Looking at the challenges of blockchain from the development history of the Internet of Things

In CoinDesk’s 2016 special edition, Hudson looks back at the dilemmas facing Internet of Things (IoT) innovators since the 1990s – a revealing story for blockchain…

In 2009, Satoshi Nakamoto released the first Bitcoin node, and five years later, blockchain has become a huge industry.

Although it seems that the new era of business based on blockchain is only one step away, in 2016, we have realized that the blockchain industry will not succeed so quickly.

Early enthusiasm for new technologies is usually nothing new; but the usual pattern is that people are often excited by claims that the new technology solves a series of old problems, followed by crazy hype, which then fades, gives way to skepticism, and finally real valuable applications emerge.

In the late 1990s, the idea of ​​the Internet connecting every electronic device seemed inevitable to everyone:

Every vending machine, coffee pot, toaster, refrigerator, microwave and television will be connected to the network, and the utopian sharing of data will change everyone's life.

But the reality is somewhat different from what we now call the "Internet of Things" or IoT.

>It's all about money

The original theory of the Internet of Things was that data would make everything better: a microwave could scan cooking instructions so nothing went wrong, a refrigerator could order new milk, etc. Automation would greatly free up owners of these appliances to do other things.

Unfortunately, this theory did not come true.

Adding Internet connectivity to devices is never free. In most cases, these appliances are small, low-CPU devices with no external connectivity, so connecting them to the Internet is just a waste of money.

In the 20 years since the original idea, little has changed.

Let’s use the microwave oven example: A microwave oven only requires a simple IoT hardware design, so perhaps only adds $5 in parts cost. The first problem is that when we divide the profits between the company that makes the circuit board, the company that produces the microwave oven, and the retailer that sells it, $5 becomes closer to $15!

The next problem is that new hardware for the microwave oven is not enough. We need to make it know how long it takes to communicate with the server and at what power level each new type of refrigerated pizza needs to be cooked. This means that service providers, development and maintenance teams, software engineers, and business developers need to convince pizza manufacturers to provide detailed pizza baking instructions for each new product they launch, and these infrastructure investments may increase our costs by $10.

> Good ideas

Smart devices are a bit like smart contracts:

They are great when they work properly, but not so great when people make mistakes. The vision of the Internet of Things in the 1990s was based entirely on wired networks for connectivity, but then we entered the Wi-Fi era and wired networks may disappear.

Anyone who knows the technology knows that microwave ovens and 2.4 GHz Wi-Fi don't play well together; similarly, 5 GHz Wi-Fi and solid walls don't play well together.

While our IoT microwave might be connected to a home router and work well in 95% of homes, it might not work reliably in the other 5%; and IoT software reliability tends to be low, while the microwave hardware might work well.

If there’s a problem with one of these home devices, customers tend to get angry and call the manufacturer to complain (which means more costs), they return what they consider to be “bad” devices, they leave negative reviews on Amazon, and they vow not to buy from that brand again.

The idea of ​​a smart microwave might still look great in a PowerPoint slide, but the details surrounding the product turned a great concept into a hassle that didn’t even make back the cost of installation, the $50 to the user, and the manufacturing costs.

> Same old story

We think that the application of blockchain will face the same challenges and difficulties.

First, not every problem requires blockchain as a solution. Blockchain is expensive in terms of processing, storage, and replication technology. In the application scenario of distributed cryptocurrencies (such as Bitcoin), blockchain-like technologies are very good and feasible solutions, but for other problems, we need to seriously consider whether the technical characteristics of blockchain can realize its due value.

If the home microwave isn't a good option, then maybe the refrigerator is? Home appliances have many of the same problems as microwaves, but what about commercial refrigeration? If we connect these devices with the internet, can we avoid huge losses when they fail?

Large industrial cold storage facilities may store hundreds of thousands of dollars of refrigerated goods. Perhaps it is a valuable idea to detect interruptions in monitoring signals in time to avoid inventory losses?

These numbers may look very tempting, but here's the thing: it's an old story from 25 years ago.

While they may not fit our vision of the Internet of Things, companies have already found ways to connect these devices.

This example may have additional value: Food storage is generally subject to legal regulatory requirements, and many countries require that records of product storage temperatures be kept for review.

Without the network, someone would need to manually record the temperature every few hours, which is costly and error-prone. Commercial refrigeration equipment also includes service companies and manufacturers who provide field repairs, so we have more stakeholders for whom access to operational data is also important.

A naive view of this problem might overlook the risk that unexpected stakeholders introduce unexpected costs and may resist changes that do not bring them substantial benefits.

The situation with blockchain is actually very similar.

If a problem is already being solved, then even if a blockchain might be useful, we need to ask if it provides enough added value? Do we need to know what all the problems are, including those that may not be clear unless we are experts in the field; Are there stakeholders such as network architects, security experts, data architects, development teams, etc. who must change the existing system to adopt a new architecture? Are there analytical needs for big data, relational, graph or time series and views of any business data in operation?

> Forever is a long time :)

Putting aside for a moment the specific uses of IoT, it’s worth considering what are the important characteristics of the devices we expect to become smarter and more connected.

Most of our connected devices are replaced very quickly. Vendors provide after-sales service for a few years, but then expect users to discard them and buy new ones.

The problem is that we don't do this with most of our home appliances. We usually only replace them when they break, and by making them connected to the internet, we're introducing a whole new replacement paradigm.

The question is how do we keep old appliances working properly? Often manufacturers don’t make any extra money from devices once they’re sold, so what’s the incentive to continue providing software updates once they’re out of warranty?

Another problem is that even if we want to update and fix them, it may not be economically feasible: older devices do not have powerful hardware capabilities to support new features.

The final problem is that our manufacturers may not have considered what to do with the equipment after it is damaged.

Recent botnet incidents have certainly highlighted the potential risks of these issues, but how many toaster manufacturers have the security technology level to ensure that an IoT device can withstand advanced adversaries such as cyber hackers?

These are all governance issues: How will our IoT devices, once installed, continue to operate stably and avoid becoming a problem point?

> Deja vu problem

A similar problem with blockchain is again in the spotlight.

We’ve all seen news about the governance of the Bitcoin and Ethereum networks in 2016, particularly issues with the design of user-facing business rules.

For example, in the case of Bitcoin, miners strongly opposed block expansion in order to maximize mining profits; the DAO hacking incident in Ethereum caused participants to break the bottom line rules of the blockchain and recover their investments through a hard fork network.

How do we analyze and solve these types of governance problems when we think about deploying blockchains to other types of applications? If we think about systems that may continue to run for many years, what is the point of keeping the blockchain immutable indefinitely? How can we correct for various problems caused by user errors? What are the forces that incentivize participants to make the system work properly?

In the case of commercial deployments, what are the potential impacts of implementing system updates and upgrades in an organization with different business rules of priority?

> A new hype?

Looking back at the history of the Internet of Things, we may be a little hesitant. There are too many unanswered questions here, but this is by no means a failed war story.

Twenty years ago, internet radio stations barely existed, TiVo had yet to produce a set-top box, and the idea of ​​4k video-on-demand streaming was a distant sci-fi dream.

Twenty years later, designers have built new user experiences leveraging advances in hardware processing power, power management capabilities, wide area networks, wireless networks, storage capabilities, display technologies, and distributed cloud storage.

Today's smart TVs and smartphones have almost no trace of the early CRT TVs and mobile phones, but they all have one clear boundary: the desire and idea of ​​interconnection.

The era of the Internet of Things has arrived, but it is far less than expected.

The business empire based on the concept of VHS tapes and DVDs will be replaced. Users get more content, pay less, and the convenience is significantly improved; IoT technology is not used in isolation, but combined with multiple technologies to solve practical problems for the final paying users.

This is also one of the challenges facing blockchain.

Commercial refrigeration systems have also changed. Internet connectivity is certainly more sophisticated than the primitive methods used 20 years ago, and therefore replaces earlier designs when they reach their natural refresh cycle. Similarly, more mature and powerful blockchain designs may well have the opportunity to replace other technologies in the future.

Bitcoin represents the first solution provided by blockchain technology to a well-defined problem: decentralized electronic cash. As with many first-generation technologies, its ultimate success or failure will depend on its ability to solve these problems.

The challenges for other blockchain technologies may be similar, but they will not be exactly the same.

Blockchain technology will be used to identify and solve the hardest problems we know of, but we know there is still a long way to go on issues such as security, privacy, deployment, and governance.

At the same time, we must avoid falling into the beautiful temptation of blockchain. In some areas, blockchain is not the best solution.

If we can do this, 2017 should be the year blockchain hits the road to success!