When the two technologies join forces, blockchain is the way to realize the vast potential of the internet of things.
The convergence of blockchain and IoT marks a new era of smart revolution. The potential applications of these two technologies coming together – not so far in the future – has caught everyone's attention, making them two of the most talked-about buzzwords today. Many industry experts and pundits have also avowed this fusion as the next generation of the internet, which will transform money, business and the society at large.
The rise of IoT and challenges associated with it
The internet of things (IoT) as a concept has already been a smash hit and is rapidly expanding across various sectors, thus creating more and more avenues for its implementation. IoT has brought about a paradigm shift in the way the internet is used innovatively. It's essentially about connecting various devices over the internet, allowing them to talk to us and each other. It has provided huge opportunities to businesses for developing new services through cloud-enabled networks across the world. With this torrential capability, IoT technology serves as the lifeblood for smart homes, smart cities, healthcare, manufacturing, logistics, finance and so on. According to a report published by Gartner, there will be more than 20 billion connected devices across the globe by 2020.
However, the current IoT infrastructure is based on a centralized communication model that poses a grave challenge of management and security. The model points toward an inherent flaw that is unlikely to support the smooth functioning and coordination of tens of billions of IoT devices. It is not difficult to understand how servers are going to be overloaded, which will be no better than a bottleneck. In all likelihood, this point of failure can disrupt the entire network, rendering the system to the whims and fancies of cybercriminals. Such an unfortunate turn of events will cripple the IoT ecosystem and compromise the capabilities of IoT devices, especially as they take on more sensitive tasks.
This is where the revolutionary blockchain technology comes into the picture. It uses a decentralized network that can greatly enhance the security, privacy and manageability of IoT devices.
How does blockchain technology work?
Blockchain is based on a distributed ledger technology (DLT) pattern, which is also the main architecture behind cryptocurrencies Bitcoin and Ethereum. It has the potential to eliminate the vulnerabilities arising in various transactions.
To put it simply, blockchain technology provides a secured and synchronized method of the transaction between the entities involved in a business transaction. Be it a series of multiple steps involved in a supply chain or a single online payment, the blockchain ledger keeps a record of every detail pertaining to transactions from start to end. With the completion of each transaction, it is put into a block, which in turn is connected to the previous and latter blocks. In this way, the groups of all these blocks together form an irreversible chain. This makes the blockchain technology an apt solution even for mining, refining and distributing highly valuable goods.
This distributed ledger architecture has more usability than meets the eye. Despite being distributed, it acts as a secured closet that shares all the record keeping, which ensures that no one person or organization holds ownership of the system. Each and every participant who is part of the network, if involved in any transaction process, is allowed to have a copy of the record as well as a piece of data.
Now comes the best part: No transaction can be added to the chain without consensus among the involved parties. This essentially means no single person in any manner can alter the blockchain, thereby making it highly secure and tamper-resistant, which reduces the risk of fraud and error.
When IoT meets blockchain
At the core of blockchain technology are three crucial elements: encryption, security and consensus. The result of these elements working in unison is collective network updates and an accurate data set at all times. So, by providing an untenable network security, blockchain can provide a solid ground for IoT to interconnect reliably, greatly reducing the threats that compromise central server models. Since the incorporation of cryptographic processes provides security to the decentralized control of blockchain, it makes the IoT ecosystem more scalable and productive.
In the current scenario, IoT is primarily used for data collection, remote monitoring and device automation. However, very soon there will be a large-scale interaction among autonomous smart devices for a range of applications that might seem inconceivable right now. The amalgamation of blockchain and IoT can address the missing link arising from privacy and reliability concerns on the IoT. It will provide a perfect way to keep an immutable record of billions of devices and their histories. This will enable the autonomous functioning of these devices, removing the need for centralized authority.
Going forward, blockchain has huge potential to tokenize and monetize the value of data in real time. Such an arrangement will provide an opportunity to IoT device owners to earn digital currency in lieu of providing data generated by IoT sensors. A similar concept is envisioned by Streamr, a decentralized peer-to-peer network support company. Streamr aims to provide a single interface for real-time data delivery and payment, making the data strains tradable. This transaction can be carried out by both people and machines using the cryptographic token called DATAcoin, which lives on blockchain. Henri Pihkala, founder and CEO of Streamr, projects his company as the harbinger of a new "data-stream economy." He also explains the company's expansion plans and its collaboration with Golum, an open-source, decentralized supercomputer, in this video.
The IoT transactions that will be carried through blockchain will be timestamped and ensured to be available for later use. The digital agreements, or smart contracts, are being touted as the true innovation of blockchain, which will profoundly and securely enforce business conditions in IoT interactions.
Blockchain technology gives us the ability to transform industries of all sorts. It is going to do for businesses what the internet did for communication – create new ways of working, providing more time for creativity and innovation. This new system may not be free from gaps, loopholes or challenges, but it definitely presents many promises for the future of IoT.