Blockchain and the Internet of Things (IOT)

March 3

Last updated on February 19, 2021

If the augurs are to be believed, up to 50 billion devices will be online-capable by 2020. Connected to the Internet, these devices send, receive and process information and inputs. These can be simple instructions to switch something on, to call someone, to send information, or even more complex ones, such as downloading information from the Internet, preparing it according to the user's preferences and acting accordingly.

In addition to the sheer volume of data involved, the question of traceability, availability and, above all, security is becoming increasingly important.

Until these prerequisites are solved, IoT will not be able to continue its triumphant march unhindered.

Blockchain technology could prove to be an indirect savior. The blockchain enables traceability, has a high level of availability and is, according to "current assessments", very secure.

In simplified terms, the blockchain is a "journal" in which transactions can be stored. So far, nothing new. The clever thing about it is that this journal (database) is not located centrally but distributed over many computers on the Internet. Access to the blockchain is negotiated via key pairs (private/public).

Every time a new transaction (block) is added, the checksum of the previous block is integrated. This ensures that no transaction can be changed without also changing the associated header and all subsequent blocks. This cryptographic chaining makes the system very secure, but also irreversible.

To create appropriate transparency, each block is verified and sealed by mining. Once verified, the block and the information it contains is stored for all eternity, unchangeable and visible to everyone who participates in the blockchain.

Thus, the most important tasks are apparently solved.

Various industries are already working intensively with this technology, among other reasons. Why is this so?

The technology is freely available and costs almost nothing compared to other approaches.

Let's imagine we want to transfer money. Today, we need a bank to do that, because only a bank can make secure transactions. With the blockchain, I don't need a bank anymore. I need my key pair and other participants in the blockchain, and I'm ready to go. To couple the issue with currency, the blockchain was introduced along with Bitcoin. Bitcoin uses blockchain technology for this purpose. To exchange real currency for virtual Bitcoins, you still need a bank, but that's it.

This worries the financial world, as their business model is based precisely on these transactions.

But not only financial transactions can be handled via the blockchain. Contracts, wills, shares, sales contracts, agreements can be agreed and controlled and documented via the Blockchain.

Here are two examples:

  1. A retailer wants to use the Blockchain to monitor food products throughout the supply chain. From the farm where the food grows to the location in the supermarket where it was transported. Blockchain allows the company to identify the exact source of each package sold. This should save immense costs, for example, in the case of recalls, you no longer have to withdraw all batches from circulation but only the affected ones. The information can be integrated in the barcode.
  2. A blockchain-based music service no longer needs labels. Record contracts are obsolete, as the artist can manage the rights to their own music and set the conditions for its use. Fans could participate for supporting the artists and distributing music and thus be part of the success. The GEZ certainly sees this with mixed feelings.

Such examples are not feasible without IoT. Blockchain technology can manage billions of connected devices and execute and monitor transactions associated with those devices.

Business models built on the blockchain work with "smart contracts." Smart contracts are basically executable program code in the form of an if-then condition: once an event directly related to a contract content has occurred, it triggers the corresponding action.

You could drive to the gas station, fill up - get in and just drive on. You wouldn't need a gas station attendant or a credit card. My vehicle would be connected to the Internet via IoT. One has a smart contract with the gas station /or several. If there is a sufficient balance of virtual currency (e.g. Ethereum), everything is ok.

How advanced the technology is today can be seen in the example of and the DAO.

The company from Mitweida has given the DAO (Decentralized Autonomous Organization) to the Internet. The DAO are about 1000 lines of program code and represent a complete company, with the difference that this company belongs to no one and also has no employees or management. The DAO has only one purpose, to bring people who have an idea together with people who want to invest in it. Fast and unbureaucratic.

The DAO can handle the following processes as a normal company would:

  • Transfer tokens (virtual currency Ether)
  • Accept new offers
  • Vote on offers
  • Manage smart contracts
  • Accept offers
  • Distribute profits
  • Separation from the DAO

The company has offered its business model to the DAO. It consists of producing electronic locks that can be opened by payment. The framework conditions are set out in a smart contract. If the framework conditions are fulfilled, payment is made and the lock opens. This makes rental or lending models extremely simple. Renters or lenders agree in a smart contract. The actual transaction is carried out by the blockchain. For such a process, you don't need a bank, a notary, a lawyer and especially a company. Everything takes place on the Internet. The DAO does not have any employees. Thus, the DAO hardly incurs any costs. The DAO does not pay taxes, because it is located on the Internet. The profits are accordingly promising. The contracts are securely stored via the blockchain. Even if the company no longer exists, the contracts would still be valid.

To play along, the investor had 4 weeks to buy shares in the DAO using Ether. The investor votes with his shares for or against business model, weighted according to his share. If the investor wants to have profits distributed, he does so by returning his shares and exchanging the received Ether back into his local currency.

He pays tax on his profit. So far so good and all legal.

The DAO has raised about $120 million within 4 weeks!!!

The blockchain itself has not been hacked so far, but that would require access to about 50% of all computers involved. However, the DAO was attacked and Ether was forked. The currency is not lost, as the Blockchain also documented this unauthorized access, but it had to be painstakingly recovered.

The big companies have discovered the blockchain as an optimization for themselves. However, they rely on private Blockchains and not on public ones. Unsurprisingly, their current business models with hundreds of thousands of employees and billions in revenue are under attack.

How are companies responding:

The R3 company has now gathered 42 major international banks as backers, almost everyone of note.

The Nasdaq technology exchange, credit card company Visa and Citigroup have joined forces under

In early 2017, Cisco, Bosch, Bank of New York Mellon, Gemalto, Foxconn, blockchain startup BitSE, and Consensus Systems (ConsenSys) and Chronicled created a consortium in hopes of using the technology behind Bitcoin to make IoT applications better and more secure. The group has announced it will join forces to develop a common blockchain protocol so everyday objects can connect to the Internet and send and receive data.

IBM's Watson IoT platform provides embedded functionality that processes selected IoT data in a private blockchain. The protected data is shared only among the business partners involved in the transaction.

Blockchain as a basis for IoT is easier and therefore faster to implement, in contrast to financial industry approaches. In step 1, it is necessary to master the mass of networked devices and to allow the participating partners to interact securely and reliably in the respective model.

(Markus Lill - MD Deliberate)

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