IoT meets Blockchain: A perfect match

The IoT practice of Deloitte Germany and the Deloitte Blockchain Institute collaborated with the Hochschule der Medien (HdM) to develop a new showcase, bringing both IoT and Blockchain closer together.

True to the motto “Don’t tell, Show me”, the IoT practice of Deloitte Germany and the Deloitte Blockchain Institute met at the Digital Factory in Dusseldorf to combine these cutting-edge technologies. They were supported by HdM students who built a condition monitoring case as a student project. There, sensors are periodically sending data to a Blockchain. 

Blockchain and IoT?

Blockchain – a technology platform combining distributed databases, algorithms and cryptography is more than just exchanging money peer-to-peer like with the cryptocurrency Bitcoin. Instead, it can be used for registering, inventory and exchanging all tangible and intangible assets worldwide without the need of an intermediary. The Blockchain technology enables one single version of truth and thus built-in-trust as all participants of the network have access to the same data at all times and can view every single transaction.

This offers tremendous potential for future IoT applications as the Blockchain technology can be leveraged to fully enable the authentication of IoT devices.  As a result, (connected) devices are able to communicate securely without the need to transfer IoT data to a central data center and/ or central authority. Thus, reducing the risk of a single point of security failure. Common problems with downtime or unresponsive devices due to server delays can be solved as IoT devices can create peer-to-peer connections to build trust. Also data is not stored centrally anymore. Furthermore, all data stored in the Blockchain is encrypted and virtually impossible to hack due to the security infrastructure Public Key Infrastructure (PKI). There the public key is used to encrypt data in a way that only the key pair owner can decrypt, using the private key and vice versa. In addition, data cannot be manipulated easily since the hash from the data in a Blockchain is created from the data inherited from the previous block, which makes it impossible to make subsequent modifications without damaging the integrity of the entire system. In sum, a distributed ledger system as Blockchain can easily provide IoT device identification, authentication and seamless secure data transfer worldwide without the need of a central data center.

Developing the showcase

At first, all participants of the workshop had the chance to visit the Digital Factory and to get in touch with different use cases that show how manufacturers can benefit from IoT in the daily business, simulated with a lean production assembly line.

Surrounded by such an innovative environment, the team brainstormed on how to integrate the Blockchain technology into the Digital Factory most effectively. The goal was to make the rather complex Blockchain technology as “touchable” and understandable as possible while highlighting the great advantages of the symbiosis between IoT and Blockchain. The team agreed on the Lego case where Lego diggers are produced in a lean environment, utilizing an IoT solution. In the beginning of the assembly line, the user configures the digger via CPQ – a cloud configuration tool. After, the order is subsequently and automatically fed into the production via the manufacturing execution system (MES) and once on the assembly line, RFID technology enables a simultaneous tracking of the product and the support of the worker. But to date, the user/ worker trusts that the delivered work pieces for the digger are original parts and has limited opportunities to prove the authenticity of the individual work pieces (i.e. lack of trust).

Benefits for the client

The end-manufacturer of – for instance – a machine or in this case of a Lego digger should be able to rely on that the delivered work pieces meet the quality requirements and are original parts. In reality, it comes increasingly to the delivery of counterfeit components or even factory second, leading to the stop of a planned production in worst case, cases of damage and tremendous costs. How does the client (i.e., Lego digger manufacturer) know that the individual work pieces are originally from the first-tier manufacturer? To date, the client can only rely on the word of the first-tier manufacturer and certain seals that can be imitated easily. Blockchain technology can save the authenticity of individual work pieces without any trust needed between the client and the first-tier manufacturer (and beyond). By requiring the first-tier manufacturer to attach RFID tags including a unique identifier on construction parts (e.g., the bottom plates) and also, immutably writing the containing information in a Blockchain, the subsequent producers or clients can read out the RFID tag and check, again using the Blockchain, whether the present product was legitimately produced and what’s its origin is. Consequently, the client is able to determine if this single work piece is originally coming from the manufacturer and can keep counterfeit product components out of production and service chains.

The new showcase also allows to add new Blockchain “features” in the future as for instance smart contracts that self-execute a payment autonomously when a certain trigger event has happened and/ or the holistically track-and-trace of the supplier pyramid.

With the integration of the Blockchain component in the hard- and software infrastructure of the factory, clients are able to benefit from the technology on an operational as well as strategic level.