Distributed Ledger Technology (DLT): 7 Benefits for IoT Applications
With billions of devices projected to come online in the coming years, deploying IoT solutions at scale will have to address complex issues of security, connectivity, and cost. Distributed ledger technology (DLT) is one of the technologies that can help enterprises as they grow their IoT solutions to scale. In this article, we define DLT and look at 7 benefits of DLT to IoT.
The Internet of Things (IoT) is still in its infancy, but various forecasts predict there will be more than 75 billion connected devices by 2025. According to MachNation forecasts, worldwide IoT revenue will grow from USD325 billion in 2019 to USD845 billion in 2026 at a compound annual growth rate of 15%.
Today’s IoT solutions generally rely upon centralized server-client methods of administering connectivity to various devices and services. For now, this is an efficient method of providing most companies with the IoT solutions they need, but what happens when billions of devices all begin connecting simultaneously and individual IoT solutions scale to production levels? In this article we define DLT and look at the ways this technology can address some of IoT’s biggest challenges.
What is a Distributed Ledger?
Using ledgers for record keeping is as old as currency and accounting itself. Despite the burgeoning variety of technically complex DLT, the good news is that the core architecture is not that difficult to understand.
A distributed ledger is a database that is spread across different locations sometimes called nodes. Changes to a distributed ledger require multiple instances of authentication by these nodes. Once a ledger entry is validated by a majority consensus of the nodes, ledger entries cannot be altered. Distributed systems use a connected network of devices and databases to share authority with each node. This creates shared accountability and the pooling of resources to manage the ledger.
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Conversely, a centralized architecture relies on a single point of security and authority over the underlying database. Most organizations today utilize this type of centralized database housed in a fixed location with single-level authentication. These types of architecture can increase security risks and connectivity bottlenecks, especially for IoT deployments at scale for certain types of solutions that send high volumes of data to the cloud.
Is DLT the same as Blockchain?
Yes and no. The rising popularity of cryptocurrencies like Bitcoin has made Blockchain a buzzword that is often confused or equated with DLT. A distributed ledger is simply a database that is stored across multiple systems, regions, or devices. In that regard, Blockchain is a type of DLT with distinct differences. In particular, DLT does not stipulate that the data structure be organized into containers (blocks) or that a proof of work be required to process changes to the ledger like Blockchain.
Benefits of DLT in IoT Applications
There are 7 primary benefits of DLT to IoT applications. These benefits are particularly pronounced in at-scale IoT deployments, but are certainly relevant for all types of IoT solutions. Below we discuss these 7 primary benefits – security, device management, cost savings, reduced connectivity bottlenecks, smart contracts with automatic action execution, audit trails, and increased data reliability.
Implementing a distributed network into an IoT ecosystem has innate structural security benefits. Centralized networks create a single point of failure for all connected services, while devices on a distributed network are more autonomous and not reliant on a core system. Any malicious attempts to alter or attack a distributed database would require penetration of a majority of connected nodes, out of potentially thousands, making it virtually impossible to hack.
Security is an area within IoT that could potentially benefit from enabling certain aspects of blockchain that sets it apart from traditional DLT. As a cryptographically based technology, each block in a blockchain data structure is secured with an algorithm designed to prevent data augmentation. This component is utilized in cryptocurrency exchanges today to ensure the trustworthiness of financial transactions.
Utilizing a distributed architecture with DLT that enables devices to communicate directly with each other will enhance the capabilities of device management. By connecting peer-to-peer (P2P), rather than through a central broker, actions like issuing software patches, firmware updates, and security fixes can be disseminated in a highly controlled, streamlined fashion.
By operating in a shared P2P economy, as changes to the database are processed, each participant node on an IoT network uses its own processing power to validate each request. With potentially hundreds or thousands of connected nodes contributing compute power to handling a single request, this has significant cost saving implications for companies spending large amounts of money to maintain, update, and secure a centralized service.
Reduced Connectivity Bottlenecks
While the server-client model of IoT may currently suffice, the volume of data being collected and transmitted in the future might outpace a centralized service’s ability to process it. Platforms like Microsoft’s Azure and Amazon’s Amazon Web Services have already begun to deploy distributed cloud architectures to address load issues, however, for IoT companies that do not rely on cloud infrastructure or want to take advantage of P2P communications, the issue of connectivity bottlenecks is an inevitable challenge at scale. For some IoT solutions, particularly those spread across a large geographic area, the P2P connections afforded by DLT may be the most cost-efficient and effective method for mitigating service latency.
DLT benefits IoT solutions that rely on smart contracts. Smart contracts are a computation protocol that, when predefined conditions are met, automatically carry out a specified action between connected applications. For example, consumer products like air conditioners might use smart contracts to carry out an automatic command to notify the manufacturer that maintenance is required when performance monitoring is reading outside normal levels. Another example is the tracking of goods along a supply chain that might update a record after a barcode has been scanned (e.g., UPS or DHL package tracking).
One of the main benefits of DLT is the immutability of its ledger and the ability, therefore, to audit all events in the ledger. Changes to the ledger that have been successfully authenticated cannot be deleted or modified: this ensures the accuracy and security of the record. This valuable aspect of DLT is of particular benefit to IoT solutions that concern financial transactions or involve multiple parties along the supply chain.
For organizations using IoT solutions to collect and analyze key performance indicators (KPIs) that require enhanced security, DLT is an obvious benefit. As changes to a distributed database are required to undergo multiple levels of DLT validation, the risk of inaccurate or junk data being consumed for analytics is greatly reduced. Having highly reliable and secured data is particularly important for IoT solutions that span a supply chain including connected logistics, connected construction, and others.
IoT is still in its nascency, but all indicators signal exponential growth in the years to come. As the spectrum of IoT applications continues to rise, so will the challenges of that growth. DLT allows enterprises to create IoT solutions that provide added security, device management, cost savings, reduced connectivity bottlenecks, smart contracts, audit trails, and increased data reliability.