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Everything You Need to Know About IoT and Blockchain

A hot topic in the tech world, blockchain involves connecting an expanding list of records, or blocks, with cryptography. Every block is marked with a timestamp and a cryptographic hash connecting it to the previous block, branding it with an unalterable “fingerprint.” Because the data contained in each block is unchangeable, blockchain promises exceptional digital security. While the technology is associated with cryptocurrency, many other sectors are now exploring its possible uses.

Paired with IoT, blockchain has some interesting—and valuable—possibilities. Using blockchain to store IoT data can help improve data security, create audit trails, and speed up contracts and agreements with the introduction of automated “smart contracts” that use predefined rules. 

Let’s take a closer look at IoT and blockchain and consider what they can accomplish as a team.

To jump to what you need, click the links below:

A Brief History of Blockchain Technology

What Is Cryptocurrency?

How Does Blockchain Work?

Benefits of Blockchain in IoT Technology

IoT and Blockchain Challenges

IoT Use Cases in Blockchain Technology

The Future of IoT and Blockchain Technology

A Brief History of Blockchain Technology

The roots of blockchain technology go back to the early 1990s, when Stuart Haber and W. Scott Stornetta worked together at Bell Corporation. They could see that more records would be stored online in the future and were concerned about the prevalent idea of “hash and sign,” or trusting a central entity to store and protect digital records. They believed such an approach was too vulnerable to hacking and corruption (if a hacker reached the central server, they’d have access to everything and could delete it or hold it for ransom), so they worked on a way to build trust without relying on a single central entity. The result was blockchain technology. In 1995, the pair launched Surety, a system that uses blockchain to apply timestamps to documents, preserving their integrity. 

But it wasn’t until Satoshi Nakamoto released a white paper describing Bitcoin in 2008 that blockchain became a buzzword in the tech realm. Drawing on Haber’s and Stornetta’s research, Nakamoto developed a peer-to-peer electronic cash system—aka cryptocurrency—that continues to evolve today.

What is Cryptocurrency?

While a few other types of cryptocurrency predate it, digital cash wasn’t widely known until Bitcoin arrived on the scene. Cryptocurrency gets its name from its reliance on cryptography as a source of security. Once acquired, it can be used to make online purchases. Many major online retailers now accept Bitcoin—from Home Depot to Starbucks.

Cryptocurrency is built on blockchain technology, meaning there’s not a central entity or server that every transaction is routed through. For example, if you make an online purchase using Bitcoin, that transaction is not verified by a central authority (as a transfer of funds would be on a centralized e-retailer like Amazon). Instead, anybody whose computer is linked to the Bitcoin network can help verify that transaction. The responsibility of operating the network and verifying information is shared between thousands of computers (called nodes) across many locations.

To purchase cryptocurrency, users must create a digital wallet using a cryptocurrency exchange such as Coinbase, Kraken, or Gemini. Most of the larger exchanges offer Bitcoin along with several alternatives. Once you’ve verified your identity and set up a secure account, you can connect a payment method and start purchasing cryptocurrency. It’s worth noting that while investing in Bitcoin became legal in the U.S. in 2020, many banks are suspicious of cryptocurrency and might question or block transfers to exchanges.

Cryptocurrency is attractive because it’s edgy and new, but some investors like it for other reasons. It removes banks from the middleman position and can be more secure than traditional systems because it uses a decentralized record-keeping method: blockchain.

How Does Blockchain Work?

Blockchain is a distinctive type of database that stores data in blocks, which are linked together using a cryptographic mark or “hash.” Each block has a maximum storage capacity and can run out of space. When it’s full, it is chained to its “parent” block, and a new block is added. 

As a blockchain grows, it may require multiple servers to store all of the data. In the case of Bitcoin, those servers (nodes) are spread out around the world and operated by different individuals. The ability to operate in a decentralized way makes Bitcoin—and other similar blockchains—unique and flexible. It also adds security, because each node contains all the data that’s been added to the blockchain since it began—a hallmark of distributed ledger technology (DLT). If there’s an error in one node, it can check its data against many others that hold the same information. If a bad actor tries to alter a transaction, other nodes would compare records and quickly discover which node has been changed. With these verification processes built into its architecture, blockchain offers a very secure method of record-keeping that’s useful in many sectors beyond digital currency—for example, supply chain monitoring, legal contracts, and medical record storage.

Benefits of Blockchain in IoT Technology

Plagued with security challenges, IoT stands to benefit from blockchain’s stringent record-keeping abilities. Combining smart devices with blockchain technology means IoT networks can function without a centralized authority. Some IoT architectures use a centralized client-server model, and in those cases, adding blockchain might prove tricky. But if blockchain is incorporated into the IoT architecture from the beginning, leaders can create a platform that maximizes the benefits of the two technologies. To work well with blockchain, IoT architecture must support data storage and computing at the edge.

Let’s take a closer look at some of the benefits of combining blockchain and IoT:

Accelerated Data Exchange

Because of its decentralized structure, blockchain has the potential to speed up data exchanges between IoT devices and systems—but while important, that promise lies in the future. Currently, blockchain systems limit the number of transactions per second, posing a problem for large IoT deployments with thousands or millions of connected devices. But there’s potential for an enterprise-grade blockchain solution to emerge, making room for more data, devices, and speed. The newer arrangement would use fewer trusted nodes to validate transactions, increasing blockchain’s ability to handle IoT data in real-time.

Enhanced IoT Security

As we’ve already discussed, blockchain relies on cryptographic timestamps to verify data and checks errors against identical data from many other dispersed nodes. Because these checks are built into the system, blockchain can legitimize data in a way that many other databases cannot. IoT networks involve many disparate devices, each one a potential door for hackers to infiltrate—so partnering with a technology like blockchain can help to mitigate risk and give network operators a way to identify breaches more quickly. Blockchain also tracks human interactions with devices, creating an unchangeable ledger of events and transactions.  

Cost Savings

Because it doesn’t require all its servers to be under one roof, blockchain gives IoT operators a chance to save money. Peer-to-peer data submission eliminates the need for costly centralized infrastructure and minimizes the risks of having a single point of failure. If one node on the blockchain fails, the others can take up the slack.

IoT and Blockchain Challenges

In some respects, IoT and blockchain are a match made in heaven—but like the rest of us, they face some relationship challenges. Let’s take a closer look at those roadblocks.

Speed and Processing Power

As noted earlier, blockchains limit the number of transactions per second and currently cannot provide the processing speed needed in large-scale IoT deployments. That could soon change as the technology develops, but the diversity of devices and computing capabilities found in IoT ecosystems pose another potential roadblock. An IoT network often includes many types of devices, from LPWA sensors to complex computers. For the blockchain to function properly, all devices will need to operate the same encryption algorithms at the same speed—which might be a difficult feat.

Storage Capacity

Blockchain eliminates the need for centralized storage, but that means the growing ledger must be stored on the nodes. Many IoT sensors at the edge do not have enough memory to keep up with the increasing demand for storage capacity as time goes by and more blocks are added to the chain.

Blockchain Skills Gap

While the basic idea of blockchain technology isn’t hard to grasp, the number of experts in this field is still relatively small. That skills gap means that mass adoptions of blockchain in IoT may be difficult to launch and sustain.

Legal and Compliance Questions

Cryptocurrency has been fraught with legal confusion and difficulties since its inception. It took more than a decade for the U.S. to legalize the use of Bitcoin, and in other countries (including China), it’s still illegal. Part of the problem is blockchain’s current lack of third-party oversight or compliance code, posing a major challenge for IoT providers and manufacturers who wish to adopt it. Until blockchain architecture is more standardized and regulated, many businesses will choose to avoid it.

IoT Use Cases in Blockchain Technology

Despite the lingering challenges of incorporating blockchain with IoT, the many potential use cases will drive innovators to find solutions. Here are just a few of those use cases:

Supply Chain Monitoring

Many companies are using IoT devices to provide more visibility to their supply chains. For example, an ice cream manufacturer might install connected temperature sensors inside all their refrigerated shipping containers and receive alerts if the temperature climbs above a certain predetermined level. When this information is stored in a blockchain, it receives a timestamp and can be tracked and verified more easily. Supply chain IoT solutions that use blockchain technology can guarantee a higher level of accuracy and security, helping companies find out what happened if a shipment is lost or damaged.

An interesting example of using blockchain for supply chain visibility is Envisible, whose mobile-based system shares food supply chain information with consumers. Grocery store shoppers can download the app and see where their seafood was caught.

Healthcare Record Keeping

Blockchain’s added security offers great benefits to healthcare organizations, which must store large quantities of patient data and are often the targets of malicious hacks. When data pathways are made more secure, medical professionals, patients, and third parties will feel better equipped to collaborate and transfer information. For example, electronic health records (EHRs) stored in a blockchain could be sent more easily from one medical facility to another. 

Technology company BurstIQ has created a blockchain-based platform to help heathcare companies manage patient data, care coordination, research, enterprise data, and more. The system guarantees compliance with HIPAA, GDPR, and NIST and provides flexible features such as workflow and rules engines.

Automotive

From self-driving features to connected entertainment systems, today’s cars are hotbeds of IoT adoption—and the automotive industry is another prime use case for blockchain. When connected cars are linked in a decentralized blockchain network, users can send and receive information quickly and with ease. Blockchain technology has the potential to work hand in hand with automotive IoT innovations to enable automated fuel payments, traffic control, smart parking, and even fully autonomous vehicles.

Porsche is partnering with Germany-based startup XAIN to incorporate blockchain technology in their vehicles. Owners could use a mobile app to lock and unlock their vehicle or grant temporary authorization to friends or family members. Porsche is also exploring ways that blockchain could allow auditable data logging and secure sharing of local information between vehicles in a given area—a useful tool for training machine learning algorithms on self-driving cars.

Distribution of Pharmaceuticals

Pharmaceutical companies face increasing problems from counterfeit medicines entering the market. To ensure drug authenticity, it’s more important than ever to track pharmaceuticals from manufacture to delivery. A combination of IoT sensors and blockchain technology can help companies do that—for example, MediLedger allows pharmaceutical companies to connect with their suppliers and customers and share timestamped transaction data on an open, decentralized network. Users can use the system to track legal changes of ownership for prescription medications.

Property Management and Sharing

Blockchain has infinite possibilities as a record-keeper in the sharing economy. For example, it could be used to create smart contracts—automated transactions of room rental services, such as AirBnB, or even to rent out tools, vehicles, and other assets. Peer-to-peer car sharing has emerged as another potential use case for blockchain technology. In the future, you might buy a share of a car rather than the entire vehicle—a much more affordable investment.

Today, though, several software developers are using blockchain in real estate technology tools. For example, ManageGo has incorporated blockchain in its rental property management software. Backed by DLT, the software helps property managers process contracts and manage details like maintenance tickets more quickly and securely.

The Future of IoT and Blockchain Technology

IoT and blockchain are still relatively young technologies, and we can expect a lot of evolution in the years to come. There are plenty of challenges for innovators to overcome in joining the two together, including the current lack of a software standard to connect blockchain with IoT infrastructure. Blockchain systems will need to be adapted to work with the limitations of IoT devices. And IoT devices may need to be altered to include sufficient memory to act as a node, or routed through a gateway device that serves as the node.

But the promise of pairing blockchain with IoT is enough motivation for innovators to explore solutions to these problems. Tools such as the IBM Blockchain Platform allow developers to create new solutions across computing environments.

In the future, blockchain-enabled edge gateways and nodes will be able to verify firmware levels and security patches, authenticate and validate connections, rotate certificates, and more. IoT network managers will have a clear, verified record of timestamped data transactions among their devices—and they can pass that confidence along to their clients and customers.


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