a commodity and the required delivery date all match with what a person is willing to pay and when they require delivery. In other words, a smart contract could potentially facilitate business activity and commerce.

There are two main issues with integrating blockchain into IoT: speed and computational complexity. At its current state, Ethereum can handle 25 transactions per second. These speed are far not fast enough to be useful for IoT networks with hundreds or even thousands of connected devices all functioning and transacting simultaneously. But Ethereum is developing and there is a high chance that the number of transactions will increase in the near future. There is no firm number of transactions per second that a blockchain must be able to handle for it to be useful for IoT, but the faster it gets the more useful it becomes and the tipping point for adoption is probably somewhere in the realm of thousands per second. IoT devices are frequently built with connectivity, not computation in mind, and average processing power reflects this; IoT networks cannot handle computationally complex consensus algorithms. Proof of Work demands far too much for it to be effectively used in IoT.

There are some companies that are trying to implement blockchain in IoT:

  • Robonomics is a platform for integration of cyber physical systems into human economy. Robonomics platform works on the implementation of the SDK developer of user dapp for smart cities and industry;
  • IoTeX is the IoT-oriented blockchain platform with strong scalability, privacy, isolatability and developability for incubating new IoT applications and ecosystems;
  • IoT Chain is developed as a lite operating system using the blockchain concept and implementing PBFT, DAG, SPV and CPS technology, allowing data to be layered and stored in a decentralised manner and providing protection with the combined strength of the millions of IoT nodes within the network.

In the short run, the combination of blockchain and IoT will mainly focus on driving efficiencies inside companies and further automation of the paper trails needed to satisfy risk and regulatory requirements. Over the longer term, as both technologies mature, companies will use blockchain with IoT to develop and scale new revenue streams. Dynamics will shift as new business models materialize.

But the combination needs time to scale. In particular, blockchain needs time to mature and overcome some big obstacles — a lack of understanding as well as some technical and regulatory challenges — before it can achieve anything near its full potential and offer business leaders the solutions they need to drive significant economic value in their companies.

What do you think? How long will it take us to adopt this concept, at least partially? Leave your thoughts and comments in our Telegram group and in the comments section below!


Smartz Platform Blog

Multi-Chain Smart Contracts Management System

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