Debunking the myth – Blockchain can be applied not only in the financial sector
To understand the potential of blockchain to revolutionize the Internet of Things (IoT), one should first understand the fundamentals of how blockchain technology works.
The goal of the blockchain is to create a chain of independently verified records that cannot be changed or damaged. To do this, the same transaction is verified by hundreds or thousands of independent computers over a decentralized network. As soon as the data is validated, it is provided with a timestamp and encrypted – the data records are combined into blocks and the data blocks are then linked to form a chain, the blockchain.
Once the blockchain is formed, the data can no longer be modified and the result is a complete, trustworthy audit trail.
Blockchains can not only be used in the field of digital currencies but can also be a fundamental technology for the management of any form of information.
The first Blockchain applications were in financial services. Now it is massively applied in supply chains as well – especially when traceability plays an important role.
The Blockchain and the IoT
The term Internet of Things (IoT) describes the connection of a device to the Internet through the use of embedded software or sensors that collect and exchange data with each other. This includes everything from cell phones to smart home devices to car navigation systems.
A research study conducted by Gartner estimates that by 2020 the number of IoT devices will rise to over 20 billion. This is an astonishing number when you consider that traditional IoT systems depend on a centralized structure. Currently, the data is transferred from a device to the cloud, processed there, and then sent back directly to the device – a process that has only limited scalability and endless weaknesses that can affect security and data protection. In addition, this structure will become very expensive as the amount of data that third parties need for authentication grows exponentially.
Due to the decentralized nature of the blockchain, this process can be distributed, duplicated, and quickly scaled across millions of devices. The blockchain can enable peer-to-peer certification of IoT transactions and even enable two devices to directly exchange information via a secure, time-stamped chain.
Data security is another important application of blockchain technology in the IoT. Within the current centralized IoT system, a single failure can affect many devices that contain personal data and other information. With the use of blockchain, this information would be completely protected, as the data stored in the blockchain cannot be changed.
Imagine the ramifications for companies like Uber that rely on IoT to connect drivers with customers, track routes, and manage payments. With blockchain, you can save the mapping and driving data immediately and securely without having to explicitly trust a source.
Another application is the use of smart contracts, which are automatically executed when certain conditions are met. These contracts, in combination with machine learning, can enable the autonomous functioning of intelligent devices that no longer depend on a central authority.
The Blockchain technology never forgets
Blockchain technology consists of the combined computing power of many independent nodes. The advantage: Nothing is ever deleted at any of the nodes in the chain. By making the transactions public, no person or institution can ever manipulate a transaction – that is, falsify or change it.
Proven traceability in electronics is just as important as the need to make this process simpler and more robust. This can drive further applications for Blockchain. Due to this Blockchain-based method, the movements of each component can be recorded and the buyer can thus be proven that it was not replaced by a fake.
Blockchain provides greater data security
More complex blockchains can improve functionality and security for the Internet of Things within powerful mechanisms. For example, the blockchain of permissions control enables the specific circle of users the information which they are allowed to see. This means that only authorized users can view the data in the directory. Additional levels control what information in the directory a particular user can see.
Among other things, IoT applications in the healthcare sector can benefit from this. In this way, the doctor can view the current health values of a patient, while the insurer only sees the part of the overall data set that is necessary to assess the costs and services of the insurance policy.
With the help of Blockchain, IoT devices can identify themselves
In addition, blockchains can be used to identify and authenticate IoT devices themselves, which is one of the biggest challenges in the industry. When sent by a manufacturer, each device can receive an entry in a blockchain. Further updates are made automatically. If a device is taken out of service for any reason, an update will show the new status of the device. Systems thus recognize that they should ignore the data sent by the device.
Even if requirements change, devices can be transferred from one network to another without a single employee having to intervene. De-authorization and authorization transactions would then be recorded each time the status of the device changes.
Challenges for the Blockchain in IoT
While blockchain technology looks promising in IoT and is already in use, there are still some challenges to be faced when deployed on a large scale. Technology is one of these challenges because even after years of development, IoT still lacks a universal, shared architecture for connecting devices. Without this, however, deploying technology to authenticate or monetize distributed machines will be very difficult.
Other major challenges are legal issues and compliance issues as well as operational hurdles – how do you set up a secure process for millions of variations of potential transactions?
The blockchain opens up a lot of innovation potential. We already have a purely technical process under control. Now it is a matter of setting up proofs of concepts in as many areas as possible. With the blockchain, we are switching from the Internet of Things to the “Internet of Values”.
It is not yet entirely clear which business models using blockchain will be successful outside of cryptocurrencies. But one thing is also clear: if you don't deal with it and don't look for a scenario for your industry, you can get sidelined.
To stay relevant and keep up with the competition, it is important to understand Blockchain technology and the potential for your business. Talk with our Blockchain consultant to help you analyze your current processes to identify uses for Blockchain and lay the foundation for your company's future success.