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It’s February 2022, and the world looks a lot different than it did just a few years ago. A global pandemic that continues to ravage the world has fundamentally transformed just about everything, from the way we live, the way we connect, and the way we envision the future. No industry exemplifies these changes more than the blockchain space. A now decade-old technology has experienced tremendous growth and publicity in the past two years. Marketplaces selling digital assets (Non-Fungible Tokens, or NFTs) have exploded in popularity. Projects that promise to take power from the hands of Big Tech and give the internet back to the people (Colloquially known as Web3) have sprung up and made leaps and bounds. Venture capital is pouring into the space at unprecedented rates.
Meanwhile, in another corner of the universe, IoT companies want to fundamentally transform the way we connect with things and the world around us and promise us that the world, in the near future, will be more interconnected, more data-centric, and more informed than ever before. What happens when the blockchain industry, a seemingly unstoppable force, meets the immovable object that is the IoT industry?
They intersect. And it’s fascinating to watch.
To understand why these two technologies have so much overlap, it’s essential to understand what blockchain is as a technology, the properties that make it uniquely suited to tackle certain challenges, and the context that has made it such a promising field.
What Is Blockchain?
Blockchain, in a nutshell, is a distributed ledger that lists transactions. Each “block” contains a list of public transactions made by anonymous users, which are then chained together to create a comprehensive history of every transaction ever made. In a centralized trust model, one party owns the ledger and is thus responsible for verifying a correct transaction (Alice cannot pay Bob with money Alice doesn’t have). As blockchain is a distributed model, there needs to be a protocol to define consensus (“How can the community trust that Alice’s ledger is correct?”). Therefore, adding new blocks must be challenging, and modifying old blocks must be extremely hard.
There are many ways of doing this, and entire whitepapers have been written on this topic alone, but two popular protocols are:
- Proof of Work: Make all the users compete to solve a hard mathematical problem that determines what the next block in the chain is. Here, you have a greater chance of winning with more CPU power.
- Proof of Stake: Instead of having everyone compete at the same time, which is incredibly inefficient and power consuming, randomly choose a user in the network to perform this computation where their chances of being chosen increase with how much of the coin they have staked, or locked away to the blockchain.
Each block is cryptographically linked to every previous block, so any change in the past affects all future blocks. This makes it incredibly difficult to alter previous blocks in the blockchain, which makes it secure and immutable. This system gives way to some beneficial properties:
- Decentralization: There is no longer a single point of failure or single powerful party that you have to implicitly trust.
- Immutability: Records are publicly available and distributed. Change is inherently hard because they require computationally expensive proof.
- Transparency: Every transaction ever made, and the users that made them (anonymously identified by their public keys) is available to everyone else.
- Security/Resilience: public key cryptography allows transactions to be secured, and digital signatures allow proof of ownership
- Automation: Transactions can be fulfilled automatically after a set of criteria is fulfilled using smart contracts
IoT Blockchain Applications
These properties make blockchain suitable for a variety of applications. The most notable of these are cryptocurrencies, where decentralized trust, security, and immutability are essential in building a working financial transaction system. You may also see parallels between problems in the IoT space and problems that blockchain specifically sets out to solve. Some of the problems in IoT include:
- Security: how do you make sure insecure devices don’t cause DDoS attacks?
- Transparency: How can we allow authorized users of the network to view all data transactions between any devices?
- Speed: how can we enable fast processing of transactions/coordination among billions of connected devices?
- Cost: How can an IoT network continue to function at peak performance without accumulating high overhead costs?
Blockchain can help solve many of these problems. Due to the cryptographically secure nature of a blockchain, you can ensure that bad actors in the network cannot cause a DDoS attack or change records of previously registered valid data. Because of a lack of a central authority, users don’t have to worry about overhead costs accrued by a central authority operating the network. Rather, the community operates it, and the costs are distributed.
As a result, a few interesting projects have emerged at this intersection that are worth keeping an eye on. Helium, a San Francisco-based IoT-Blockchain company, aims to democratize IoT by creating a decentralized network of user-owned nodes. Each user is incentivized to maintain integrity within the network by mining Helium Tokens through a process they call “Proof of Coverage.” Essentially, every 360 blocks, a challenge is issued at a hotspot, where a “transmitter” node is chosen to send packets of data to hotspots surrounding it, called “witnesses.” Successful retrieval of the packet means that the network is well connected. The network can then be used to transmit data for a variety of purposes, as the website says, “at a fraction of the cost of cellular and without needing to deploy and maintain wireless infrastructure.” There are currently over 200,000 nodes in the network with millions of edges between them.
Another project, IOTA, aims to create a special distributed ledger to record and execute transactions between machines and devices. It’s unique in the sense that it is not technically a blockchain. Instead, it is a directed acyclic graph of transactions, which removes the need for “miners” but maintains the decentralization of blockchain. This is important because, without miners, there are no fees in the network. This allows microtransactions, which can often involve fractions of a cent and be completely outweighed by fees on other chains, to flourish. This also allows greater speed, as transactions don’t have to be “mined” to be validated. Anytime a transaction is made, the payer has to validate two other random transactions.
There has also been research into optimizing blockchain technologies specifically for IoT applications. Researchers at the University of New South Wales have proposed a new IoT-forward blockchain-based architecture that eliminates the overhead of classic blockchain. They propose an architecture involving isolated and centrally managed systems with a local Immutable Ledger. These systems, or nodes, are connected in a peer-to-peer “overlay” network. They are first grouped in a cluster with an elected “Cluster Head.” Each cluster has a unique Public Key used to generate blocks, which allows other Cluster Heads to authorize the block generator. This architecture allows for distributed management of the ledger, which helps reduce computational overhead while maintaining the security and immutability of the classic blockchain.
Fundamental Disruption
It’s safe to say that IoT and Blockchain have fundamentally disrupted our world. Blockchain has disrupted our relationship with traditional institutions like government, banks, and businesses. It allows us to imagine a future where power is no longer concentrated in a few parties but distributed among many. Meanwhile, IoT has disrupted our relationship with things, allowing us to reap data from anything around us empowering us to build solutions that previously would not be possible. Only time will tell if the promises of these two technologies materialize or remain speculative. Regardless, interesting work is being done in the intersection of blockchain and IoT, suggesting that we may be at the frontier of something truly revolutionary.