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Jessica Groopman

Innovation

Blockchain’s Value and IoT

Three missing links to catalyze an autonomous world

Published: Tuesday, February 13, 2018 - 13:01

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.

Although it is simply too early to accurately dub blockchain the “missing link” for IoT, analysis on the intersections of distributed ledger technology (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 offers 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, and 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 vs. off-chain, and multiple chains. What data go on-chain vs. 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 life cycles. A single truth for product identity is foundational to design integrity, track and trace, supply chain reconciliation, compliance adherence, counterfeit prevention, among others. It is also key for any use case in which devices generate net new revenues—e.g., machine-to-machine (M2M) transactions, microtransactions, autonomous services, on-demand asset sharing.
For 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 Tesla’s 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 that they exist, they are highly centralized (e.g., app ecosystems à la Google, Microsoft, and Amazon). Consider the opportunities for value exchange when disparate and diverse manufacturers, brands, service providers, insurance companies, and energy providers 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, sharing 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 important, trust.

First published on the SmartBrief blog.

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About The Author

Jessica Groopman’s picture

Jessica Groopman

Jessica Groopman is an industry analyst and founding partner of Kaleido Insights. Groopman specializes in automation technologies impacting business, including IoT, AI, and blockchain.

Comments

Problem With Blockchain

The first big issue with blockchain is, "Who owns the distributed data and how do you enforce that ownership?"