When we first heard about the Internet of Things (IoT) there was some scepticism as to whether it was all hype, or reality. Time has proven that it is definitely very real and having a significant impact on out personal and business lives. Many companies are being formed just to take advantage of the new business models it offers.
Now the cycle starts again with Blockchain – is it real or hype? Well, market research from ReportBuyer predicts that it will be a $7billion business by 2022 – with many people believing that this is an accurate forecast. Possibly a better indicator of the reality of Blockchain is that IBM has invested in a platform specifically aimed at healthcare, logistics, government and banking – and Facebook has appointed a senior executive to focus on the opportunities Blockchain presents.
What is Blockchain exactly?
Simply put, Blockchain is a means to document and record digital asset transactions that are performed within a distributed network architecture (as opposed to being handled by a centralized, authorized entity). Figure 1 depicts this arrangement. While Blockchain was originally developed for cryptocurrencies (including Bitcoin), it is now finding opportunities to be used in other areas, such as the insurance industry.
Something as simple as a traffic accident involves several documents and multiple people. The claim form has to be completed, the holder of the policy has to be verified, all of the details of the accident have to be gathered (often from multiple people) and then the claim has to be approved and finally paid out – preferably in a timely manner. Blockchain is ideal due to the distributed nature of the process and could be used to streamline it, reducing the time taken and also the cost. The key document(s) can be Blockchain formatted and stored online, with all relevant parties having access so that information can be entered, checked and verified simultaneously. Once it is decided to settle the claim (in full or in part) this can be done and details of the settlement can automatically be passed to all stakeholders.
As in this example, Blockchain really scores when used to automate complex, multi-party, processes – especially when the parties are also spread out geographically. Every transaction is recorded and traceable and cannot be subsequently altered without all parties seeing details of the alteration. Not only this, but all records are searchable, auditable and verifiable. As a result, many people truly believe that Blockchain will ‘change the game’ in many areas, not just cryptocurrency.Figure 1: Schematic detailing blockchain’s peer-to-peer digital ledger service technology & its key use cases.
Blockchain and the IoT
There is no question that the IoT is very real and is here to stay, with billions of ‘things’ connected to and via the cloud in our personal and business lives. Smart buildings, smart homes, smart cities, connected healthcare, automotive (including vehicle-to-infrastructure [V2I]) are all benefitting from IoT technology.
Figure 2: IoT configuration showing cloud-to-things connections in a hierarchical manner.
Given the distributed nature of the IoT, it is clear that it will be able to benefit from Blockchain to provide a means to record distribution of transactions and provide storage. Although there will be many benefits to this approach, three of the key ones are:-
- Security enhancement for financial transactions–As the number of transactions increases, so does the opportunities for fraud. Currently, it is quite a simple matter to falsify documents resulting in money being lost to the criminal fraternity – although, Blockchain will enhance security in the financial sector. It is a relatively common ‘scam’ for people to continue claiming benefits for a deceased relative, even for several years – amassing a significant amount of money. Through Blockchain the social security payments would be linked to a record for the person and, when a death certificate is issued, all future payments would be blocked, thereby halting any further claims. The ‘ledger-based’ approach within Blockchain that is used for authentication ensures that the transaction history cannot be invisibly altered. While transactions can be tampered with, anyone doing so will be recorded for all to see, so no unauthorized party can alter the content in a surreptitious manner.
- Operational efficiency improvements–Despite the move towards automation, many business processes still include one or more manual transactions. By automating these processes – especially with regard to authentication and verification, Blockchain provides better results faster. Currently, verifying identity can require a trip to a notary public, which is slow and inconvenient. If Blockchain were to be used the applicant could log in (either directly or via an agent) and be instantly verified. As Blockchain works in a peer-to-peer mode other efficiency improvements could be developed. For example, it could spawn a new business model based on the IoT where users and providers of electricity circumvent the traditional gas and electricity utilities. Similarly, with solar energy, many people could operate photovoltaic resources tied to the power grid. This decentralization could be highly popular and significantly disrupt the energy market.
- Audit and search of traceable records–with Blockchain, authorized users are able to search transactions in the block. Without Blockchain, this searching may involve a physical trip to a records office and a manual search, which is both slow and inconvenient. Apart from removing the need for physical travel, Blockchain also allows analysis after the event, so if there is an issue authorities and regulators can look back and see who or what caused the problem. As records cannot be altered, accountability is inherent in each and every transaction. Given the huge volume of IoT transactions, the efficiencies introduced by Blockchain will be very significant.
Challenges of Blockchain implementation
While there are huge benefits to Blockchain, there will be some challenges in its implementation. The sheer volume of transactions is one key area – if every single financial, logistics, healthcare and insurance company were to transmit every transaction the scale and infrastructure needs would be staggering. This would not only impact traffic levels but also storage requirements. As it is early days, the exact need cannot be estimated yet but some are already questioning the practicality of a full-scale rollout. However, with the forthcoming 5G wireless communications and GPU supercomputers there is definitely potential to address the infrastructure needs.
Blockchain – the future
Even in its infancy, Blockchain is the best-known transaction-based application within the IoT. Notable weaknesses include possible low speed and idle blocks consuming energy, adding to costs. There are alternate approached, such as IOTA, that are entering the market. Hashgraph is a solution that claims to offer the benefits with none of the limitations and an organization called HederaHashgraph is now promoting the new technology. As with many market sectors that are in their infancy, only time will tell which (if any) of the technologies will come to the fore.
For now, companies wishing to take a leap in the Blockchain direction would be best advised to begin with small-scale trials so that they can fully understand the benefits and drawbacks before investing significant sums.