IoT – Blockchain: Internet unchained

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IoT – Blockchain: Internet unchained

Today, the technology behind Bitcoin – Blockchain – is powering a wave of startups and promising experiments across the business, tech sector and IoT. It’s not only changing money, it’s changing the world.

by Alan Earls

The internet and almost everything about it has boosted collaboration and communication. But when it comes to the sensitive aspects of commerce and privacy, its weaknesses become apparent. Trust, after all, is central to doing business. Lack of trust has dogged the internet for decades. Now, a new technology called ‘Blockchain’ may soon facilitate peer-topeer transactions, potentially eliminating the need for intermediaries, such as banks or governing organizations, while keeping the user’s information anonymous. This is because blockchain is simply a form of highly secure encryption that can not only validate information and actions conducted between participants but also preserve an immutable record of what has trans-pired.
Some have called blockchain the World Wide Ledger, preserving information and enabling ‘smart’ – self regulating – contracts. It’s an exciting vision with potential
relevance across almost every field of human endeavor. One garnering the most interest is pertinent to the Internet of Things (IoT) , where some of the potential challenges facing implementers may be more easily addressed by blockchain than by any other method today.

Blockchain: Connecting things – IoT

“Blockchain has relevance to IoT in establishing the provenance of devices in a specific network; in particular where long running but infrequently connected remote devices can report in,” says Ian Hughes, IoT analyst at 451 Research in London. Hughes thinks that a distributed ledger of activity across a multitude of IoT devices can enforce both the security and quality of service obligations. “Where ad hoc devices need to form a transactional grouping to meet a data request, inter-device reputation systems such as blockchain can help assure the combined data request is valid,” he believes. In systems where micro-billing is applicable, such as the very brief use of a particular shared IoT sensor, he notes that blockchain can help automate usage billing. One of the groups helping to lead the mass business adoption of both IoT and blockchain is TM Forum, a global member association for digital business based in Morristown, New Jersey in the US. John Wilmes, director of IoT projects at TM Forum, says participants in his community have recognized several areas where blockchain can help to support deployment of IoT. These include fraud management, identity management, authentication, authorization, settlements, and audits.

We are looking at technologies at an early stage of maturity and most people don’t want to accept that.

Martha Bennett
Principal analyst, Forrester Research


Industrial IoT - Titelstory Blockchain: Martha Bennett Forrester Research

 

The key concept that makes blockchain so important, Wilmes explains, is that the scale of IoT creates management challenges beyond those encountered in existing systems. “Automation of many, if not all, aspects of operation will be essential, and blockchain is well positioned to fill critical roles,” he maintains.
For example, many IoT applications involve quickly setting up relationships between multiple business entities involving legal and financial factors as well as performance. Service level agreements (SLAs) are a good example of where blockchain can provide oversight and assurance. By using so-called ‘smart’ contracts across a blockchain, participants in a business relationship can be confident SLAs are continuously monitored and that rewards and penalties are applied immediately and fairly.
But there is much more than just IoT to blockchain. The market is currently in an “advanced pilot state,” according to Eric Krause, a consultant for global IT service company Infosys. At present there are many prototypes and parallel developments, often based on different standards. This is necessary in the early stages of innovation as ideas surface and grow, he explained. The top five initiatives are Bitcoin, Ethereum, R3, Hyperledger and Ripple. “With regard to Hyperledger and R3, we already see collaboration – donation of code – between R3 and Ethereum; so we might see a standard developing in the next years,” he says, adding: “In my opinion, this is one of the pillars for mass adoption.” Are early movers in this field likely to benefit, or are they simply going to absorb a lot of costs that others will then benefit from? “No one wants to be first or third – fast follower is the most wanted position, Krause says. “After all, it’s always the second mouse that gets the cheese.”

Industrial IoT - Titelstory Blockchain: How the blockchain works
The blockchain is a distributed database, a kind of giant, global spreadsheet that runs on millions of computers. It’s open source, so anyone can change the underlying code and can see what’s going on. It’s peer to peer, so it doesn’t require powerful intermediaries like banks, merchants or governments to authenticate or to settle transactions. The blockchain uses state-of-the-art cryptography, so within a global, distributed database the fact that we’ve done a transaction can be recorded. But what else could it record?
Theoretically (and, increasingly, practically) it records any structured information, not just who paid whom but also who married whom or who owns what land, or what light bulb bought power from what power source. Experts agree that IoT will need a blockchain settlement system, because banks will be overwhelmed having to settle trillions of real-time transactions between machines and other objects. Most blockchains – and Bitcoin is the biggest – are what is known as permission-less systems. Anyone can do transactions without knowing who the other party is and without any middleman or central authority involved. Blockchains all have a digital currency of some kind associated with them. There are a number of them already, but the Bitcoin blockchain just happens to be the biggest

 

“Blockchain is no magic potion for everything,” He admits. “Although the distributed ledger technology has the potential to change and improve the current financial services industry, it Beyond the general sense that enthusiasm may be getting ahead of the facts, companies and individuals too often simply latch on to the exciting new technology does not constitute a one-size-fits-all solution. Potential business cases need to ft to the technology’s specific characteristics for interactions including factors such as security, decentralization, complexity and the number of participants in a transaction.”
It can change the nature of interactions, but at this state of maturity it is difficult to predict how exactly it will do that. And that’s exactly the right perspective, agrees Martha Bennett, principal analyst at Forrester Research in the UK. “It depends who you are and what you do but the challenge with blockchain is that we are looking at technologies at an early stage of maturity and most people don’t want to accept that,” she says.
When people look at blockchain “they tend to want the best of both worlds,” she adds. They want all of the aspects related to replacing trust between humans with something carried out by machine, based on incorruptible mathematical concepts. But they also want none of the downsides that are present in the only blockchain network that currently delivers, namely Bitcoin. Those downsides, Bennett says, are the reasons why Bitcoin isn’t generally suitable for most enterprise use cases – it is too expensive to run: “If you are interacting with Bitcoin code and take out the proof of work mechanism it is expensive.” Beyond the general sense that enthusiasm may be getting ahead of the facts, companies and individuals too often simply latch on to the exciting new technology and then, belatedly, try to come up with a way to apply it. “There is nothing wrong with that but you need to really think end-to-end about all the things you need to put in place to succeed,” Bennett notes. Promising ideas often don’t scale well or they have security issues, she explains. For instance, by definition, any data in a blockchain is in clear text. This is great when you want complete transparency. However, whether it is within IoT or in financial services, even when the group involved is closed and relatively small, not everyone should be able see everything because there may be personally identifiable information (PII) involved, or information that is commercially confidential. “You would be amazed how much an insider can infer even from metadata,” Bennett adds.


A huge and vital global market for cotton fiber is on its way to harvest due to the assurance and efficiency provided by blockchain. The Seam was established by some of the top companies in global agribusiness to specialize in commodity trading and management systems. In January 2017, the Seam, announced it is working with IBM to form a blockchain consortium for the
global cotton industry. IBM’s open source blockchain technology, called Hyperledger Fabric, will be used to create a supply chain and trading ecosystem. Combined with ‘smart contracts,’ the technology is seen by the consortium as having significant implications for global trade. It provides cross-border settlement and instantaneous transfer of currency or other assets when defined conditions are met. The Seam is situated at the intersection of agriculture, finance and technology. It began operating 17 years ago as the world’s first completely online, anonymous exchange for cotton trading. It has since applied the lessons learned in other commodity sectors and even in financial tech. Its owner-members include Calcot, Cargill, Ecom Agroindustrial, EWR, Louis Dreyfus Company, Olam International, Parkdale Mills, Plains Cotton Cooperative Association, and Staple Cotton Cooperative Association.

Industrial IoT - Title Story: Blockchain and Food Traceability Infographic IBM

Mark Pryor, chairman and CEO of The Seam, said the discussions with IBM began in late 2016 with the goal of launching an end-to-end proof of concept targeted for mid-May 2017. He says he expects the technology will be informational for the cotton industry because there are so many organizations, processes, systems and transactions involved “from field to fabric.”

“This blockchain will be open to the global cotton industry,” he explained. “IBM will play a key role in driving global adoption, with its digital footprint in all cotton producing and consuming regions.” The Hyperledger Project was initially built on code provided by IBM and a startup called Digital Asset Holdings. Other members of the group include Cisco, Fujitsu, Hitachi, Intel, Red Hat, VMware, Deutsche Börse Group, J.P. Morgan, and Accenture.

Titel Story: Blockchain - Factury

Factury is a software-as-a-service (SaaS) investment management platform. Launched by an entrepreneurial team from Latvia, the founders of Factury are financial technology experts who apply blockchain technology to re-imagine the process for investments and credit products originated by non-bank entities. Blockchain allows Factury to cut out the middle man or disintermediate the process of capital acquisition for balance sheet lenders and institutional investors by placing a transparent business framework around blockchain ledger technology. The Factury approach delivers a new kind of financial instrument, according to the company, namely loan receivables split in future payments.
Blockchain provides trustworthy evidence that loans are either paid out or repaid providing investors with complete clarity regarding the performance of their investments, continuously and in real time. Factury managed to grab a top 10 spot in what is said to be the leading financial technology accelerator in the world, Startupbootcamp FinTech in New York City. The program ran for three months last year and provided opportunities for participants to work with corporate partners, including Santander, Deutsche Bank, and Rabobank.
Aiming to continue to tap into financial expertise and emerging technology, the Factury team is now split between locations in New York and Silicon Valley. For investors, the granularity provided by Factury provides an ability to organize investments based on factors such as geographic preferences or time dimension. It also supports gradual trade of the loan parts in relation to perceived risk. Receivables are maintained on a distributed permissioned database (a private blockchain) that becomes the same location for the loan originator and the loan investor. Finally, technical features such as digital signatures register each activity of the respective parties, building and enforcing trust among the parties, verifying transactions and maintaining an audit trail, the company claims

Opportunities ahead

Despite these important concerns, Bennett sees tremendous potential in blockchain for a wide range of business activities. “For IoT to really come
into its own, we need a different approach to distributed computing like blockchain, where there is a consensus mechanism,” she explains. “We don’t know yet what that will look like but it may take five years or more to work it out.”
Another factor in the adoption of blockchain may be the advent of the embedded subscriber identity module (eSIM). These are likely to appear in many circuit boards for machineto-machine (M2M) applications. It’s widely expected that blockchain, along with eSIMs, will simplify and improve the security of identity-focused operations essential to 5G as a trusted storage medium for personally identifiable information. People in the industry also hope that blockchain can provide the basis for automatic provisioning of dynamic policies for devices as they join access networks. That would “open up many options for charging and settlement that are currently unavailable”, Wilmes says. “We think that the [IoT-blockchain] relationship will be both complementary and mutually beneficial,” Wilmes notes. “As both technologies mature, industry sectors make their choices, and standards are adopted. We will soon reach an inflection point in which successful use cases are widely replicated and the touch points between blockchain and IoT become more numerous.”

Titel Story: Walmart - Meat production and Blockchain

In conjunction with the recent opening of its Food Safety Collaboration Center in Beijing, Walmart, the global retailer, announced a collaboration with IBM and Tsinghua University to improve the way food is tracked, transported and sold to consumers across China. By harnessing the power of blockchain, the technology will generate transparency and efficiency in supply chain record keeping while improving the safety of food on the tables of Chinese consumers. As sourcing of increasing numbers of commodities stretches around the world, food authentication and supply-chain tracking is an increasingly important activity for identifying and eliminating sources of contamination. Traditional paper tracking and manual inspection systems can leave supply chains vulnerable. Blockchain seems to offer a fresh way to accomplish these aims by providing a permanent record of transactions which cannot be altered.

“Advanced technology has reached into so many aspects of modern life but it has lagged in food traceability, and in particular, in creating more secure food supply chains. Our collaboration with Walmart and Tsinghua University is a step of global significance to change that,” says Bridget van Kralingen, an IBM senior vice president for industry platforms. Using blockchain, any food product can be digitally tracked from primary suppliers to store shelves and, eventually, all the way to the consumer. Digital product information such as farm origination details, batch numbers, factory and processing data, expiration dates, storage temperatures and shipping detail are digitally connected to specific food items and the information is delivered to the blockchain at each step of the process.

Taqanu is a Norwegian blockchain startup that is building an alternative banking financial institution, particularly targeted at the needs of refugees, stateless people, and others who are normally not well served by the banking industry. In general, banking institutions are cautious in a way that is not only traditional for stewards of money but also enshrined in regulation.
For example the European Central Bank demands a know-your-customer (KYC) policy. The KYC stricture, introduced in the US Patriot Act following the 9/11 terrorist attacks, is aimed at providing more tools for monitoring individuals as well as potentially throttling sources of illicit terrorist funding, such as money laundering. It includes identity verification requirements for confirming a person’s official identity documents, namely a government-issued photo ID. Actuated by the surge of refugees to Europe, Taqanu aims to be a simple financial solution providing banking services that anyone, anywhere can access regardless of residency or available documentation. Its key insight is to use a person’s ‘digital footprint’ and their phone to identify and authenticate them quickly and accurately and to bring these new customers into the banking system. This ‘self-sovereign’ digital identity gives the ownership of data to Taqanu’s
customers through the use of blockchain technology and encryption.


“There will always be many non-IoT use cases for blockchain due to its broad utility, but we may, in contrast, increasingly see blockchain embedded in IoT, often invisibly but as an essential component,” he believes. According to Jon Geater, chief technology officer of Thales e-Security, a unit of the Thales Group based in La Défense, Paris, there are some immediate steps involving microtransactions that can “lubricate the economics of mass scale automated M2M.” However, the real potential lies in developing models of communications and trust that build on blockchain’s decentralized and replicated model, he thinks.

Title Story: Blockchain Mining

London-based blockchain startup Everledger has ambitions to ensure the provenance of all kinds of high-value items, starting with the digital certification of diamonds. Built on the IBM Blockchain high-security business network and delivered via the cloud, a global digital ledger has been developed for the polished diamond industry. The company created relationships
with major diamond certification houses around the world to digitally encrypt over a million diamonds on the blockchain. Now, the company has extended this technology to tackle the trade of rough diamonds certified through a United Nations mandated process.

“What I really respect about Everledger is that they started with a problem existing technology couldn’t solve and looked closely at the requirements,” says Forrester Research analyst Martha Bennett. “Kemp [the founder] was a trusted party in the diamond industry already, so it was easier to get started.” Bennett noted that it’s not blockchain alone but
the fact that Everledger gathers enough data (spectroscopy, for example) to craft a unique profile of every diamond it tracks. Blockchain simply preserves and shares that information.
Everledger is now applying its blockchain system to the fine wine industry, using 90 different data points to create a profile of each bottle of wine.

“Blockchain is a powerful technical tool for things like microtransactions, due to its relatively low cost and no middle-man model, but things like pricing agreements still need to be negotiated,” he says. “Furthermore, while smart contracts have the potential to enable innovation in how digital assets are accessed or used there are many associated complexities. As soon as monetization comes into play, so do legal and commercial matters.”

“We need to be careful of applying ‘blockchain sprinkles’ to everything. The technology has great potential to enable all kinds of innovations in trustworthy device communication, transactions and management, but it alone can’t do this: we need to learn to build systems that truly understand blockchain before we build systems that rely on it,” he concludes.

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