Bitcoin and the Internet of Things

By: David Marc
Updated: June 9, 2018

What is the internet of things?

The internet of things (IoT) connects electronic devices to the internet, creating a vast network of connected things.  Based upon wireless sensor technology, connected devices are able to telegraph physical information to the network that can be utilized in a number of different ways.

Take for example the most commonly-cited use case, the smart house.   front door can be connected to a chip in the owner’s key, triggering it’s automatic unlocking when the chip approaches.  The unlocking triggers the lights to be turned on in the front hallway, and the air conditioning to check the house temperature and adjust accordingly.  In the laundry room, the washing machine can determine the remaining level of salt and soap available, and append its needs to a master shopping list, already including the items needed by the refrigerator and dishwasher.  Prices at all relevant shopping marts are automatically compared and the cheapest combination of orders are placed – assuming of course the delivery slots are convenient for the house owner. Meanwhile, the dishwasher has identified a diminished water flow when turned on which could signal a leak.  This information is passed on to the homeowner, and permission is requested to contact an available plumber. This is sent directly as a text message to the homeowners smartphone, which he is browsing over his morning cup of coffee – which was automatically made when the alarm clock sounded – and a piece of perfectly golden-brown piece of toast, thanks to a smart toaster that sensed exactly when to stop toasting.

The interconnectedness of devices – both within and between homes – allows new methods of autonomous efficiency optimization.  For instance, utilities within the house can communicate with one another and with the power grid to limit power consumption during peak demand periods (Perhaps the air conditioning slows down automatically, and the dishwasher and laundry machine decide to run in the middle of the night).  This could also be managed within a larger smart grid, with devices working together across neighborhoods or communities to request power at the right time and at the best price, based on any number of factors. With the recent introduction of Tesla household batteries, communities will also be able to coordinate the optimal times for battery recharge and trade stored electricity between linked devices, ensuring the cheapest and most efficient energy consumption plan for the neighborhood, automatically.

And of course, the internet of things allows for a number of non-domestic uses, and that is where most current applications can be found.  Los Angeles has taken the first steps towards being a “smart city”, integrating smart traffic light systems which allow for the optimization of light timing based on real time traffic flow.  The same concept could be applied to just about anything- for instance, trash levels in garbage cans could be monitored to optimize waste management logistics. Freight trains utilize sensors to automatically optimize speeds and schedules.  Sensors can be deployed to monitor environmental indicators like air pollution levels, or provide early warning of impending natural disasters like forest fires, earthquakes or tsunamis. Information from sensors mounted on planes could offer better information on wind speed and weather patterns, which can be used to prevent weather-related flight disasters.  

Respected Bitcoin developer Mike Hearn offers a glimpse into the future – 15 to 30 years in his estimation – in which driverless cars whisk passengers along sensor-equipped roads, navigating flawlessly from point A to point B along the shortest path, programmed to avoid any obstacles with lightening fast – but gentle – machine reflexes.  In Mr. Hearn’s vision, these driverless cars are “self-owned” semi-capitalist machines, competing with one another to offer potential passengers the best price based on a number of factors like distance from the customer, the quality of the car, and their reputational score. These cars would be programmed to ensure fuel efficiency – if fuel is still used – ensure proper maintenance and self-improve as necessary.  

Can it Scale?

The rise of IoT has been made possible by a number of technological advances, namely the miniaturization of computing power and the ubiquitousness of smart phones, cheap and small sensors that can be embedded in machines, and the emergence of cloud storage and analytics.  IoT seems to be the sort of technology that can fundamentally alter day to day life. The field is rapidly expanding, and 30-50 billion devices are expected to be connected within five years. In an extremely interesting piece written by IBM’s Paul Brody and Veena Pursewana entitled “Device Democracy – Saving the Future of the Internet of Things”, IoT is described as having the potential to incorporate massive new industries into the IT global economy – like agriculture, logistics and transportation – that have not traditionally fit.  These types of non-IT intensive industries still constitute the majority of the global economy, and thus the potential for growth in this segment is staggering. “As we go from a billion smartphones towards hundreds of billions of smart devices”, Brody and Pureswaran write, “the scale of opportunity from the IoT becomes visible”.

They proceed to highlight a number of problems that could leave the IoT market stillborn.  Mgrs. Brody and Pureswaran address the need for businesses to adjust broken business models and ensure real value creation.  What are the types of functionalities that will create meaningful value to encourage widespread adoption? Does anybody really care about a self-toasting toaster?  It seems that from a revenue perspective, the promise of the IoT has not yet lived up to expectation.

We have no doubt that the IoT industry will find its own “killer applications” serving to delight the market, ignite our imaginations and create massive value for customer and business alike.  More important for long term viability is ensuring an architecture allowing for efficient scalability and to ensure that the IoT does not grow in converse relation to our ever diminishing privacy.  

The current  IOT architecture is supported by a centralized cloud structure, in which various IoT applications act as data acquirers sending information to a massive cloud brain, with which all connected devices interact.  While the imagery associated with cloud computing suggests that man has harnessed the clouds to store information in the air, the truth is that cloud storage requires massive central data centers comprised of stacks upon stacks of servers.  As more and more devices connect to the IoT, each sending and receiving more and more information, these central data centers must expand in corresponding fashion. The model seems doomed to fail, for a number of reasons.

First it could be that marginal profit does not offset the marginal cost of additional data storage required.  Is the ticket price of an automatic doorknob requiring a lifetime of support worth the bandwidth? More importantly, these massive data centers offer a single point of failure which can be exploited from a number of perspectives.  Most obviously, the massive amounts of information stored centrally allows for intrusive advertising and surveillance opportunities serving to further erode our privacy.

According to Brody and Pureswaran, the answer is to develop a new peer-to-peer computing architecture which supports “trustless peer-to-peer messaging; secure distributed data sharing; and a robust and scalable for of device coordination”.  Not only does this allow for significant cost reduction, it eliminates the single point of failure implicit in centralized data storage models, instead distributing data across all peers utilizing the network. The most important aspect of the network will be the ability to maintain “private, secure and trustless transactions” in a network comprised of billions of actors, not all of them trustworthy.  The blockchain is identified as the best means of arriving at distributed consensus and transaction validation across the internet of things.

The Blockchain and the IoT

And it makes sense.  The blockchain is, afterall, a distributed ledger hosted by a network of nodes which also serve to achieve distributed consensus that legitimate and verify transaction.  While transactions are verified publicly, transaction owners have their privacy cryptographically protected. The history of any particular appliance can thus be irrefutably embedded in the blockchain, along with every interaction in which it has been involved.  To record and process transactions, the blockchain seems the perfect fit.

And how will devices interact with the blockchain?  In our review of Ethereum, we wrote this of decentralized applications (dapps): “dapps are frontend applications that interact with contracts located directly on the blockchain.  The contract acts as an autonomous agent with a specific function or code executed when called on – or in other words, when sent a transaction”. It is no coincidence that IBM is looking to use Ethereum as the blockchain powering their internet of things.  Devices connected to the IoT would simply act as front end application, connecting to contracts with specific rules written into the blockchain. The contracts would allow for agreements and payments to be made between devices autonomously according to preprogrammed mandate – i.e. operate as cheaply and efficiently as possible – transmit update information, and optimize repair pricing amongst all connected devices, for instance.

Digital Currency and the IoT

And of course, bartering between devices would most efficiently be powered using digital currency.  As the blockchain is utilized as the mechanism to record and verify transactions, as well as to establish smart contracts, it follows that the native blockchain currency would be used to support agreements and payments.  Additionally, payments would need to be automated – according to predetermined smart contract – and micropayments supported.