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 (#A brief history of blockchain technology)

What Is cryptocurrency? (#What is cryptocurrency?)

How does blockchain work? (#How does blockchain work?)

Benefits of blockchain in IoT technology (#Benefits of blockchain in IoT technology)

IoT and blockchain challenges (#IoT and blockchain challenges)

IoT use cases in blockchain technology (#IoT use cases in blockchain technology)

The future of IoT and blockchain technology (#The future of IoT and blockchain technology)

Blockchain and IoT: Working together to revolutionize industry (#Blockchain and IoT: Working together to revolutionize industry)

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 (http://surety.com/), 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.

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.

But what exactly is bitcoin? In short, it’s the solution to a math problem. The cryptocurrency system creates mathematical equations that when solved, give the solver a unit of currency. In the early 2010s, these equations were pretty simple, so solving the equations with a home PC (or “mining” the bitcoin) wasn’t very hard. But the system has a baked-in feature that prevents the market from being flooded — the more bitcoin that exist in the world, the more complex the equations that have to be solved to mine another coin. That’s why today, even when pooling computing power with other users, it can take up to 100 days to get a single bitcoin.

Cryptocurrency is built on blockchain technology, meaning there’s no 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.

Users must create a digital wallet using a cryptocurrency exchange such as Coinbase, Kraken, or Gemini to purchase cryptocurrency. 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. However, 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.

Blockchain is a distinctive type of database that stores data in blocks 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.

Plagued with security (https://www.hologram.io/iot-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. IoT architecture must support data storage and computing at the edge to work well with blockchain.

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 (https://www.hologram.io/blog/iot-security-vulnerabilities) — 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.

Recommended Reading: IoT Platforms Should Be Planning Blockchain Integrations (https://www.hologram.io/blog/iot-platforms-should-be-planning-blockchain-integrations)

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 adoption 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.

The practical application of IoT and blockchain may not be obvious at first, but the combination of these two technologies presents some exciting possibilities.

• Distribution: IoT devices are based on distributed computing power, while blockchain is a distributed ledger designed for transactions and interactions between systems. The practical benefits of a distributed security system, as well as shared data storage, are huge.
• Decentralization: Because blockchain operates without a central system, it takes away the possibility of one server crash destroying your entire network. Also, the levels of encryption on each block make any given entry point a small, segmented section that would be a poor target for a hacker.
• Immutability: Once data is in a block, it is locked. So, any update, change in data, or financial transaction is permanently recorded onto a distributed, decentralized system. All this combines for an incredibly secure network.

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 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 was lost or damaged.

An interesting example of using blockchain for supply chain visibility is Envisible (https://envisible.co/), 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 benefits 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 (https://www.burstiq.com/) has created a blockchain-based platform to help healthcare companies manage patient data, care coordination, research, enterprise data, and more. The system guarantees HIPAA, GDPR, and NIST compliance 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 quickly and easily send and receive information. 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 (https://www.hologram.io/blog/what-are-self-driving-cars).

Porsche is partnering with Germany-based startup XAIN (https://www.therobotreport.com/xain-builds-distributed-systems-data-privacy-porsche/) 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 (https://www.mediledger.com/) 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. Blockchain technology also eliminates the need for a third party during car sharing transactions. Third-party apps like Uber and Lyft have seen massive growth in the past several years, but they are becoming as expensive as getting a taxi in many cities. By using blockchain technology, you could sign up to rent your neighbor's SUV for a day in a direct person-to-person transaction, significantly lowering the cost. Some sites (https://turo.com/) are already using the car-sharing idea, but the potential of eliminating the need for a third party is an exciting (and money-saving) possibility.

Today, though, several software developers are using blockchain in real estate technology tools. For example, ManageGo (https://managego.com/) 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.

Air Quality Monitoring in Smart Cities

Using IoT blockchain to monitor air quality was suggested a few years ago (https://ieeexplore.ieee.org/abstract/document/9118148) and is now being implemented on a small scale (https://blog-idceurope.com/blockchain-in-smart-cities-a-reality-check/) in cities worldwide. The concept is built on a self-correcting system that incorporates technology and psychology. As a first step, IoT air quality monitors are set up around a city and record which areas (and which nearby factories) are having pollution problems. Then, data from those monitors is uploaded to a blockchain system, and companies are allowed to buy the real-time data. From there, those companies can report to the government which factories are violating pollution standards. Most governments have a fine associated with breaking environmental standards, so that fine could be shared with the reporting company as a kind of ‘finder’s fee.’ While it is true that the government could cut out the middle man by checking the sensor data themselves, it would require a massive budget. The funding for this system ultimately comes from the polluters rather than the government or environmental agencies.

Smart homes and biometrics

The secure nature of blockchain makes it an ideal option for using and storing biometric data. From fingerprints to iris scans, most biometric technology is used to create airtight security. But if a hacker can get into a system and change the needed fingerprint to match their own, the whole system breaks down. That’s why storing biometric verification data on the locked blocks of data found in blockchain is a great option. Hackers can’t access that data, and even if they could, it is not changeable. This means new, higher levels of security in smart homes.

Other blockchain and IoT use cases

The flexibility of blockchain makes it a useful addition to many other types of IoT applications:

• Linked log-in systems: Imagine needing a ride and having options from Lyft, Uber, and the local taxi companies all show up in a single app. It would be great to not have to bother with dozens of passwords, but we don’t use this system now because sharing log-in data between apps is a security risk. But with blockchain, apps could connect to the encrypted, decentralized system rather than with us directly — and make finding a ride a lot simpler.
• Microtransactions: While not technically blockchain, a decentralized ‘tangle’ of users verify the validity of cryptocurrency used in the exchange. This allows for transactions with no transaction fee whatsoever, which makes it perfect for IoT devices that buy and sell autonomously from each other.
• Blockchain solar: Cities can use blockchain to keep accurate accounts of how much solar energy anyone’s panels are sending into the overall grid. This is already being implemented (https://brooklynmicrogrid.com/) in New York and has the potential to increase incentives for going green.

IoT and blockchain are still relatively young technologies, and we can expect a lot of evolution in the years to come. Innovators have to overcome many challenges 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 (https://www.hologram.io/blog/what-is-an-iot-gateway) 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 (https://www.ibm.com/blockchain) 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.‍

These technologies working together are already changing the way companies manufacture, trade, and operate. But the security that blockchain and IoT can bring is only useful when IoT devices have a reliable network connection with ongoing support. Hologram (https://www.hologram.io/industries) offers solutions to power the world’s most innovative companies. From fleet management to manufacturing, Hologram works in partnership with industry to keep businesses thriving.