Blockchain: How Distributed Ledger Technology Will Support the IoT
Blockchain technology (also called distributed ledger) is commonly associated with Bitcoin, Ethereum and other digital currencies. These digital currencies established the viability of distributed ledger as a means of conducting, verifying and permanently recording transactions without the need for a trusted third party. Beyond digital currencies, blockchain has many other potential applications. Many players are now starting to explore opportunities to apply blockchain in IoT scenarios. The high-level findings that follow come from the research firm Ovum and are part of a longer report.
Ovum View
There is strong potential to use blockchain in IoT for security, identification/authentication, verification and record-keeping. Early use cases are likely to include IoT applications in transport and logistics, and agriculture. We have seen particular interest in using blockchain to enable ‘smart contracts’ (also called self-executing contracts) created between machines as IoT-enabled machine-to-machine transactions take place.
However, blockchain is not an appropriate solution for all IoT transactions. The question is whether the value of eliminating the friction point for a particular workflow in IoT is worth the investment in implementing a new technology and in dealing with new complexities.
For the widespread adoption of blockchain as part of IoT deployments, blockchain needs to overcome issues of scalability and interoperability. The costs to sustaining a blockchain can rapidly escalate, both in terms of storage required and the energy required to run the blockchain. Barring regulatory intervention, there is little likelihood that blockchain consortiums will make their blockchain technologies work with one another.
Service providers and vendors should not expect net new revenue from implementing blockchain in their IoT transactions. If they were to acquire or develop their own blockchain technology and know-how and become blockchain technology providers, they could potentially monetize blockchain by licensing or providing professional services to implement and apply blockchain in IoT transactions. Realistically, few communications service providers are likely to do this on their own.
Recommendations
Do not confuse a new technology with a business strategy. There is no doubt that service providers and vendors should keep an eye on blockchain, and consider investment and development of sensible use cases. But a new technology is not in itself a business strategy. While blockchain-based systems and applications could potentially provide more security and trustworthiness to IoT transactions, there must be concrete proof of the value of this over a significant period, and in multiple instances, to drive forward the use of blockchain as a competitive advantage in providing IoT solutions.
It is not necessary to be a first-mover in adopting blockchain for IoT transactions. Blockchain deployments are currently limited, mostly in proof-of-concepts or small-scale experimentation. Being a step or two behind the curve allows service providers and vendors to see what worked and what does not in the use of blockchain for IoT. This input from the market should allow for a better evaluation on whether it is worth it to implement blockchain in IoT transactions.
Look to agriculture and transport and logistics as high-potential verticals for using blockchain in IoT transactions. There is clear value to incorporating blockchain technology into the shipping and logistics process, and using blockchain to increase visibility of the agriculture supply chain. Service providers and vendors can carve a role for themselves in these verticals through partnerships with leading market players in the respective verticals.
