Blockchain and Smart Contracts for Internet of Things: A Systematic Literature Review

Anup Dhakal

International School of Software, Wuhan University, China

E-mail: anup.dhakal@whu.edu.cn

KEYWORDS: Internet of Things, Blockchain, Smart Contracts, Decentralized Ledger Technology, Peer-to-peer security,

ABSTRACT:

The Internet of Things (IoT) has the potential to change the way the world works. From home automation to smart cities, improved
healthcare to a good supply chain management system, IoT is increasingly becoming a reality today. Nevertheless, there are still
many challenges in IoT space that needs to be fixed. This is mainly due to the cost and complexity of IoT solutions, existing issues
regarding security and privacy as well as due to the lack of proper sustainable future plan. In order to support the growing number
of connected devices, the IoT is in a dire need of reboot. Recently, the Blockchain technology has garnered much attention in IoT
space. Despite starting as a decentralized financial solution in the form of Bitcoin, Blockchain technology possess many use cases
which can be used in most diverse areas of Information Technology. The security and privacy issues of IoT can easily be fixed by
incorporating Blockchain technology in the IoT solutions. With the integration of Blockchain and Smart Contracts in IoT solutions,
the Internet of Things world will be significantly improved in different aspects such as, decentralized system (no central governance
to control the system), facilitating interactions, new and improved transaction models, and autonomous coordination of the devices.
The goal of this paper is to showcase the challenges and problems we are facing with current IoT solutions and analyse how the
use of Blockchain and Smart Contracts can help achieve a new, more robust IoT system. Finally, we analyse some of the many
projects using Internet of Things together with Blockchain and Smart Contracts to create some new solutions that are only possible
by integrating them together.

1. INTRODUCTION

Internet of Things is an evolution of mobile, home and
embedded applications that are being connected to the
internet integrating the greater compute capabilities and
using data analytics to extract meaningful information.
Billions of devices will be connected to the internet, and
soon hundreds of billions of devices. As related devices
connected with each other they can become an intelligent
system of systems, and when these intelligent devices and
systems of systems share data over the cloud and analyse it,
they can transform our businesses, our lives and our world
in countless ways, whether it’s improving medical outcomes,
creating better products faster with lower development costs,
making shopping more enjoyable, or optimizing energy
generation and consumption. (Li 2015)
Here’s an example of the big picture. Imagine an intelligent
device such as a smart traffic camera, this camera can
monitor the road for congestion, accident, and weather
conditions and communicate that status to a gateway that
combines it with data from other cameras creating an
intelligent citywide transportation system.
Imagine that intelligent traffic system connected to other
citywide traffic system and that intelligent traffic system
connected to other citywide transportation systems that get
data from their own intelligent devices, creating an even
larger system of systems. Let’s say the city’s intelligent
traffic system detects massive congestion due to an
accident. That insight can be sent to the citywide
transportation system which can analyse the accident impact
on other city systems. Recognizing the accident is near the
airport and two city schools, it could notify those systems so
they can adjust flight and school schedules. It can also
analyze and derive optimal routes around the accident and
send those instructions to the cities digital signage systems
to guide drivers around the accident. That’s just one example
of the potential benefits that can happen when intelligent
devices share insight with other systems, forming ever
expanding systems of systems.
With the IoT, various devices will autonomously exchange
(meaningful) information, targeting to improve our daily life,
making at the same time the boundaries between the cyber
and the physical worlds even more blurred. (Ashton 2009)
1.1 Internet of Things Challenges
With the evolution of this fascinating technology, it also
brings some challenges that cannot be solved by using
technologies designed for “traditional” internet.
Nevertheless, overcoming these challenges is a decisive
factor that may determine whether the IoT will eventually
prevail or not and to what degree. (see Figure 1) (Pureswaran
and Brody 2015)

Figure 1: Existing challenges with The Internet of Things
The Cost of Connectivity Challenge
The high infrastructure and maintenance costs associated
with large server farms and centralized clouds results in
prohibitively expensive IOT solutions. It is unlikely that
companies will have a good profit margin because of several
years of support and maintenance required for even the
cheap IOT devices. This cost of supporting and serving
billions of smart devices - even something as simple as
maintaining servers and releasing software updates. (Gubbi,
et al. 2013)
The Security and Privacy Challenge
Most IOT solutions these days are provided by centralized
authorities, whether it’s government, manufacturers or
services providers. This can allow these authorities to gain
unauthorized access to collect and analyse user’s data.
Closed source (often described as security through obscurity)
approaches are being built in current system. But these
solutions are obsolete and newer approach of open source
(security through transparency) is required to scale IOT to
the next level. Although the open source systems may be
susceptible for exploitation and accidents, it is unlikely for
governments or other targeted institutions to collect
unauthorized users’ data.
The Sustainability Challenge
While the user tends to change their personal computing
devices like their smartphones and PCs every few years, it is
not the same case for other devices such as cars, houses,
refrigerators, door locks etc. These things are expected to last
for a long time after installed. In IOT world, the cost of
software updates and maintenance of the products that have
already been discontinued will weigh on in balance sheets of
the company.
In the following Section 2 an existing Blockchain and Smart
Contract technology is introduced with which we can
overcome these challenges mentioned in Section 1. Then, in
Section 3, we take a look on how the blockchain and smart
contract technology can help take IoT forward and analyse
the already existing projects and experiments that are using
these two technologies side by side to make the IoT world
more safe, secure, affordable and easier to adopt.
2. BLOCKCHAIN AND SMART CONTRACTS
A decentralized approach to IoT networking would solve
many of the questions above. Adopting a standardized peer-
to-peer communication model to process the hundreds of
billions of transactions between devices will significantly
reduce the costs associated with installing and maintaining
large centralized data centres and will distribute computation
and storage needs across the billions of devices that form IoT
networks. This will prevent failure in any single node in a
network from bringing the entire network to a halting
collapse.
2.1 The Blockchain Technology
The blockchain, underlying technology that powers
bitcoin, is an undeniably ingenious invention. It was the
brainchild of a person or group of people known by the
pseudonym, Satoshi Nakamoto. By allowing digital
information to be distributed but not copied, blockchain
technology created the backbone of a new type of internet
and the tech community is now finding other potential uses
for the technology, such as the vital role it can play in the
IOT world. (Advisor 2015)
A blockchain is a distributed ledger of transactions
maintained by a network of untrusted nodes. Each block of
the blockchain contains a list of transactions organized in a
Merkle tree; new blocks are added to the blockchain by the
miners. Blockchains are often referred to as a democratic
way of maintaining transactions as they rely on consensus
for confirming transactions and require no central authority.
We distinguish two types of blockchains: public and private
blockchains. (Swan 2015) (Greenspan 2015)
Figure 2: Centralized and Distributed Network
Public Blockchain
A public blockchain network is completely open and anyone
can join and participate in the network. The network
typically has an incentivizing mechanism to encourage more
participants to join the network. One of the drawbacks of a
public blockchain is the substantial amount of computational
power that is necessary to maintain a distributed ledger at a
large scale. More specifically, to achieve consensus, each
node in a network must solve a complex, resource-intensive
cryptographic problem called a proof of work to ensure all
are in sync. Two well known implementations of this type of
blockchains are Bitcoin and Ethereum. (BitFury and Garzik
2015)
Private Blockchain
A private blockchain network requires an invitation and
must be validated by either the network starter or by a set of
rules put in place by the network starter. Businesses who set
up a private blockchain, will generally set up a permissioned
network. This places restrictions on who is allowed to
participate in the network, and only in certain transactions.
Participants need to obtain an invitation or permission to join.
A well known implementation of this type of blockchain is
IBM’s Hyperledger.
Blocks: Each block is a structure consisting of a header and
a body. The header includes the hash values of the previous
and current blocks and nonce. The block data are searched
in the database using the index method (see Figure 3). Since
the hash values stored in each peer in the block are affected
by the values of the previous blocks, it is very difficult to
falsify and alter the registered data. Although data alteration
is possible if 51% of peers are hacked at the same time, the
attack scenario is realistically very difficult.
Figure 3: Blockchain Connection Structure
Mining: Mining is the mechanism that allows the
blockchain to be a decentralized security. It secures the
bitcoin system and enable a system without a central
authority. Miners validate new transactions and record them
on the global ledger also known as Blockchain. In Bitcoin
Blockchain, a block (the structure containing transactions) is
mined every 10 minutes. Miners compete to solve a difficult
mathematical problem based on a cryptographic hash
algorithm. The solution found is called the Proof-Of-Work.
This proof proves that a miner did spend a lot of time and
resources to solve the problem. As an incentive, Miners who
solved the cryptographic puzzle are rewarded with some
bitcoins or some transaction fees. (Industries 2016)
How A transaction is processed in the Blockchain?
The lifecycle of a transaction being processed is a set of
multiple processes. In the blockchain, someone initiates a
transaction. The transaction is then broadcasted to all nodes
of the blockchain. The miners will validate and verify the
transaction. The 51% of the miners in the blockchain have to
validate the transaction for the transaction to be added on the
block. Once the new block is mined by miners, the
blockchain is added to the existing Blockchain thus making
the transaction complete and permanent.
2.2 Smart Contract Structure
The initial release of smart contracts in Ethereum was
designed to give parties that don’t trust each other a way to
enter into an agreement, where they can be confident that the
transaction will unfold as they intend, and where they can
verify the status of the contract or transaction at any time
(See Figure 4). To achieve those design goals, the initial
smart contracts implementation didn’t follow the typical
patterns for application development. Specifically, it
included the logic, properties, and data in a single package,
essentially collapsing the business and data logic layers into
a single layer, which are then written to the blockchain. That
provides the immutability, deterministic execution and
transparency required in untrusted environments.
Figure 4: Smart Contract Structure of Ethereum
2.3 Blockchain Benefits
Blockchain can revolutionize many industries including
banking, education, voting healthcare, supply chain etc. And
blockchain’s key benefits can be defined as:
Decentralization: Lack of a central data hub is one of the
main reason why blockchain is so exciting. Individual
transactions in the blockchain have their own validity and
are authorized to enforce those constraints. The information
in the blockchain is distributed throughout the world on
individual nodes so that it is near to impossible for the
attacker to corrupt the data stored.
Efficiency: There is no involvement of middlemen to carry
out the transactions in the blockchain. It is done directly
between the two parties. The digitized information allows
the processing time of the transaction to be prompt. Added
is the functionality of Smart Contracts in which a action is
automatically triggered when the certain laid out criteria of
the contract is satisfied. This will greatly reduce the time and
the cost for the transaction to be processed.
Auditability: Each and every transaction of the blockchain
is recorded in a permanent sequence. Due to this inerasable
record of transactions, it provides the complete audit trail for
the life of an asset. This is essential especially in the cases
where there is a need to verify the authenticity of an asset.
Traceability: With the blockchain, it is possible to track the
lifecycle of the product, from the manufacturer to the
consumer. It is very advantageous to track the goods and find
out whether the products are counterfeit or real. With
blockchain it’s also possible to transfer the ownership of
certain goods or products from one person to another. There
is no need of trail of paper works. For example, a transfer of
ownership of car, land, house etc. can be done within the
blockchain without the need of paperwork and middlemen
involved.
Transparency: Lack of transparency in commercial
organization or in other business entities can sometimes lead
to distrust, work delays, and loss for the company as well as
the consumers. By providing complete transparency
regarding the transaction details of the commercial construct,
further trust and stable relationship can be developed among
the parties based on transparency rather than negotiation.
Security: The authenticity of the information stored in the
blockchain can be assured because the multiple nodes of the
network verify the transaction by using complex
cryptography. One of the most significant keys to unlock the
benefits of the Internet of Things is the assured information,
which is a closed look cyber autonomous process that links
actions to assets.
3. INTEGRATING IOT AND BLOCKCHAIN
TECHNOLOGY
Blockchain technology can be used to improve the security
of IoT applications in health care, smart cities, energy grids,
public safety, education, supply chain management,
education, and other similar application areas. Some of the
use cases, where blockchain technology can benefit IoT, are
discussed below:
Public Health – Counterfeit Drugs
The distribution and production of counterfeit drugs is a vital
and pressing worldwide issue. According to the WHO,
currently in developing countries the distribution of
counterfeit drugs is may be up to 30% whereas 10 percent of
all drugs in the world are counterfeit. By using blockchain
and IoT elements, the spread of counterfeit drugs can be
controlled. Each legitimate drug can be stamped physically
at the location of the production and an identifier to the
stamp can be recorded into the blockchain ledger. Forged
drugs can be identified, traced and eliminated easily because
they won’t have any record in the blockchain system. (Gupta
n.d.)
Smart City – Smart Homes
In today’s world, a home itself is a powerful computer, with
a plethora of household devices related to home security
systems (alarms, surveillance cameras, door locks etc.),
environmental control (Air conditioner, sensors), home
entertainment (audio/video equipment), and household
electronics (electronic lights, refrigerators, dishwashers,
washing machine etc.) are present.
All these smart home devices allow homeowners to observe
and control their home from a remote site. The information
coming from the network of devices is first sent to a central
server and only then presented to the homeowner on their
cellphones, tablets or computers. It is vital to secure this
information so that attackers can’t misuse this information.
The central server or gateway is not as secure as the
blockchain is. The security and privacy of smart home
systems can be achieved by using blockchain. The
communications between devices and control information of
the devices can be recorded in the distributed ledger as
transactions. Cryptography and hashing functions can
protect the confidentiality, integrity and authenticity of the
network of the network of IoT as well as with the addition of
time-stamp and proper encapsulation, a robust security is
ensured.
Software Updates – Software Updating of IoT Edge
Nodes
Edge devices in a IoT network have low, medium, and high
levels of computing power. Due to the increase of a system-
on-a-chip capabilities, edge devices are becoming smarter.
Some large devices like refrigerator can be equipped with a
powerful computing system whereas a small sensor might
have a small chip having adequate computing power. Thus,
if all the devices in the network have some form of
computing power, the functionality of the devices can be
reconfigured easily. Such devices can form peer-to-peer
networks and can directly communicate with each other to
share IoT service functions. Device parameters related to
functionality and device management can be downloaded
and update periodically.
Supply Chain Management – Smart Supply Contracts
The manufacturers create goods and services and delivers it
to the retailer under the rules written in contract. Such
interactions begin with inquiries from buyer, which leads to
contract negotiation between a seller and a buyer. The
shipping process begins once the contract is signed. This
may involve use of a local shipping agency, local port of exit,
custom officials, carriers, a distant port of entry, customs
services, a distant delivery agent, and finally the customer.
At each point, a sequence of messages and
acknowledgements is activated culminating in the customer
acknowledging receipt of the shipment. Current trading
policies on national and international trade also provide
details of the process of payment to the supplier. This chain
of events is well suited to be adapted to using blockchain
technology for the purposes of smooth, verifiable, and secure
supply chain management. All documents and events can be
recorded and verified at each stage by entering transactions
into or querying the appropriate distributed ledger.
Blockchain adoption in the IoT space can change the way
IoT edge devices exchange data in a trustworthy
environment, mechanizing and encoding transactions, while
safeguarding data exchanges and ensuring security of all
devices involved.
3.1 Case Studies
Here are some of the projects that are already combining
Blockchain Technology and Internet of Things to develop
new and viable solutions to existing problems:
Slock.it
Slock is where blockchain meets IoT. It is a decentralized
platform for renting/selling your physical goods. Airbnb
apartments become fully automated, parking spots can be
sublet on demand, vehicles can be sold or rented without
involvement of any middlemen. Slock.it bridges the physical
world and the blockchain by making smart contracts
enforceable: Slock.it has the potential to be the future
infrastructure of a sharing economy. (Slock.it 2015)
Filament
Filament builds blockchain hardware and software solutions
for IOT and hardware. The distributed blockchain
capabilities of Filament leverage open protocols so that
devices can process and record transactions independently
ensuring digital trust. Filament has built a Blocklet Chip and
a new trusted application software, currently in beta which
are designed to natively communicate with multiple
blockchain technology. A secure distributed ledger solution
is achieved through it’s software and the blocklet chip will
allow corporations and enterprises to streamline the process
of extracting the value of recording, monetizing data assets
on the sensors themselves. (Filament 2015)
Skuchain
Skuchain is a blockchain technology company catered to the
B2B trade finance and supply chain finance market. The
company aims to solve problems in the $18 trillion global
finance market, an industry that still relies largely on paper
for many processes. (Skuchain 2015)
Blockchain of Things
Blockchain of Things created Catenis Enterprise to facilitate
developers and organizations who wish to quickly integrate
Bitcoin blockchain capabilities into their software, devices,
systems, machines, sensors and other enterprise scale
applications. Catenis provides a layer that removes
technological difficulties and delivers ease of use
enhancements via standard web services for systems
messaging and end node security. Catenis allows
organizations to rapidly leverage the bitcoin blockchain for
enhanced security and reduced cost for global messaging and
device communications. Customers can quickly generate a
vast number of Catenis virtual devices. These virtual devices
correspond to the software application sand physical real
world systems they are used by. (Blockchain of Things 2015)
4. CONCLUSION
With Blockchain and IoT, empty-apartments, spare
bedrooms, houses, cars, or vacant conference rooms will rent
themselves out. Patents will license themselves. Our e-mail
will be able to charge spammers for each item received. The
applications are countless. The Internet of Things, when
integrated with blockchain will allow you to live in a smart
home, drive smart cars and practice smart medicine. In this
emerging world, users connect with smart devices using
secure identification and authentication, potentially
public/private keys, and they define the rules of engagement,
such as privacy, with other devices, rather than going along
with the rules of a centralized node or intermediary.
Manufacturers can transfer maintenance, ownership, access,
and responsibility to a community of self-maintaining
devices, future-proofing the IoT and saving infrastructure
costs, replacing each device exactly when it hits
obsolescence.
Blockchain and IoT are twin technologies that can benefit
from each other. They represent the biggest technological
disruption since the usage of transaction processing systems
in computing. The major innovation of devices and software,
it’s possible to bring transaction processing and intelligence
to all devices. Although there are some critical adaptability
challenges with the distributed systems, many researchers,
institutions, individuals are working tirelessly to solve these
issues and build a open source foundation for the
development of this technology.
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Blockchain of Things. The Ultimate Blockchain
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Filament. Enabling the Future of IoT. January 10, 2015.
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