IoT + Blockchain (2/4): Blockchain Empowers IoT Devices

This is the second article of a series. See the previous and the next (tbd) articles.

Although blockchains’ first and most widely-known application is a currency, in the form of Bitcoin, its underlying technologies provide a unique suite of functionalities that make it uniquely complementary to IoT by empowering them to become independent entities within a decentralized network and in the process, directly or indirectly addressing many of the challenges currently facing IoT technologies.

Blockchain grants devices independence

IoT devices in today’s networks do not exist as independent entities outside of their centrally-managed networks. As far as the outside world is concerned, they’re dealing with a large server sitting in the cloud that has some data, without any idea of the provenance of the data or any means to interact directly with the devices that collected the data in the first place. On a blockchain network, each node — any participant connected to the network — has a unique private and public key pair that uniquely identifies it as an independent participant on the network. Specifically, these identities are enforced largely using cryptographic signatures, or digital messages that unmistakably (and next to impossible to forge) identifies the sender.

Having unique identities is the foundation of achieving independence, giving each device the ability to act on its behalf. This enables a decentralized mesh network topology rather than a centralized server-client network topology, with each node able to make its own decisions and more importantly, make use of its own resources independently of the other nodes. This type of network is much more secure, as no longer can a hacker gain control over millions of devices by hacking a single server (a single point of failure) — now he must compromise millions of devices one by one, with each compromised device likely to be rejected by the network for misbehavior, resulting in the hacker taking over a useless, disconnected device.

A decentralized network with a smart consensus algorithm is also much better at balancing workloads that were formerly handled by a single entity. This makes network deployment as well as maintenance far less costly as the workload of connectivity, storage, and even computation can now be done by many devices in the network, without the need for a costly centralized arbiter.

Blockchain grants devices awareness for ownership

Blockchain also endows devices with the concept of ownership through the very same cryptographic primitives that guaranteed unique identities. Any device can now sign for as well as encrypt any form of digital asset it has access to. Specifically, a device can now own cryptocurrencies (like Bitcoin) as well as other forms of assets that it has control over (e.g., data, bandwidth, storage). By having this concept of ownership, the IoT device is now an independent economic entity able to not only act, but act in its own best economic interests. For example, instead of remaining idle, a device might decide to put its capabilities on auction and collect customized data on-demand; to avoid obsolescence, it could network with other similar devices to contract order a firmware upgrade, etc. While they like science fiction, these examples may not be too far off in the future.

Having guaranteed ownership of digitized assets, consequently, also guarantees the privacy of the asset generator. Without the explicit permission of the originator — e.g., without a decryption key, no one can access the data. Today’s rampant and more importantly hidden data collection and aggregation processes will be brought to the forefront and forced to seek explicit permission from the data generator and owner.

Blockchain enables devices to trade

What does an independent, asset-owning economic entity do? It trades with other independent, asset-owning entities. At the core of every blockchain network is a consensus algorithm that makes sure every node on the network agrees on the network’s historical set of state transitions, or more simply, what has changed about the network. This consensus enables the defining functionality of blockchain — decentralized trading of digitized assets.

The ability to securely trade assets and resources becomes even more consequential when you consider the global ecosystem of open-source developers that are naturally part of any open-source blockchain ecosystem. Now there is a way to reward and enable better usage of the data collected by devices in a decentralized manner. Any device or a network of devices can choose to publish a segment of its collected data and put up a bounty with a specific objective (e.g., lower energy consumption, faster processing throughput) on the blockchain marketplace, locking the reward in a cryptographically-guaranteed smart contract, and incentivize people (and intelligent algorithms) to discover and be rewarded for the solution. Discovering uses (business models) for data was an extremely difficult problem for a centralized entity, but with blockchain, it could potentially become a much simpler decentralized problem, tapping into a globalized talent pool from all over the world.

In the next article of the series, we explore what design goals an idealized blockchain system needs to meet in order fully empower IoT devices.