With the number of Internet of Things (IoT) devices expected to reach over 25 billion in 2021 and smart contract innovation now in full thrust, blockchain IoT applications have emerged as a compelling use case for combining the growing web of Internet-connected sensors with the secure automation of blockchain networks. IoT devices are physical objects with embedded technology that enables them to send and receive data over the Internet without any human interaction. Today, IoT devices span from everyday consumer products like smartwatches, WiFi-enabled appliances, and wireless headphones, to the intelligent infrastructure powering smart cities, autonomous vehicles, and smart factories.

The introduction of IoT devices to various industries like supply chain management and energy production has greatly improved the efficiency of business workflows, enabling real-time monitoring of performance and resource consumption. By leveraging blockchain technology, enterprises can take advantage of smart contracts, math-based and tamper-proof contractual agreements that provide a single source of truth to all parties and automate transactions based on predefined business logic. Smart contracts are deterministic, which means that they will automatically execute according to set parameters defined by computer code. Thus, no party can breach their contractual obligations—issues like late payments, pricing differences, and refusals to pay can all be eliminated with smart contracts.

By combining the real-world inputs of IoT devices with the robust execution framework of blockchains, enterprises have an opportunity to build increasingly data-driven processes backed by cryptographic guarantees, as well as unlock new products and markets around on-chain datasets.

The Benefits of Blockchain Technology for IoT

By connecting existing IoT devices to blockchains, enterprises can instantly improve device security, automate business workflows, and achieve end-to-end transparency around previously fragmented and opaque systems.

Security

While their connection to the Internet is what gives IoT devices their rich set of functions, features, and designs, it also makes them vulnerable to attacks. A hacker could manipulate traffic sensors in a smart city, hijack an autonomous vehicle, or exploit critical machinery in a smart factory. IoT devices that have access to personal data can also leak this sensitive information to third-parties. With decentralized oracles, IoT devices can securely feed their data to blockchains, where it gets recorded on-chain and can then trigger hyper-reliable outputs. For a hacker to manipulate the recorded data on a blockchain, they would have to compromise the blockchain itself, providing a tamper-proof layer of security for IoT device data.

Automation

Enterprises can leverage the granular sensor readings of IoT devices in combination with smart contracts to automate and optimize existing business processes. In industrial settings, for example, developers can integrate smart contracts with IoT sensors to conduct predictive maintenance. IoT devices in a manufacturing plant can periodically transmit diagnostic machine data to blockchains, and smart contracts can be programmed to shut down individual machines if they stray from the recommended health settings. In the future, autonomous machine-to-machine transactions can occur where only human input is required to program the initial smart contract variables.

Transparency

By connecting IoT devices to smart contracts, enterprises managing transactions across complex supply chain networks can leverage a blockchain's single source of truth to achieve end-to-end transparency around the movement of products. Historically, information within existing business networks is often siloed and fragmented across disparate systems, leading to excessive back office costs, contract errors, and processing delays. Integrating RFID tags, commonly used to identify and track inventory goods, with blockchain-based smart contracts provides a tamper-proof and auditable record of the global distribution of materials, from source point to end customers.

Securely Connecting Blockchains and IoT With Decentralized Oracles

To ensure security and reliability, blockchains are purposely disconnected from external inputs like real-world data. For blockchains to securely interact with off-chain resources, they need the help of an oracle, which is middleware that connects smart contracts to external systems, including enterprise resource planning (ERP) systems. Oracles are essential to connect IoT devices to blockchain environments for enterprises to take advantage of the many benefits of smart contracts.

Chainlink connects any IoT device to any blockchain and any output.
Connect any IoT device to any blockchain and any output with Chainlink oracles.

Chainlink's widely adopted oracle network enables smart contracts on any blockchain to interact with any data from any application programming interface (API). Since IoT devices currently use APIs to communicate with applications over the Internet, they can connect to a Chainlink oracle network through a web server. Devices can also be configured with a Chainlink oracle node to feed data directly  to and from smart contracts, allowing data providers to supply their IoT-based data on-chain for decentralized applications.

Chainlink is blockchain agnostic, meaning enterprises can use Chainlink oracles to connect their IoT devices to any blockchain environment they choose. Hundreds of blockchains have now emerged with different features around performance and permissioning that can make the choice overwhelming for potential enterprise integrators. Chainlink eliminates the costs of building in-house support and integration around individual blockchains, enabling enterprises to efficiently connect to any blockchain in the fast-growing multi-chain ecosystem.

For enterprises in particular, security is paramount when integrating any new technology. Chainlink’s tamper-proof and time-tested infrastructure ensures that oracle networks meet the underlying security guarantees of decentralized computation when connecting blockchain networks to the outside world.

Chainlink’s decentralized oracles are enabling a new ecosystem of blockchain-connected IoT devices that are increasing automation and efficiency for a wide range of organizations across different industries.

Efficient supply chain tracking

Supply chains are complex systems often requiring multiple intermediaries to ensure payments are processed correctly and that goods are efficiently tracked. PingNET is a decentralized transmission network for IoT devices that plans to leverage Chainlink for automating supply chain payments. For instance, IoT sensors embedded in shipping pallets send location data to a Chainlink node to prove whether they have reached the proper delivery address. If the location data proves the pallet arrived at the correct address, the data will automatically trigger a smart contract to send payment to the shipping company, preventing shipping and processing delays.

Accounting transparency

The number one cause of financial discrepancies in accounting is human error. Blockchains create a shared ledger of transactions that can reduce manual error in the accounting process and establish a verifiable history of transacted assets. The Open Library Project showcases this functionality by using Chainlink oracles to create a decentralized book rental system. The books are embedded with a radio frequency identification (RFID) tag, which allows them to be efficiently tracked as they travel from customer to customer through a borderless rental system. Companies could apply RFID technology to products to follow them through the supply chain cycle and achieve transparency from source to destination.

Health wearables

Blockchain-connected IoT devices are unlocking new incentive mechanisms in athletics and health by improving data sharing and transparency. Gran Fondo, a fitness challenge dApp, won second place in Chainlink’s Hackathon at ETHDenver in 2019 for connecting smartwatch data to smart contracts using Chainlink oracles, incentivizing athletes to compete for ETH prizes based on performance objectives. With health insurance fraud estimated to cost upwards of $60B each year, health insurance companies could also use Chainlink to analyze a verifiable, tamper-proof record of physical activity levels and biometric data from IoT-enabled wearables to correctly estimate fair insurance premiums for policyholders.

Parametric insurance

Chainlink connects weather data sources to nodes for Arbol’s decentralized insurance.
Chainlink connects IoT sensors for Arbol’s decentralized insurance products.

Smart contracts are on track to reform the insurance industry by enabling deterministic parametric insurance products that automatically pay policyholders when predetermined conditions are met. For example, decentralized insurance protocol Arbol uses Chainlink oracles to automatically pay out rainfall insurance claims to policyholders when IoT sensors determine the level of rainfall in a specific location meets the smart contract’s predefined terms. Blockchain-connected IoT devices can power a wide variety of parametric insurance products, from GPS sensors recording location data for shipping insurance, to pressure-sensing devices monitoring earthquakes for disaster insurance.

Automated vehicle rentals

Chainlink’s secure decentralized oracles enable developers to quickly build new applications that leverage blockchain networks to trigger outputs in the real-world. Link My Ride, a Chainlink Virtual Hackathon Grand Prize winner, connected their Tesla API to a Chainlink oracle for a blockchain-based peer-to-peer vehicle rental application. As vehicles become fully autonomous, one could envision a machine-to-machine rental model with minimal human input required. Chainlink’s easy-to-integrate oracle infrastructure,  supported by extensive integration documentation, empowers developers to securely call external APIs from their smart contracts and explore the wide range of blockchain IoT use cases that are possible.

Measuring consumption and pollution

Beyond process efficiency and transparency, blockchain IoT integrations are also enabling companies to explore new incentive models that encourage sustainable consumption. Automation engine NetObjex is building a loyalty program for conscious travelers that uses IoT sensors to measure their water and energy usage at select hotels. For travelers that are below the average consumption levels, a smart contract will automatically award them with reward tokens that can be converted to cash or redeemed for future hotel visits. Governments could even enforce pollution limits by connecting emission-monitoring IoT devices from factories to blockchains, also helping to reduce emissions reporting fraud. Chainlink’s decentralized oracles ensure external, origin-signed data is securely delivered to blockchain networks, where it can then be consumed by smart contracts to trigger real-world outputs and enforce environmentally sustainable practices.

Conclusion

Blockchain-connected IoT devices are poised to transform an array of industries, but to securely and easily integrate IoT devices with the rapidly growing blockchain ecosystem, a highly decentralized and flexible oracle solution is required. Chainlink’s time-tested and chain-agnostic oracle infrastructure has emerged as this critical bridge, already enabling a new wave of smart contract applications that are interacting with external inputs and realizing the potential for blockchain-based processes to bring fairness, transparency, and efficiency to the outside world.

If you’re a developer and want to connect your smart contract to existing data and infrastructure, visit the Chainlink developer documentation. For more in-depth integrations, talk to an expert.

More on This Topic

Website | Twitter | Discord | Reddit | YouTube | Telegram | Events | GitHub | Price Feeds | DeFi