Blockchain is one of the hottest tech topics currently. It has come into the spotlight mostly because of its tight relation to cryptocurrencies. But the way it works in favor of decentralization and automation of financial transactions can be very well replicated in other important fields.
However, we’re still not familiar enough with this technology to be absolutely certain of all of its possible applications and limitations. So far, it has proven a rather safe and efficient solution for cryptocurrencies, although with some exceptions, like in the case of Bancor scandal, which has revealed that the blockchain principle does have its downsides. Nevertheless, an exciting period of trial and error seems to be ahead of us and it’s hard to predict if blockchain will live up to its expectations. Let’s first see some of the possible (or already existing) applications of this technology.
Basically, blockchain technology could theoretically help in any area with a growing need for decentralization of decision making or lack of efficiency due to technical or procedural difficulties. This is especially applicable to the rapidly developing industry of the Internet of Things (IoT). SAP, together with IBM, demonstrated how blockchain and smart contracts can offer an effective and secure tracking and managing solution for a pharmaceutical supply chain. Other fields, such as banking, finances, transportation, healthcare, insurance or cybersecurity are also looking to benefit from the new technology.
Internet of Things
However, the focus of this article is primarily on the applicability of blockchain to the vast IoT universe. Vast, and also growing. Namely, it is predicted that the number of devices and sensors plugged into the network will reach 50 billion by 2022, which is more than a twofold increase compared to 2018.
There are multiple problems with the pace at which IoT industry is developing. The volume and variety of data produced by this number of devices can’t be handled in a conventional centralized technological framework. In addition, Gartner estimates that 75 percent of all IoT projects this year are going to take twice the planned time to be developed and implemented. And these postponements are not due to the fact that companies are taking their time with new app designs or developing entertaining new features, but because of more critical reasons.
The growth of IoT could affect some core issues such as privacy, security, efficiency, as well as connectedness and integration with other devices in the IoT universe. And given the ambitions of the IoT industry these questions become even more important. We could see smart devices controlling our cars, pacemakers and other things that may endanger our health and lives if not handled properly. It seems that with the current centralized IT systems, this can be a road plagued with security issues, data integration problems and unplanned setbacks of all sorts. So is there a way the blockchain technology can help the cause?
Efficiency and automation
One of the biggest benefits that come with blockchain in this context is simple automation of otherwise structurally and administratively complex processes. A fresh example is the collaboration of IBM and Maersk on an international transportation project that resulted in a solution that could save businesses and governments an enormous amount of time and resources. WTO even claims that reducing barriers within the international supply chain with the application of blockchain technology can increase the worldwide GDP by 5 percent and global trade volume by 15 percent.
Although this all may sound a bit too optimistic, there are some valid points behind these claims. Blockchain can automate much of the processes of this sort and could help us find a way around mountains of paperwork. Also, there would be no need for centralized decision-making procedures we would have to wait for, thanks to the distributed ledger principle. It could significantly decrease the amount of time needed for processing and exchanging data between IoT devices.
On the long run, business, financial or transportation processes could be completely automated, thus ruling out a chance of human error. Smart devices in the IoT network would collect and exchange data by themselves and inform each other of the crucial supply chain info in real-time. They’d even be able to complete the financial transactions after each completed stage, based on the info encrypted in smart contracts.
The fact that there would be no need for middlemen, in terms of servers or banks is what makes such a radical difference in approach and results. The need for a central agent that tracks and validates all the transactions and information exchanges slows all these procedures down drastically. With blockchain technology, these central agents can be completely avoided.
Another advantage of blockchain that’s based largely on the concept of decentralization is a whole new approach to cybersecurity. In a centralized system, having more devices in the network means bigger cyber risks. On the contrary, in a distributed network, more devices means increased security. The more IoT nodes there are in the system, the more work is needed to hack into it.
To access the encrypted information, whoever chooses to attack the system first needs to hack the majority of devices. It’s not enough to break into just one central computer or take advantage of a single vulnerable device or app. The distribution of credentials is what makes a blockchain-based IoT network much more resilient than the conventional ones.
Potential risks and troubles
In general, the biggest trouble with blockchain technology is that we’re still unsure of its exact limitations and possibilities. Lack of central system does result in speeding up processes and it seems as if it increases security as well, but it could easily turn out to be a drawback in case a successful cyber-attack happens after all. So if cyber-criminals eventually find a way to gain control of the majority of nodes and thus hack the blockchain, a lack of centralized defense options could leave the system extremely vulnerable.
This risk is exemplified in the already mentioned Bancor case, where a seemingly perfectly safe network suffered severe damage. Ironically, the damage would’ve been much worse hadn’t Bancor used some sort of centralized defense system to avoid an even bigger catastrophe. In theory, even gaining control of the majority of nodes shouldn’t be enough to hack the system, as there needs to be some proof-of-work in order to alter the blocks. However, the Bancor case should serve as a warning of possible risks and a reminder that we still might be far from being able to fully and safely implement the blockchain technology.
At the end of the day, all the promises made by proponents of the blockchain leaves us with some conflicting thoughts and emotions. On the one hand, it wouldn’t be the first promising technological breakthrough that silently and unnoticeably ran out of steam. On the other hand, it seems that the IoT industry does have a number of problems that have to be solved as soon as possible. And blockchain looks like a plausible and exciting solution to this problem, as well as for many others. The hopes are high, and for a good reason, but a careful step-by-step approach to its implementation is necessary as well.