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The Blockchain and the Future of the Internet of Things

By Andrew Milroy, Senior Vice President, Digital Transformation, Frost & Sullivan, Asia Pacific

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Andrew Milroy, Senior Vice President, Digital Transformation, Frost & Sullivan, Asia Pacific

Is the Blockchain the next big thing in IT? The answer is, yes. Technology companies and financial services firms across the globe are now experimenting with Blockchains. They understand that this technology is disruptive and will, in due course, transform existing business models and engender innovation.

By the end of the year, organisations outside the technology and financial services sectors, will also be experimenting with Blockchains on mass, as they realise that this technology has the potential to disrupt and transform all sectors of our economies. Blockchain technology will address many of the challenges associated with Internet of Things (IoT) implementations, and it will rapidly accelerate IoT adoption.

The Blockchain protocol is set to revolutionise IT in much the same way as the internet did, over the past 20 years. Its first application, Bitcoin, has disrupted the financial services sector and central banks. It is now clear how the Blockchain can disrupt financial services by disintermediating multiple processes, and embedding security and privacy into everyday activities. The Blockchain, as a decentralised, universal ledger, is set to be at the heart of financial services.

From an overall technology perspective, the Blockchain is underpinning a transition from centralised, cloud based systems, where third parties act as paid middlemen, to a new peer to peer IT paradigm, where middlemen can be eliminated. Instead of centralised clouds, IT processing will move to the ‘edge’ and more power and functionality will reside within ‘things’. Indeed, the Blockchain is set to be the technology that drives the IoT.

The IoT is taking much longer to take off than many analysts expected. This is because it faces multiple obstacles that are often related to today’s IoT architectures. Cost, future proofing, latency and security, all emerge as major obstacles to IoT implementations.

In IoT implementations, Blockchains allow us to track the history of devices and record a ledger of each interaction that each device has with other devices, and humans. Any attempt to tamper with a device will be transparent to others using the Blockchain. Changes will only be permitted if they comply with the rules of the digital contract that is shared by all Blockchain nodes. Changes that do occur are shared, according to agreed rules, with other Blockchain participants. In traditional IT architectures, tampering can occur if a hacker is able to get through firewalls and other defences built up by an organisation. Once inside, tampering is often not recorded or noticed, and can occur unimpeded. This is simply not possible when using Blockchains.

Blockchain makes IoT implementations feasible, affordable and manageable. Individual things can operate autonomously according to a set of rules that are shared by all Blockchain nodes. These things can communicate directly with other things and interact according to set rules. The rules can only change with the consent of all other Blockchain participants.

From a supply chain perspective, Blockchain promises to ensure that items are genuine and that participants in the supply chain adhere to agreed rules. This eliminates a lot of costly administration and increases the effectiveness and reliability of supply chains.

Blockchain technology will also drive the uptake of the IoT in other vertical markets such as manufacturing. In a manufacturing plant, machines can interact with other machines, devices and humans, adhering to agreed rules and sharing all their activities on a distributed ledger that is visible to other Blockchain participants. More computing power will move to ‘the edge’ as objects develop greater autonomy.

Perhaps most interesting is the potential disruption that the Blockchain protocol can have on today’s technology giants such as Uber and Facebook.

Uber depends on the use of a centralised cloud and it acts as an aggregator. In a perfect peer to peer Blockchain world, the Uber business model becomes redundant. Why go through a middleman such as Uber when you can engage directly with drivers using a peer to peer platform? Similarly, Facebook depends on accessing data from its users for free. In a Blockchain world, users will have much more control over the data they share and the purpose for which it is used. Users can increasingly be expected to receive some financial benefit from sharing their data. Given that data is becoming one of the major drivers of our economies, Blockchain will enable private individuals to profit from the use of their own data.

In summary, the Blockchain protocol allows organisations to overcome many of the challenges associated with IoT implementations. It will define the architecture on which most IoT implementations are built. The Blockchain will drive a revolution in IT as we move towards highly decentralised, peer to peer models of computing. Security and privacy issues which are becoming insurmountable will soon be issues that can be addressed relatively easily, and centralised brokers such as Uber and AirBnB will see their business models being radically disrupted.

There is one key question that needs to be answered. How soon will these disruptions and transformations happen? 

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