What are the Challenges of Adopting Blockchain in IoT?

The paramount technical challenge facing IoT is the ability to scale to meet service and
security requirements across a dynamic network of devices. These requirements aren’t
just precautions; they are foundational to running IoT in mission-critical, high-risk and
high [data] volume (sometimes low-bandwidth) environments, such as healthcare,
energy, transportation and beyond. management and analytics to the “edge,” where
compute occurs locally, instead of relying on cloud connectivity.

1. Scalability Issues Of Decentralized Blockchain Networks

IoT experts and developers want blockchain to secure IoT systems. Their interest in
blockchain stems from its security features. Naturally, they want the most robust security
that blockchain can offer.

Decentralized public blockchain networks like Bitcoin and Ethereum can offer the highest
decentralized security. These networks offer decentralization, transparency,
disintermediation, encryption, digital signature, cryptographic hash functions, and
consensus algorithms.

What if you dilute any of the above-mentioned attributes? You still have a blockchain
network, however, its security will not match that of Bitcoin or Ethereum.

The high level of decentralized security offered by Bitcoin and Ethereum comes at a cost
though. The “Proof of Work” (POW) requires the participation of all miners in the
transaction validation process. This slows down the transaction validation process. The
more the Bitcoin and Ethereum networks grow, the higher will be the scalability
challenge.

IoT networks are very large. They will become far larger in the future. At the time of
writing, IoT has realized a fraction of its potential. The size of IoT networks will grow
manifold as more organizations and entities use them.

Many IoT networks will have micro-payment transactions. By their very nature, these will
be numerous transactions of small amounts.
The network size and transaction volume make scalable solutions imperative in IoT.
Therefore, IoT developers will find it hard to use a fully decentralized public blockchain
network like Bitcoin or Ethereum.

2. Computing Power And Time Required In Decentralized Blockchain

Networks
IoT experts and developers require the best possible security from blockchain, and this
requires the “Proof of Work” (POW) consensus algorithm.

These networks have a process called “mining” for transaction validation. This process
uses the POW algorithm. “Miners”, i.e., transaction validators try to solve a cryptographic
puzzle.

The puzzle isn’t complex. However, it requires plenty of number-crunching at a fast pace.
Miners must use computers with high computing power. They need to run their computers
for long periods of time.

As a result, many miners run these computing-intensive processes for long periods of time
simultaneously. Computing-intensive operations and associated costs act as disincentives
for hackers.

Several other consensus algorithms exist. However, experts say that POW is more
secure than the other algorithms.

IoT experts and developers find a challenge here when integrating blockchain with IoT.
IoT devices often have low computing power. That makes the POW algorithm practically
unsuitable for them.

Note: Highly computing-intensive operations at a large scale increases the energy costs
of Bitcoin mining. In fact, Bitcoin mining consumes more energy than many countries.
High energy costs pose practical challenges in IoT-blockchain integration.

3. Storage Space, RAM, And Internet Connection Requirements In Integrating

Decentralized Blockchain With IoT
The decentralized network of transaction validators is a key reason why a decentralized
public blockchain like Bitcoin provides the best security to an IoT network. Observers
estimate that there are over 1 million individual Bitcoin miners.

Hackers can’t possibly manipulate the majority of this network. The Bitcoin network is
transparent too. Any effort at manipulation attracts immediate attention.
Bitcoin miners need to have the entire data on the Bitcoin network for transaction
validation. They need to run a full Bitcoin node. A Bitcoin miner needs at least 350 GB of
disk space to run a full node. Miners should provide at least 2 GB RAM, furthermore, they
should have a robust Internet connection.

IoT experts and developers find these requirements challenging. Many IoT networks have
devices with relatively lower disk space and RAM. Internet connections can be slow in
many cases. The integration of such IoT networks with a public decentralized blockchain
can be hard.

4. The Trade-Off Between Decentralized Security And Scalability As Seen In

The IOTA Cryptocurrency
IoT and blockchain experts know about the above-mentioned challenges. They try to
circumvent them by using different technology solutions. These solutions involve a trade-
off between top-notch decentralized security and other objectives like scalability and
performance. Some of these projects show considerable promise. However, they don’t yet
measure up to stringent security objectives. This is a challenge in blockchain adoption in
IoT.

Take the example of the IOTA cryptocurrency. It doesn’t use the kind of blockchain
technology used in Bitcoin and Ethereum. The IOTA project uses a technology called
“Tangle”, which is modelled after “Directed Acyclic Graph” (DAG).

Tangle doesn’t use blocks and chains. It uses a tree structure where multiple chains might
be intertwined with each other.

Tangle doesn’t use the POW consensus algorithm for transaction validation. IOTA
doesn’t require mining. Completing one transaction in Tangle requires validation of two
previous transaction.

IOTA offers better scalability than Bitcoin and Ethereum. You get a better performance
throughput, and the energy bill isn’t high. These would bode well for IoT systems.

However, experts find that Tangle isn’t as secure as the Bitcoin or Ethereum blockchain.
It can’t match the decentralized security offered by the Bitcoin network. Experts state that
hacking the IOTA network is considerably easier than the Bitcoin or Ethereum networks.

5. Security Risks Due To Smart Contract Bugs

IoT and blockchain experts would want to extend the capabilities of an IoT-blockchain
system. They would use smart contracts for that. The Ethereum project introduced smart
contracts. Smart contracts can offer efficiency by automating contract administration.
However, smart contracts can have security risks. This poses a challenge to blockchain
adoption in IoT.

Ethereum smart contracts are pieces of code that transfer cryptographic assets based on
predefined conditions. They run on the decentralized Ethereum network. Smart contracts
are open-source, autonomous, irreversible, and immutable. These characteristics of smart
contracts can help to automate contract administration.

While decentralized public blockchain networks are incredibly hard to hack, smart
contracts are programs that run on them. Any program can have bugs. However, smart
contract bugs can be hard to recover from. The 2016 Ethereum DAO hack was an
example.

The immutability of smart contracts prevents you from modifying them after deploying
them. You can’t fix bugs. Cybercriminals routinely look for common smart contract
vulnerabilities. They exploit them to hack the blockchain application.

Blockchain experts need to find tools, processes, and methods to review and test smart
contracts thoroughly. Adoption of blockchain in the IoT space requires defect prevention
in smart contracts.

6. The Lack Of Regulatory Clarity Over Decentralized Blockchains

Considerable regulatory uncertainties exist in many countries concerning blockchain. This
makes the adoption of blockchain harder in IoT systems.

Bitcoin, an application of blockchain became famous earlier than the underlying

technology. This decentralized digital currency is outside the control of central banks and
governments.

Monetary policy is closely related to the sovereignty of countries, and the national
currency is important to a country. This sets cryptocurrencies on a collision course against
governments and central banks.

Many countries explicitly ban cryptocurrencies. China, Bangladesh, and Egypt are a few
examples. Countries like Guyana, Kuwait, and Bahrain implicitly ban cryptocurrencies.
Several other countries allow cryptocurrencies.
Developers can use decentralized blockchain networks to create cryptocurrencies.
Therefore, regulatory strictures affecting cryptocurrencies affect such blockchain
networks.

There isn’t a uniform set of regulations in the world governing decentralized blockchain
networks. Enterprise blockchain frameworks like Hyperledger Fabric aren’t used for
creating cryptocurrencies, therefore, regulatory uncertainties don’t affect them.

However, enterprise blockchain networks can’t provide the kind of decentralized security
offered by the Bitcoin network.

7. Decentralized Blockchain Networks Can’t Comply With Certain Existing

Regulations
Blockchain projects tend to be complex since it’s a relatively new technology. Blockchain
integration with IoT can be even more complex due to the architectural questions. This
directly impacts the ability of organizations to integrate IoT with blockchain.

Both blockchain and IoT involve niche skills. Organizations often find it hard to hire
skilled developers for these technologies. Hiring can be an even bigger challenge in IoT-
blockchain integration projects.

The ecosystem of blockchain development tools is still work-in-progress. This compounds

the complexity of blockchain projects. Organizations need more skilled blockchain
developers and advanced tools for IoT-blockchain integration projects.

8. Complexities Of IoT-Blockchain Projects

Decentralized blockchain networks can’t readily comply with parts of regulations like
GDPR. GDPR requires organizations to allow modification and deletion of data.
Decentralized public blockchain networks don’t allow that.
Several regulations require privacy measures for sensitive data. Decentralized public
blockchain networks allow all participants to view all transactions. That’s another
example of regulatory non-compliance. IoT projects can use decentralized blockchain
networks only after the resolution of such regulatory issues.

What is Hyperledger Foundation?

Hyperledger Foundation is an open source community focused on developing a suite of
stable frameworks, tools and libraries for enterprise-grade blockchain deployments. It is
a global collaboration, hosted by The Linux Foundation, and includes leaders in finance,
banking, Internet of Things, supply chains, manufacturing and Technology. Built under
technical governance and open collaboration, individual developers, service and solution
providers, government associations, corporate members and end users are all invited to
participate in the development and promotion of these game-changing technologies.

Hyperledger Foundation Goals

Create enterprise Provide neutral, Build technical Promote our

grade, open source, open, and communities to Educate the public community of
distributed ledger community-driven develop blockchain about the market communities taking
frameworks and infrastructure and shared ledger opportunity for a toolkit approach
code bases to supported by POCs, use cases, blockchain with many
support business technical and field trails and platforms and
technology
transactions business governance
deployments frameworks

Hyperledger Pros and Cons:

Advantages Of Hyperledger Fabric: 1. Modular Architecture

Building an enterprise blockchain can be challenging. Developers need to spend a lot of time
in building the required components since the technology is still relatively new. Developers
devote significant energy to automate things at the protocol level. It’s not easy since there‘s
no single administrator. Fabric offers a modular architecture where developers can create
plug-in components. This is very helpful to developers. They can easily include components
like custom identity management etc., thanks to this feature. The need to include a custom
identity management system is a particularly common requirement. Many companies want to
build a permissioned blockchain but want to reuse their existing identity management system
for network participants. The modular architecture allows this.
The 2nd Advantage: You Can Use The Hyperledger Fabric To Build
Permissioned Blockchain
If you are building a blockchain for a business, you are likely building a permissioned one.
Businesses such as banks operating under stringent regulatory requirements can ‘t afford
unknown users to view transaction data. Besides, information is an asset to these enterprises
so unauthorized viewing is a risk to future financial profits. Fabric is a permissioned
framework. All participants have known identity which is validated against the organizations
‘identity management system. There are no anonymous or pseudonymous users.
Organizations using Fabric would typically use a ’Membership Service Provider‘ (MSP).
This is for issuing and validating certificates, and for user authentication. MSP is also called
Certificate Authority (CA) in Fabric parlance.

The 3rd Among The Pros Of Hyperledger Fabric: Performance And Scalability
There is no POW algorithm and crypto mining in Fabric, and it delivers high scalability and
fast transactions. Transaction validation mirrors how a transaction workflow operates in
normal enterprise and works as follows:

1. The transaction processing has 3 separate phases:

1. Distributed logic processing and agreements involving chaincodes;
2. Transaction ordering;
3. Transaction validation and commit.
2. This ensures fewer levels of trust and validation across different types of nodes, thus
reducing overhead;
3. A transaction lifecycle is as follows:
1. A requester submits a transaction proposal to an endorser;
2. The endorsement policy specifies the number and combination of endorsers
required for this transaction;
3. The endorser executes chaincodes to simulate the proposal to the peers through
a ’read/write set‘;
4. The endorser sends back the signed proposal responses, also called
’endorsements‘;
5. The client submits a transaction to the orderer with digital signatures;
6. The orderer creates a block of transactions and sends it to the peers;
 7. The peer checks whether the endorsement policy was met and checks for
conflicting transactions. When both checks are successful the peer commits the
block in the ledger.
Only signature read/write sets traverse the network, that optimizes scalability and enables
performance. Only endorsers and peers committing transactions actually see these
transactions, hence confidentiality of data is optimally maintained.

The 4th Advantage: ’Channels‘ For Partitioning Data

Take the case of the financial services sector, where some investment instruments can take 10
or more years to deliver the desired returns. This means that the data concerning such
instruments must remain confidential for a decade or more. Banks and financial institutions
aren‘t confident that data encryption technology used in blockchain or any other technology
for that matter can protect their sensitive data for that long. They are aware that hackers are
continuously upgrading their capabilities. Financial services companies are keen on
physically separating their sensitive data to protect them. ’Channels‘ in Fabric provide a data-
partitioning capability that achieves this physical separation of sensitive data.

Rich Querying Capability Is The 5th Among The Pros

With every update of distributed ledger solutions, a set of asset key-value pairs are also committed to the
ledger. The file system of Fabric incorporates LevelDB, which is very suitable to query functions.
LevelDB has a key-value database and enables keyed queries. There can also be composite key queries
and key range queries. You can also optionally add CouchDB, which has a document database where
content is stored as JSON. This makes the database very easy to query. Using JSON eliminates the need
for frequent changes to the application just to facilitate querying. CouchDB also supports data-rich
queries.

Hardware-Based Protection Of Digital Keys Is The 6th Advantage Of

Hyperledger Fabric
Fabric features a ’Hardware Security Model‘ (HSM) that helps in safeguarding and managing digital keys
used for authentication. For use cases such as identity management, HSM increases the protection of keys
and sensitive data.

The 7th Advantage Is The Rich Community Support

There are many member organizations involved in the Hyperledger consortium, including Oracle,
Deloitte, Huawei, JP Morgan, ABN-AMRO, ANZ, and Aetna. This is one of the richest development
communities going. Coming from such a diverse set of organizations, each of which have significant
expertise both in blockchain technology as well as their primary ’Lines of Business‘ (LOBs). The
combined might of the community is expected to pay a rich dividend to Fabrics‘ future development
roadmap.

The Disadvantages Of Hyperledger Fabric:

Two obvious disadvantages of Fabric are both related to the framework being quite new. These are:

1. Lack of proven use cases;

2. An inadequate number of skilled programmers able to use it.

Considering that Fabrics 1.0 was released only in July 2017, the above disadvantages are expected. The
project team is aware that addressing these challenges will take time.

Perceived Disadvantages Of Fabric

There are those in the crypto community who consider Fabric to have fundamental disadvantages.
However, this is debatable. These crypto community members insist on fully decentralized and
completely open blockchain. Nothing less meets their standards.

Below are their concerns with Fabric, and the counterpoints from supporters of Fabric:

1. Critiques argue that Fabric is permissioned, and therefore not a public blockchain. This doesn‘t
allow complete transparency in hyperledger projects. Supporters of Fabric say that it will be used
in business-to-business (B2B) and business-to-consumer (B2C) contexts that demand trusted
participants only. This removes the possibility of using a permissionless blockchain.

2. Critiques don‘t find the consensus algorithm in Fabric as secure as POW. However, supporters of
Fabric argue that in a network where all participants have already been verified using an internal
identity management system, a costly algorithm like POW isn‘t required.

3. Critiques argue that without a crypto token, there will not be an incentive for nodes to keep the
network as secure as miners do in the Bitcoin network. Supporters point out that there will be no
anonymous transactions in the network, hence, POW and an expensive mining process isn‘t
necessary.

4. Critiques claim that there won‘t be real immutability without POW. Supporters agree that
complete immutability isn‘t possible in Fabric since it doesn‘t employ POW. But they also point
out that in a network with known participants, all bound by the governance and code of conduct of
the business organization, a ’tamper-evident’ system is needed, and not a ’tamper-proof’ one. The
cryptographic hash will be different if someone tampers with data. In Fabric, checking the hashes
will reveal if tampering was done, and that will allow organizations to start the necessary
corrective process.