There’s much ado about blockchain, and still plenty ado about the internet of things (IoT). But are these two technology phenomena complementary? Both suffer from significant barriers such as scale, market fragmentation, costs and regulatory issues. But if the past is prologue, technological disruption doesn’t occur in a vacuum; rather, it occurs when multiple technologies converge.
While it is simply too early to accurately dub blockchain the “missing link” for IoT, analysis on the intersections of Distributed Ledger Technologies (DLT) and IoT surface a variety of links worth exploring. Below are three ways distributed ledger technologies help fill critical gaps in IoT.
Security: DLTs Presents New Design Considerations for IoT Topologies
Blockchain is not a silver bullet solution for IoT security. Instead, DLT offer new design considerations and applications for cryptography across myriad parts of any IoT topology.
- Smart contracts are small pieces of software encoded into blockchain protocol and a first line of defense, in that businesses can write security rules into the execution of a transaction.
- Distributed architectures in and of themselves help minimize the risk of single-point failure, such that the penetration of any single node will not cause the broader network to collapse.
- Cryptographic signatures occurring at the block or transaction-level also spell immutability and greater transparency, which can deter tampering.
- Zero Knowledge Proofs (ZKPs) are a cryptographic technique allowing two parties to prove that a proposition is true without revealing any information about the event.
- Identity authentications, permissions, public and private keys all enhance security associated with who can access what and when.
Interoperability: DLT fosters more granular and controlled data-sharing
One of the most commonly cited (and experienced) challenges facing IoT is the inability to integrate data and functionality, never mind insights, across multiple devices. Although blockchain is not a data integration tool per se, distributed ledgers are inherently designed to offer shared visibility of data.
- Decentralized architectures are inherently designed to distribute controls across multiple participants. In enterprise IoT environments, this helps mitigate competitive threats of centralized control—a significant barrier to IoT interoperability.
- Consensus mechanisms are essentially the computational proofs participants in the network must complete to verify an event has been registered. IoT devices themselves could come equipped with wallets, firmware, or code to participate in shared ledgers. SKUChain’s PopCodes are one supply chain example.
- On-chain versus off-chain, and multiple chains. What data go on versus off-chain is an essential question in configuring DLT initiatives, and particularly important in consideration of data volumes, scale, privacy, security and compliance. From an IoT standpoint, it allows a more granular way to parse out which data are shared and which are not.
- Open data exchanges, in which DLT is used as a decentralized secure open marketplace for multiple participants to share data to drive innovation (and even be compensated for doing so). IOTA’s Data Marketplace and the automotive industry’s Autonomous Vehicle Data Exchange (AVDEX) are two important examples to watch.
Monetization: Beyond device-to-device, to ecosystem-level business models
Although blockchain is often associated with the exchange of value, its underlying technologies comprise core platform architecture. Therefore, they are more often associated with cost efficiencies than net new revenue generation. That said, our research suggests near term efficiencies gained will lay the bedrock for the coordination and data sharing required to support next generation monetization models involving an ecosystem of providers.
- Near-term, efficiencies gained through product identity authentication and shared visibility across product lifecycles. A single truth for product identity is foundational to design integrity, track and trace, supply chain reconciliation, compliance adherence, counterfeit prevention, etc. It is also key for any use case in which devices generate net new revenues (e.g., M2M transactions, microtransactions, autonomous services, on-demand asset sharing, etc.).
- M2M transactions and microtransactions, DLT serves as a shared instantaneous payment rail to register, validate, reconcile and release payments across parties or other devices. Early examples include Teslas transacting with tollbooths or P2P+ commercial energy bartering. Longer term, this is an essential building block for autonomous products and on-demand access, insurance and self-repairs.
- Ecosystem-wide infrastructure = ecosystem-wide monetization opportunities that today, are not possible. Or to the extent they exist, are highly centralized (e.g., app ecosystems à la Google, Microsoft, Amazon, etc.). Consider the opportunities for value exchange when disparate and diverse manufacturers, brands, service providers, insurance companies, energy providers, etc. can leverage each other’s platforms to extend and improve their products and services.
Similar to what TCP/IP — the de-facto standard for transmitting data over networks — did for the internet, the sharing of data across physical networks requires an interoperable layer for recording the events associated with the data. Although we’re in the embryonic days of blockchain and DLT, the decentralized paradigm akin to, but still missing from the internet, offers the potential for ecosystems to generate and move value with vastly greater security, efficiency and most importantly, trust.
Jessica Groopman is an industry analyst and founding partner of Kaleido Insights.