The hype surrounding blockchain, the latest technology promising to upend the business world, seems matched only by the attention paid to another hot topic: the Internet of Things (IoT). Amid the noise, business leaders need to determine if experimentation that combines these two early-stage technologies can yield a sustainable competitive advantage.
In this joint study by The Boston Consulting Group and Cisco Systems, our aim was to better understand how blockchain is being used by businesses building a distributed IoT network. Our research shows that only a small subset of companies have started down this path, and most of those experimenting with blockchain and IoT are still in the proof-of-concept phase. Still, already it’s clear that these nascent technologies, if paired together, can disrupt a variety of business sectors.
As invariably happens with new technologies, hype helped define the early days of IoT. Investments in IoT have skyrocketed over the past two to three years but lag original estimates. According to a February 2018 IDC study, projected spending on IoT is expected to hit $1 trillion in 2020, which represents a robust, four-year compound annual growth rate (CAGR) of roughly 15%. It falls short of a December 2016 IDC projection, however, that forecast a market size of $1.29 trillion.
This shortfall reflects a healthy recognition of reality. Several factors have inhibited IoT’s growth, including a lack of technical standards, antiquated business and market structures, cultural issues, technological complexity, and security and privacy concerns. To address some of these issues, companies are turning to blockchain.
Our findings show that there’s a select subset of IoT-related applications for which blockchain is a perfect match. Generally, these blockchain-with-IoT use cases can create incremental value if they exhibit one or more of the following characteristics:
We identified more than 35 use cases of companies using blockchain with IoT and organized them into five categories: operations tracking and visibility, provenance and authentication, autonomous machine-to-machine interactions, service-based businesses (such as smart locks, smart vehicles, delivery, car leasing), and data monetization (consumer goods usage data, health data, and environmental conditions, including weather and pollution). (See Exhibit 1.)
Most of the applications we identified are still in the proof-of-concept phase, if not still on the drawing board. Our analysis shows that only around 25% of the use cases we examined had completed the proof-of-concept phase.
Progress varied across the applications. In two of the categories, participants expected to launch an enterprise-grade rollout in the subsequent 12 to 18 months. The first is operations tracking and visibility, where 60% of the applications were ready for production. The second is provenance and authentication, where 33% of the applications seemed ready for production. In the remaining three categories, scaled rollouts appeared likely to occur over the longer term. (Two more articles about blockchain with IoT are forthcoming. One involves track and trace in supply chains; the other concerns preventing the sale of counterfeit goods.)
Our research shows that the automotive and consumer industries are ahead of others when it comes to working with blockchain and IoT. Following close behind are health care, tech and telecom, and industrial goods. Nearly one-third of the deployments we identified are applicable across multiple industries. The remainder are industry specific.
Blockchain with IoT can drive value for enterprises. (See Exhibit 2.)
Here are three ways:
We expect that adoption of blockchain with IoT, and the resulting economic value, will occur in two phases, as has happened during other technology evolutions. In the short run, improvements in existing processes will drive value through cost reduction and risk mitigation. The long run will offer richer possibilities through revenue enhancement. We anticipate new business models emerging and see the potential for any number of new revenue streams.
We’re still in the early days of blockchain, and IoT is only now moving into the mainstream. Although pairing the two offers great potential, key challenges are likely to slow adoption:
The following are some of the critical questions to consider if your organization is considering a blockchain-with-IoT solution:
In the short run, the combination of blockchain and IoT will mainly focus on driving efficiencies inside companies and further automation of the paper trails needed to satisfy risk and regulatory requirements. Over the longer term, as both technologies mature, companies will use blockchain with IoT to develop and scale new revenue streams. Dynamics will shift as new business models materialize.
But the combination needs time to scale. In particular, blockchain needs time to mature and overcome some big obstacles—a lack of understanding as well as some technical and regulatory challenges—before it can achieve anything near its full potential and offer business leaders the solutions they need to drive significant economic value in their companies.