WHY THE INTERNET OF THINGS NEEDS THE BLOCKCHAIN

Guest Post By Dug Campbell on May 5, 2015

Back in September last year, IBM published a paper titled ‘Device Democracy: Saving the Future of the Internet of Things‘. It’s a fascinating document from a couple of angles – partly because of the simple promise that the Internet of Things (IoT) holds for all of our futures – but also because it identifies the blockchain as being a vital part of that future.

I’ll try to summarise the paper here. Apologies for the length but there’s some great points in there that I wanted to capture.

The report points out that our current version of the Internet of Things is not fit for purpose. There will need to be some significant developments before we get to the stage where hundreds of billions of devices are connected to the internet. And there’s sound reasoning that suggests we will be dealing with those sorts of numbers.

Thanks to a combination of technological advances accelerating the overall development, we’re experiencing a drastically continual drop in the cost of computing power. Historically, such price drops have resulted in a rise in the number of units using that increased power by an order of magnitude. One effect of this is that whilst we currently rely on application-specific computing within devices, the costs are so low that we can now afford to make such embedded computers general purpose, as opposed to specific.

It is predicted that the number of connected devices will rise from 2.5 billion (2009), to 10 billion (2014), to 25 billion (2020), to over 100 billion (2050). Drivers behind this growth include the inexpensive nature of sensors (to the extent that they can even be disposable if necessary), cloud computing that can store and analyse vast amounts of data, increasing levels of connectivity, increased availability of API’s and a huge growth in 3D printing that will enable people to manufacture devices in smaller batches.

It goes without saying that some industries – specifically the ones that have never traditionally been IT-intensive (e.g. agriculture, transportation, storage and logistics) are particularly ripe for disruption.

The Problem: 


We’ve been focusing on the high value applications so far with the IoT (monitoring of jet engines, automated smart meters) but demand for this is slow. Partly that’s down to the ecosystem – for example, only 30% of heavy industrial equipment is networked and only 10% of smart TV’s are used for internet viewing.

1. Cost of Connectivity

We use expensive, centralised clouds and large server farms, not to mention many expensive middlemen.

2. The Internet post-Trust

Relying on centralised systems that use trusted partners is not viable in today’s post-Snowden world as such a structure gives the opportunity for any third party to gain unauthorised access. In any event, building trust at the scale required by the IoT is both impossible and expensive. Furthermore, it’s essential that privacy and anonymity are integral to the system. Closed source (‘security through obscurity’) is obsolete and must be replaced by open source solutions (‘security through transparency’).

3. Not future-proof

When you change a mobile phone every two years, it’s not really a problem if the tech gets outdated. But it’s a different story if you’ve bought a car that’s meant to last for 10 years. Therefore the ability to carry out software and hardware updates becomes crucial when dealing with these types of real world objects.

4. Lack of functional ‘value’

As the report points out, a smart, connected toaster is of no value unless it produces better toast. You can’t expect something to be ‘better’ simply because it’s now connected to the internet. It has to have a real purpose.

5. Broken business models

The lack of profitable business models within the existing implementation of the IoT means that fewer businesses will try to build out the market.

The Solution:


“The foundation of modern computing is the very humble work of transaction processing”

Everything we do on the internet is, in effect, a transaction that is processed, recorded and stored. That includes buying tickets, making phone calls or anything else. But it’s also much wider. In fact, every digital interaction is a ‘transaction’. For example, there are currently 5 billion social media transactions processed every single day. Each one of these is a transaction. And if we’ve got that many transactions taking place today, just think of what will happen when the Internet of Things really gets going – the numbers of transactions that will need to be processed is going to explode.

With computing power becoming both greater and cheaper, the unused power of all of the connected devices around the world must be able to be harnessed instead of sitting idle. Using peer-to-peer computing will save significant costs by removing the infrastructure (the centralised data centres).

But it’s not just peer-to-peer itself that provides the answer to the growth in transactions with the IoT. The system must also be trustless. Basically we need a system that does not rely on trusting others and one that avoids a single, central point of failure. The paper suggests that means we need:

1. Peer-to-peer messaging protocols: providing highly encrypted and a private-by-design, trustless messaging capability (between devices)

2. Secure distributed data sharing: replacing cloud-based file storage with direct file sharing (such as BitTorrent)

3. A way to coordinate all devices that ensures that they can validate transactions and reach consensus – yup, you guessed it – it’s time for the blockchain.

Blockchains and the Internet of ThingsTo recap: a blockchain is simply a digital ledger that records every transaction made by every participant. Transactions are verified by cryptography and many participants who are then rewarded for carrying out that verification. With many participants confirming transactions (known as reaching decentralised consensus), the blockchain eliminates the need for a trusted 3rd party institution to carry out that function.

As a transaction processing tool, the great benefit is that a blockchain enables the processing of transactions and coordination between devices that are involved. For example, users can choose to set permissions on the devices in the IoT to enable them to act in response to their location or the time etc. Also, further rules could be delegated to let the network decide on certain actions that the device carries out (this agreement happens if over 50% of the network agrees) – every device could agree to download an approved software updated, for example.

Using a blockchain, individual devices could then autonomously execute contracts (basically agreements and payments) with other devices. This unleashes unlimited opportunities for a whole new type of business model on the world – basically introducing machines as economic actors, as I touched upon in my TEDx talk a year ago. Every device can now run itself as an individual business, making decisions about how to share its processing power and other economic resources in order to make decisions that provide it (and – in the initial stages at least – its owners) with the most beneficial outcomes.

The blockchain structure also allows manufacturers to basically hand over responsibility for support and maintenance to a set of self-maintaining devices. In other words, rather than facing the prohibitively expensive prospect of having to support billions of devices, manufacturers can still build businesses to create such devices without shouldering those costs.

And the best part? Users control their own privacy. Because devices are making their own decisions and there are no centralised places for third parties to attack, we see a fundamental shift in the existing dynamic.

“In this new and flat democracy, power in the network shifts from the centre to the edge”.


Liquifying The Physical World with the Internet of Things

Disrupting the Physical World in today’s world, buying digital content using the Internet has become entirely normal for most. But the Internet of Things is now looking to turn the physical world into one that is “as liquid, personalised and efficient as the digital one“.

The report identifies five key areas for disruption that will drive the transformation resulting in “the liquification of the physical world”.

1. Unlocking excess capacity of physical assets

The Internet has let us find, use and pay for digital content (books, music, films etc) instantaneously and the public has become increasingly comfortable doing so. But the Internet of Things provides us with the ability to find, use and pay for physical items.

With physical items (rooms, vehicles, whatever) online and actively updating systems as to their availability directly, the opportunities to monetise these under-used resources is huge. Just look at the growth of the Collaborative Economy,

2. Creating liquid, transparent marketplaces

Driven by mobile and social networks, demand will release supply that was previously constrained in the rapidly expanding peer-to-peer economies.

3. Radical re-pricing of credit and risk

All this monitoring will mean that each individual will start to receive customised credit according to their life, history and situation. Rather than relying on one-size-fits-all models, people who were previously excluded from enjoying this will now be able to access consumer credit that is priced reasonably. Money will flow in areas that it has never been able to before.

4. Improving operational efficiency

The sectors that have traditionally been slow to incorporate technology are likely to experience the most significant changes with the Internet of Things. The report highlights farming in particular. It currently requires significant capital expenditure and technology but could benefit from a wealth of data that sensors across equipment, weather conditions, field monitors and many other areas could revolutionise the industry overnight.

5. Digitally integrating value chains

Rather than losing valuable time waiting for a replacement to be shipped after an object breaks, sensors will monitor performance of objects and automatically source, negotiate the price and take delivery of replacement parts and therefore minimise any down time. There will be a rise of connecting ‘recipes’ between services and products (look at IFTTT for a simple example of the value in the concept)

The Importance of Design ThinkingAs with every revolution, the key is utility and not techno-wizardry. The IoT will be driven by an improved user experience and improved functionality in devices. The fact that a device is connected to the internet is irrelevant to most people. Compare that with cookers that turn down the heat when the pot boils over or smart toasters that cook toast according to your preference  – in these cases, solutions that increase safety and quality of food will be appreciated by users and drive the growth of the IoT.

With the IoT, each device should be acting in the best interests of its users and not third parties. Crucially, the machine-to-machine communication should be invisible to most users whilst designs of interfaces that deal with machine-to-human interfaces must be designed to facilitate far greater degrees of interaction.

I’m going to wrap up by simply copying the report’s suggestion for the sort of businesses that will do well in this brave new world. Put simply, they are most likely to enjoy success if they do the following:

1. "Enable decentralised peer-to-peer systems that allow for very low cost, privacy and long term sustainability in exchange for less direct control of data.


2. Prepare for highly efficient, real-time digital marketplaces built on physical assets and services with new measures of credit and risk.


3. Design for meaningful user experiences, rather than try to build large ecosystems or complex network solutions". 

In the near future, I’ll be delving into how IBM’s thinking has evolved (in the form of the Adept project). But in the meantime, given the fact that predicted growth of the IoT means that it will affect each and every one of us, I hope you found this post useful.