The Internet of Things (IoT) connects people, places, and products, and in so doing, it offers opportunities for value creation and capture. Sophisticated chips, sensors, and actuators are embedded into physical items, each transmitting data to the IoT network. The analytics capabilities of the IoT use this data to convert insights into action, impacting business processes and leading to new ways of working. However, there are still a number of technical and security concerns that remain unaddressed.

Security is a major concern with IoT that has hindered its large-scale deployment. IoT devices often suffer with security vulnerabilities that make them an easy target for Distributed Denial of Service (DDoS) attacks. In DDoS attacks, multiple compromised computer systems bombard a target such as a central server with a huge volume of simultaneous data requests, thereby causing a denial of service for users of the targeted system. A number of DDoS attacks in recent years have caused disruption for organisations and individuals. Unsecured IoT devices provide an easy target for cyber-criminals to exploit the weak security protection to hack them into launching DDoS attacks.

Another issue with current IoT networks is that of scalability. As the number of devices connected through an IoT network grows, current centralised systems to authenticate, authorise and connect different nodes in a network will turn into a bottleneck. This would necessitate huge investments into servers that can handle the large amount of information exchange, and the entire network can go down if the server becomes unavailable.

According to Gartner's Forecast, Internet of Things endpoints are expected to grow at a compound annual growth rate of 32 per cent from 2016 through 2021, reaching an installed base of 25.1 billion units. With IoT devices expected to be such an integral part of our daily lives in the coming years, it is imperative that organisations invest in addressing the above security and scalability challenges.

Another breakthrough technology, blockchain or distributed ledger technology (DLT), has the potential to help address some of the IoT security and scalability challenges. Blockchain is an ‘information game changer’ due to its unique capabilities and benefits. At its core, a blockchain system consists of a distributed digital ledger, shared between participants in the system, that resides on the Internet: transactions or events are validated and recorded in the ledger and cannot subsequently be amended or removed. It provides a way for information to be recorded and shared by a community of users. Within this community, selected members maintain their copy of the ledger and must validate any new transactions collectively through a consensus process before they are accepted on to the ledger. For more detailed information on blockchain technology, please refer to Deloitte’s previous publication The Blockchain (R)evolution.

How can blockchain solve IoT security and scalability challenges?
The IoT network can process data transactions across multiple devices that are owned and administered by different organisations, making it difficult to pinpoint the source of any data leakages in case of an attack by cyber-criminals. Additionally, the IoT generates a vast amount of data, and with multiple stakeholders involved, the ownership of the data is not always clear.

Blockchain can help alleviate the security and scalability concerns associated with IoT in the following ways:

- The distributed ledger in a blockchain system is tamper-proof and this removes the need for trust among the involved parties. No single organisation has control over the vast amount of data generated by IoT devices.
- Using blockchain to store IoT data would add another layer of security that hackers would need to bypass in order to get access to the network. Blockchain provides a much more robust level of encryption that makes it virtually impossible to overwrite existing data records.
- Blockchain provides transparency, by allowing anyone who is authorised to access the network to track the transactions that happened in the past. This can provide a reliable way to identify a specific source of any data leakages and take quick remedial action.
- Blockchain can enable fast processing of transactions and coordination among billions of connected devices. As the number of interconnected devices grows, the distributed ledger technology provides a viable solution to support the processing of the large number of transactions.
- By providing a way to enable trust among the stakeholders, blockchain can allow IoT companies to reduce their costs by eliminating the processing overheads related to IoT gateways (for e.g. traditional protocol, hardware, or communication overhead costs).

Smart contracts, an agreement between two parties that is stored in the blockchain, can further allow the execution of contractual arrangements among stakeholders based on certain criteria being fulfilled. For example, smart contracts can authorise payments automatically, without any need for human intervention, when the conditions for providing a service have been fulfilled.

Some current blockchain-IoT players and their use cases
The technology behind sensors and smart chips is evolving rapidly, making them increasingly portable and applicable for real-time interactions with blockchain ledgers. The combination of blockchain and IoT has broad potential for the creation of a marketplace of services between devices, and gives companies the opportunity to create value from collected data. The growing number of emerging blockchain protocols, partnerships and IoT device providers already indicates that there is a good fit for blockchain in the IoT sector.

Some current Blockchain-IoT players and their use cases are described briefly below. (Please note that the partnerships and companies mentioned in this article should not be considered as endorsements by Deloitte.)

- Chain of Things (CoT) is a consortium of technologists and leading blockchain companies. It investigates the best possible use cases where a combination of blockchain and IoT can offer significant benefits to industrial, environmental, and humanitarian applications. So far, CoT has built Maru, an integrated blockchain and IoT hardware solution to solve issues with identity, security, and interoperability. There are three developed use cases named Chain of Security, Chain of Solar and Chain of Shipping.

- IOTA is a protocol for fast transaction settlement and data integrity, with a Tangle ledger that eliminates the need for expensive mining (validation of transactions). IOTA is a promising infrastructure for IoT devices that need to process large amounts of micro data. Features of the Tangle ledger, which is the distributed ledger that supports IOTA, are machine-to-machine communication, fee-less micropayments, and quantum resistant data. IOTA has built a sensor data marketplace and is entering the market for data-driven insights, supported by more than 20 global corporations.

- Riddle&Code provides cryptographic tagging solutions for blockchains in smart logistics and supply chain management. Working on the integration between IoT devices and distributed ledger networks, Riddle&Code offers a combined, patented hardware and software solution that enables secure and trusted interaction with machines in the IoT age – by giving machines and any physical device a ‘trusted digital identity’. This technology breaks through the physical/digital divide to strike a balance between the demand for paper documentation and the advantages that blockchain technology has to offer.

- Modum.io combines IoT sensors with blockchain technology, providing data integrity for transactions involving physical products. The modum sensors record environmental conditions, such as temperature, that goods are subject to while in transit. When the goods arrive at the next transit point or end customer, the sensor data is verified against predetermined conditions in a smart contract on the blockchain. The contract validates that the conditions meet all of the requirements set out by the sender, their clients, or a regulator and triggers various actions such as notifications to sender and receiver, payment, or release of goods.

Considerations for the adoption of blockchain and IoT technologies
As explain previously, a fundamental problem with current IoT systems is their security architecture, with a centralised client-server model managed by a central authority which makes it susceptible to a single point of failure. Blockchain addresses this problem by decentralising decision-making to a consensus-based shared network of devices. However, when designing the architecture for IoT devices in conjunction with a blockchain ledger, there are three main challenges to consider:

1. Scalability. One of the crucial difficulties still faced by IoT is one of scale - how to handle the massive amounts of data collected by a large network of sensors and potentially lower transaction processing speeds or latencies. Defining a clear data model beforehand can save time and prevent difficulties when bringing the solution into production.

2. Network privacy and transaction confidentiality. The privacy of transaction history in the shared ledger for a network of IoT devices cannot be easily granted on public blockchains. That is because transaction pattern analysis can be applied to make inferences about the identities of users or devices behind public keys. Organisations should investigate their privacy requirements to see whether hybrid or private blockchains might suit their requirements better.

3. Sensors. The reliability of IoT sensors could potentially be undermined by interfering with the correct measurement of the criteria that need to be met to execute a transaction. Measures to ensure the integrity of IoT devices such that they cannot be altered by external interventions are key to securing a safe environment for data recording and transactions.

In conclusion, blockchain and IoT are both emerging technologies with great potential, but still lacking widespread adoption due to technical and security concerns. Several companies in the market are already working on use cases combining the two technologies, as together they offer a way to minimise the security and accompanying business risks.

The Deloitte Garage Innovation Hub: IoT and Blockchain Showroom
Companies should start considering the implementation of blockchain and IoT to address their business issues, ‘starting small’ by learning from current use cases and projects in the industry. Deloitte Switzerland offers clients an interactive experience in a newly-opened Garage Innovation Hub in Zurich, where they can gain hands-on experience of IoT and blockchain technology, initiate discussions and share ideas on solutions. This innovation space is designed to help organisations define their strategy around IoT and blockchain, and to inspire them to pursue it.