How Blockchain Technology Can Benefit the Internet of Things
Blockchain technology has already gone through a peak of hype, then a “trough of disillusionment,” but it may be on an upward climb again.
While the roller-coaster ride of cryptocurrencies such as bitcoin have also cast aspersions on blockchain technology –and it has—recent events such as COVID-19 and its impact on the connected economy has created new imperatives for digitizing transactions .
Enter blockchain, a digital ledger technology that enables organizations to transact digitally, recording these transactions securely, immutably across several computers that are linked in a peer-to-peer network.
Indeed, recent events such as the advent of COVID-19 brought blockchain to the forefront, as social distancing and reduced labor forces on-site accelerated digital trends.
How Blockchain Technology Works
The three fundamental properties of blockchain technology as a data structure ( i.e., distribution, immutability and decentralization, can benefit the Internet of Things (IoT), said Arthur Carvahlo, a blockchain expert and the Dinesh and Ila Paliwal Innovation Chair at the Farmer School of Business at Miami University.
Carvahlo illustrated these properties and how they can benefit the Internet of Things (IoT) ecosystem by considering surveillance cameras as IoT devices.
Say a burglar is planning a sophisticated act on a high-profile target. To prevent the act from being recorded, the burglar can first attack the server running the database where the videos are stored, he said.
The distributed aspect of blockchain means that data are replicated across several computers. This fact makes the hacking more challenging since there are now several target devices.
The redundancy in storage brought by blockchain technology brings extra security and enhances data access since users in IoT ecosystems can submit to and retrieve their data from different devices, Carvahlo said.
Continuing with this example, say the burglar is captured and claims in court that the recorded video is forged evidence. The immutability nature of blockchain technology means that any change to the stored data can be easily detected. Thus, the burglar’s claim can be verified by looking at attempts to tamper with the data, he said.
However, the decentralization aspect of blockchain technology can be a major issue when storing data from IoT devices, according to Carvahlo.
“Decentralization means that the computers used to store data [in a distributed fashion] might belong to different entities,” he said. “In other words, if not implemented appropriately, there is a risk that users’ sensitive data can now be by default stored by and available to third parties.”
A different possibility when using blockchain in the IoT context is to store access logs and permissions, according to Carvahlo. Specifically, the distributed and decentralization aspects of blockchain make it notoriously expensive to store big data. An alternative is to keep the data in a central repository while storing logs concerning access to the data using blockchain technology, he said.
Thereafter, users have an immutable data structure that can tell who accessed their data and when that happened, he said. Going one step further, blockchain technology can be used to store data access permissions issued by users.
“Any third party requiring access to a user’s data must request it first and such a request and response can be stored in the blockchain,” Carvahlo said. “Now, users and data requesters have an immutable database that can unequivocally determine who has access to specific data and for long that access is valid. This application has a great potential to enhance privacy and even be the backbone of a data marketplace where users can profit from selling their own data.”
The Benefits of Blockchain and IoT
A blockchain’s distributed ledger is tamper-proof, eliminating the need for the involved parties to trust one another, said Andres Ricaurte, senior vice president and global head of payments at an IT services company. As such, no single party has control over the massive amount of data the IoT devices generate. Blockchain encryption makes it virtually impossible for anyone to overwrite existing data records. And using blockchain to store IoT data adds another layer of security to prevent malicious attackers from gaining access to the network.
A primary challenge for IoT players is to protect the information in the entire IoT ecosystem, said Vipul Parekh, senior director with management consulting firm Alvarez & Marsal. Security vulnerabilities make IoT devices an easy target for distributed-denial-of-service attacks, malicious attackers and data breaches.
The integration of IoT and blockchain opens the door for new possibilities that inherently reduce inefficiencies, enhance security and improve transparency for all involved parties while enabling secured machine-to-machine transactions, Parekh said. The coupling of these technologies allows a physical asset to be tracked from the moment raw materials are mined, for example, and among every step of the supply chain until it is with the end consumer.
Parekh noted the following benefits of integrating blockchain and IoT.
- Enhanced security. Blockchain technology incorporates security with the ability to verify and allow transactions originated by a trusted party as well as encryption while data is being transmitted and stored. Blockchain technology provides transparency about who has access, who is transacting and a record of all of the interactions. Plus, blockchain adds a security layer in terms of encryption, the removal of single point of failure and the ability to quickly identify the weak link in the entire network.
- Reduced costs. By automating the transaction validation and processing steps on blockchain, the entire ecosystem can be made proactive at a reduced cost.
- Speed of transactions. This is especially true for supply chain transactions with multiple suppliers, producers, distributors and consumers. With the blockchain serving as a shared ledger to a degree, untrusted parties can exchange data directly with one another, eliminating the manual processes and increasing the speed of transactions.
The challenge for every technology is being clear about the customer problem or need that is being met, said John Rossman, managing partner at consulting firm Rossman Partners, former Amazon executive and author of “The Amazon Way: 14 Leadership Principles Behind the World’s Most Disruptive Company.”
“While at Amazon, we addressed this challenge with a technique called ‘working backwards’ where we started with the customer and worked backwards to the solution,” Rossman said. “Blockchain is an example that suffers from sounding like a transformational technology, but the meaningful adoption beyond cryptocurrencies has not met the hype. In figuring out how blockchain can benefit the Internet of Things, let’s start with the customer and work backwards.”
There are many challenges in IoT deployments, including costs, security, privacy and data exchange. While these are separate issues, there are many dependencies to them, according to Rossman.
“Customers of IoT, oftentimes a collaboration of business partners, need the data and insights from IoT devices quickly, at a performant cost basis, and they must be trustworthy,” he said. “The blockchain can be the backbone ledger helping with all of these.”
Blockchain is encrypted and secure by design with many independent nodes verifying updates to the chain prior to updates to avoid nefarious actions, Rossman said. This is secure by design. The blockchain can be inspected and verified by all parties, helping to improve both access and trust to the data without burdensome and costly bureaucratic layers. This greatly improves access, trust and cost.
Use Cases for Blockchain and IoT
The use cases for blockchain and IoT include the following:
- Supply chain/smart contracts IoT and blockchain can be combined for quality assurance in the supply chain, said John Thielens, CTO of Cleo. Perishable goods, such as wine or rare foods, are typically subjected to varying temperatures and light exposures as they pass through transportation and warehousing networks. “By combining IoT and blockchain, the journey of the perishable goods from producer to retailer can be captured,” Thielens said. “Location and temperature data can be collected and incorporated into the blockchain at the case or pallet level, enabling the ability to check the history of the product as it passes through the supply chain and reject accepting the product and moving it forward if the terms of the handling contract have been violated.”
Other than storing data, some blockchain models allow organizations to store and run immutable algorithms in a distributed and decentralized fashion, Carvahlo said. Often called smart contracts, these algorithms enable companies to encode business and domain rules naturally.
Consider a supply chain example where a product requires cold storage, Carvahlo said.
“IoT devices, such as temperature sensors, can continuously monitor the temperature of packages and send data to a running smart contract, which can in real-time inform stakeholders of any temperature drop,” Carvahlo said. “Since the smart contract is running on top of blockchain, the underlying temperature data are stored in an immutable data structure, which helps prevent data tampering.”
- Truck leasing. IoT sensors placed in leased trucks can record key events on a blockchain to help manage fleet whereabouts and returns and also to support more meaningful billing practices, according to the Gartner Inc. report “Integrating Blockchain With IoT Strengthens Trust in Multiparty Processes.”
“With IoT sensors on board trucks, truck leasing companies can charge renters’ fees based on the torque of the loads rather than on mileage, which is the current practice,” the report noted. “The blockchain distributed ledger technology supports a shared, single version of truth across participants. No single entity is in control of the data, and the truckers and leasing companies can all independently verify their own copy of the distributed ledger. This blockchain/IoT integration should help the leasing companies increase revenue and cut costs.”
- Oil operations and field service. IoT sensors on oil and water wells can enable oil companies to manage the performance of hauling companies that pick up and deliver oil and water from the wells and transport them to various destinations, including environmental waste dumping grounds, according to the Garter report.
“The IoT sensors on the wells help the oil companies schedule truck pickups and allow them to monitor the amount of material picked up and delivered to eliminate fraud and false representations,” the report noted. “[T]he blockchain distributed ledger technology records key events in the logistics chain and supports a shared single version of independently verifiable truth across multiple participants.”
In this use case, implementing blockchain could help the oil companies save money and operate their pickup and delivery operations more efficiently, according to the Gartner report. In addition, by giving regulators a view into the data, such as the amount of water delivered to a water dumping ground as compared to the amount picked up from the water well, the blockchain distributed ledger technology will help the oil company manage its compliance reporting requirements., Gartner noted.
Challenges of Integrating Blockchain Technology With IoT
One of the biggest challenges associated with integrating blockchain and IoT revolves around the constraints associated with the limited battery life of some IoT devices, according to Paul Brody, global innovation leader, blockchain technology at EY.
“Some IoT devices are connected to the power and Wi-Fi all the time, so you don’t really have substantial constraints,” he said. “But a lot of IoT devices aren’t. And you can’t have a compute- and bandwidth-intensive blockchain transaction system going on a very, very small device. So they may need to use some kind of server-based infrastructure or they may need to get help from a gateway device or related device. So these ecosystems by their nature are going to have to be relatively cooperative ecosystems.”
In addition, device security is only as good as the weakest link in the infrastructure, Brody said.
“So if I have a very sophisticated hack-resilient blockchain network, but the operating system that my device runs on is poorly patched or isn’t maintained or isn’t updated, I’ve rendered all of that pointless and my device is easily hacked at the edge,” he said.
Blockchain and IoT can be an incredible combination, Parekh said. However, it is essential to note that blockchain and IoT are not evolving at the same pace.
For example, blockchain has such constraints as scalability to handle large amounts of data, regulatory and data privacy issues as well as standardization, which are all pre-requisites for enterprise adoption, according to Parekh. IoT technology also needs to prove that the infrastructure is secure, efficient and resilient. It still must overcome these constraints before new business solutions become staples in enterprise technology.
“In our observations, the client’s willingness to adopt these technologies is not matched by the ability to deliver successful results,” he said. “You need to equip leaders with an authentic understanding of the technologies to make the right decisions and avoid ‘a hammer looking for a nail scenario’ because not every [IoT] use case is made for blockchain. We suggest performing a business feasibility assessment to ascertain the benefits of removing intermediaries, e.g., cost, speed, reliance on market participants in completing transactions as well as the trust needed to share and maintain data integrity among participants.”