Blockchain & Internet of Things

Aktualisiert: 2. Dez 2020

A new technology paradigm is emerging as we move into this world of connectivity it is called the Internet of Things, IoT for short. The technology paradigm of the industrial age was one of machines, stand-alone mechanical systems, they were physical in nature, mono-functional and mechanized; it is a world of nonresponsive, isolated technologies each of which the end user has to manage separately. The technology paradigm of the Information Age is one of services, it is a world where individual component technologies are instrumented and connected into larger networks of devices that can communicate peer-to-peer, adapt and self-organize around the users needs so as to deliver a seamless service. The best illustration of this is the smart city, where different systems no longer exist in silos but are interconnected and organized around the end users needs. The Internet of Things is a journey we are just beginning on over the course of the next decade billions of devices will come online, the amount of data the internet has to deal with will grow massively as vast networks of machines continuously communicate with each other, to coordinate production processes, for transport and logistics, for construction, climate control etc.  

This will require an IT infrastructure that goes far beyond the existing capacities of the internet in terms of dealing with massive amounts of secure data, secure communication transactions and automated micro exchanges of value between systems and devices on the edges of networks. This is part of what the next evolution in the internet will have to deal with, a world of upwards of 20 billion devices constantly streaming data and making secure micro exchanges between each other. Put simply this world of a fully fledged IoT infrastructure to our economies would be an almost unimaginably complex system. The issues here can be thought of in threefold, firstly the bottlenecks created by existing cloud-based IoT systems secondly issues surrounding the security risks of centralized systems, and thirdly enabling automated dynamic resource allocation between machines.

Centralized Systems

At present IoT systems often depend upon a centralized architecture where information is sent from the device to a proprietary cloud where the data is processed using analytics and then sent back to those tiny IoT devices to coordinate them. As with all centralized systems, this doesn’t scale well. In a world of complexity, you have to have much more processing and coordination out on the edges, with coordination happening peer to peer so as to reduce the bottlenecks and centralized security vulnerabilities. In order to scale you need to be able to make the decisions locally, process the data locally and also be able to share resources locally between devices on demand. Likewise, security is, of course, a huge issue with the internet of things, more and more we are connecting our critical infrastructure up to the IoT a good example being the development of the smart grid or urban transport coordination systems. The blockchain is promising for IoT security for the same reasons it works for cryptocurrency: It provides assurances that data is legitimate, and the process that introduces new data is well-defined.

A decentralized approach to IoT networking could solve many issues. Adopting a standardized peer-to-peer communication model to process the hundreds of billions of transactions between devices will significantly reduce the costs associated with installing and maintaining large centralized data centers and will distribute computation and storage needs across the billions of devices that form IoT networks. This will prevent failure in any single node in a network from shutting down the whole network. By leveraging the blockchain, IoT solutions can enable secure, trustless messaging between devices in an IoT network. In this model, the blockchain will treat message exchanges between devices similar to financial transactions in a bitcoin network.

Resource Allocation

The other major issue is that of dynamic resource allocation. Just as a money economy allows for better, faster, and more efficient allocation of resources on a human scale, a machine economy can provide a robust and decentralized system for handling these same issues on a machine scale. Thus this internet of things is going to need a micro payment system where devices can pay on demand per resource, this won’t work with transaction fees or having to wait for centralized third parties for authentication. We really want to make it possible for one machine that has excess capacity or excess resources, like for example computational power storage or electricity, to be able to sell that to another machine which needs it more. One example often given of this is autonomous vehicle automatically negotiating highway passage if they are in a hurry, paying other cars to let them pass first. Coordinating air delivery drones is another potential use case for device-to-device micropayment where drones may pay a solar recharging station belonging to someone else to get charged up with electricity.

Plug and Play

The internet of things will be all about networks that deliver services, where any device that can contribute to the overall function of the network will be able to automatically plug into the network offing its capacities and receiving tokens in exchange. This kind of computing environment needs a kind of permissionless innovation layer where anyone can start participating and contributing to any network. Whether that is providing a 3D printer within a manufacturing network, a bicycle in a transport network or a room in an accommodation network. A connected device will be able to provide services and receiving payments for work done that are automatically credited to the owner’s wallet. This will create all sorts of security, privacy and financial issues that the blockchain is well suited to enable as data can reside with the end device and made available only when and as needed.

One example of this is the DAV network, which stands for decentralized autonomous vehicles. DAV is a blockchain platform currently under development that allows anyone to buy or sell autonomous transportation services in a decentralized market. Their platform integrates into any autonomous vehicles, enabling those vehicles to discover, communicate, and transact with one another using a digital token called DAV. People can earn DAV Tokens by providing transportation services, a self-driving car could give rides to passengers when not needed by its owner or a drone could help with a delivery.


Blockchain technology is the missing link to settle scalability, privacy, and reliability concerns in the Internet of Things but of course the blockchain infrastructure of the present could never scale to the demand that is needed, new blockchain infrastructure will have to evolve. Probably the most promising project in this respect is IOTA which aims to be the distributed network protocol enabling the machine economy. The main innovation behind IOTA is what they call the Tangle, a new distributed ledger design which is scalable, lightweight and makes it possible to transfer value without any fees. The Tangle ledger is able to settle transactions with zero fees so devices can trade exact amounts of resources on-demand, as well as store data from sensors and data loggers securely and verified on the ledger.

While the whole world has adopted the ‘Sharing Economy’ in areas like driving and accommodation, IOTA enables a whole new realm where anything with a chip in it can be leased in real time. Most of our belongings stay idle for the vast majority of the time that we possess ownership of them, but through blockchain IoT networks a lot of these things like Appliances, Tools, Drones, eBikes etc. and resources such as computer storage, computational power, WiFi bandwidth etc. can be turned into leasing-services effortlessly.

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