How the blockchain might help power the IoT

The IoT is hot. The blockchain, the power behind Bitcoin, is hot too. Is combining the two a natural next step, or is it just celebrity clickbait?

Hype is inevitable, but there may be some actual substance behind the smiling red-carpet photographs. Let’s examine the problems the blockchain might solve for the growing IoT, as well as some of its possible drawbacks in this application.

Blockchains and open ledgers

The blockchain is mostly known in connection with the cryptocurrency Bitcoin. In its fundamental form it is a public ledger that can be verified by anyone. Transactions are visible to everyone, recorded many places, and don’t require some central node to keep them coordinated. Participants are incented to confirm transactions via computation-intensive algorithms by being given Bitcoins in return—a process called “mining”. It is this public verifiability without the need for a trusted third party that makes the currency useful in a variety of contexts.

Obviously, it’s all much more complicated than this. A gentle introduction to blockchain technology is a good start.

IoT challenges that might be solved by blockchain

Among IoT problems that might be solved by the blockchain are security, compliance, and resource allocation.

Security
The usual IT security technologies were not designed for the vast size and variety of devices that will be connected via the IoT. Users want to validate the identity of each device and keep transactions between them secure. The scale of this problem is overwhelming centralized solutions.

Compliance
Issues such as compliance become much easier as well. The record of all transactions in a ledger can really help in meeting compliance and regulatory requirements in a distributed way with minimal overhead. It will be clear that records have not been tampered with.

Resource allocation
A blockchain is a way of reliably trading value. This will allow for any asset, whether machine, power supply, shipping container, or sensor, to trade what it has to offer. Purchasers of the resource is being sold can be assured that questions of asset rights, responsibility for maintenance and upgrades, data ownership, and insurance risk have been resolved on a transaction-by-transaction basis.

Possible blockchain drawbacks
When pitching blockchain solutions to IoT problems, it is customary to emphasize the communications load imposed by hub-and-spoke architectures. This is common to analytics solutions based on Edge computing.

But any Edge solution imposes other costs, even as it saves transmission costs. As a blockchain solution scales, it can run into problems. Encryption requires more and more resources as time goes by. Bitcoin relies on compensating for verification via mining, and some nodes have specialized in Bitcoin mining.

Some unanticipated side effects are instructive. For example, Econtalk recently covered how subsidized energy prices in Venezuela have led to that country becoming a center for the computation (and thus energy) intensive practice of Bitcoin mining as a way of importing food.

One way to make sensors and actuators cost-effective in large numbers is by decreasing their complexity and power requirements. But as the blockchain grows, more and more storage would be required at various places at the Edge. As of today, for example, a Bitcoin blockchain is around 100GB in size.

Finally, the entire system has a cycle time that confirms that all blockchains are available to all participants, and that there are no variant versions of any blockchain out there. This is called the “block time”, and for Bitcoin it is 10 minutes. Many IoT solutions would require a much shorter block time.

New forms of blockchain more suitable to IoT applications

Some of the resource and storage requirements of Bitcoin stem from its universal, global nature: anyone can participate in it.

But, as mentioned above, an open network leads, inevitably, to latency—less significant to a financial transaction than to a pacemaker or an industrial controller.

There are several modifications to the way blockchains work that restrict their use to certain domains—so-called “permissioned networks”. Most of the difference lies in the consensus mechanism, based on an assumption of greater trust, essentially by relying on an existing, known relationship. Because there is a pre-existing level of trust assumed, the blockchain, and its associated verifications, can be simpler and faster.

What is gained in efficiency and speed is lost in the trustless verification that characterizes the blockchain. But then, technology is all about tradeoffs.

Competitors are hot on the blockchain trail

A number of vendors are exploring variations of the blockchain approach specifically aimed at IoT, and are proposing a variety of ways of doing so. The companies include Ethereum and Filament, as well as technologies like IOTA and the open-source Hyperledger, but the number of competitors will only grow. A lot of money is being poured into variations, new models, and expanded implementations. Expect to see increasing activity in this way of improving IoT security and functionality.