Blockchain Technology And IoT: What It Is And How It's Driving Development Of New Smart Systems

Blockchain And IoT

As solution providers look to capitalize on Internet of Things opportunities, a new term may soon need to be raised in conversations with customers: blockchain technology.

Blockchain technology is the decentralized ledger of all transactions across a peer-to-peer network – meaning that participants can confirm transactions without the need for a central certifying authority.

Blockchain came into the spotlight in 2009 after the first cryptocurrency, Bitcoin, was launched. But the technology has a variety of other applications and, as the Internet of Things market grows, there will be more opportunities surrounding it. Following are five things that solution providers need to know about blockchain technology as it relates to the Internet of Things.

What Is Blockchain?

Blockchain technology is similar to an independent, transparent database that is shared by a community. Through this technology, banks and other third parties will not be required to facilitate or monitor the exchange of funds.

When someone uses blockchain to request a transaction, for example, the request is broadcast to a peer-to-peer network made up of nodes, which then validate the transaction and the user's status through known algorithms. Once verified, the request can then combine with other transactions to create a new block of data for the ledger, which is then permanently added to the existing blockchain, completing the transaction.

Benefits Of Blockchain

Blockchain technology helps users make transactions with increased transparency and accurate tracking tools.

Because two parties are able to use blockchain to make exchanges without oversight or intermediation of a third party, this strongly reduces or eliminates counterparty risk, and puts users in control of all their information and transactions.

Blockchain data is also consistent, timely, accurate and widely available to users. Due to the decentralized networks, this technology does not have a central point of failure and can therefore better withstand malicious attacks.

Finally, changes to public blockchains are publicly viewable by all parties for increased transparency, and transactions can't be altered or deleted.

Challenges Of Blockchain

One big issue surrounding blockchain is that this technology is nascent, meaning that the channel will face issues with transaction speed, the verification process and data limits.

Blockchain also faces challenges around gaining widespread adoption – particularly around financial institutions – until government regulation requirements around the technology become more apparent, as many currencies need to be regulated by national governments.

Because blockchain technology is new, applications will also require significant changes to existing systems, as well as a complete shift to a decentralized network, requiring the buy-in of users and operators.

What Does IoT Have To Do With Blockchain?

What does the Internet of Things and blockchain have to do with each other? As blockchains begin to gain traction, they will have a big impact on the Internet of Things and, in particular, the development of smart systems.

Blockchain technology could create a new way to track the unique history of individual devices through recording a ledger of the data exchanges between devices and users or web services. Blockchains also can enable smart devices to become independent agents and autonomously conduct a variety of transactions. For instance, a connected vending machine would be able to track its customer purchase history and use that to automatically pay for the delivery of new items.

Some vendors, such as IBM, have placed emphasis on IoT opportunities for blockchain through looping the technology into their Internet of Things platforms. For instance, IBM enables customers to share IoT data in a secure private blockchain as part of its Watson IoT platform.

Potential IoT Applications

Blockchain and Internet of Things technologies coupled together could enable a variety of applications.

For instance, blockchain and IoT can help provide reliability and reduce complexity in supply chains. If certain packages of perishables are distributed from the warehouse to retail stores, they can be tracked through the Internet of Things for temperature – and blockchain technology will help various groups, including the transportation companies, manufacturers and retail chains, to coordinate their efforts and save time and money and reduce errors.