The Internet of Things was conceived as an idea many years ago: an environment where nearly every object can interact as part of a digitally powered world. By 2016 there were more digitally connected devices that people living on planet earth, and within the next few years, that number will increase to somewhere between 20 and 30 billion. The Internet of Things (IoT) has become a reality, a reality which has been facilitated by developments such as cloud computing, artificial intelligence and machine learning.
But the financial world needed to keep up. The conventional method of fiat currencies – currencies that are backed by governments – such as the dollar or the euro becomes outdated in a digital world where devices are connected irrespective of borders and trading zones. Similarly, commodity money such as gold and silver is an antiquated method when it comes to this new cyber world.
Which is where cryptocurrencies have come to the fore. Cryptocurrencies, also known as digital or virtual currencies, and of which Bitcoin is the most famous example, operate in a similar manner to fiat currencies, but they exist only virtually. Cryptocurrencies allow for the payment of goods electronically, and of course are not subject to rates of exchange.
What, therefore, will be the impact on the IoT as a result of the growth in popularity of cryptocurrencies?
Cryptocurrencies will power micro-transactions
When lightbulbs are charged (financially) for being on, or your car needs replacement oil, or your fridge needs restocking, cryptocurrencies have the adaptability to be used to make these kinds of micro-transactions that form significant parts of our day-to-day costs. This is perhaps where cryptocurrencies have the biggest potential short-term impact on IoT transactions.
Blockchain will revolutionize security
Both real-world and virtual-world fraud are major limitations on the effectiveness of financial systems, and billions are spent trying to police and evolve systems which are less easily penetrated by criminals.
“The blockchain technology which powers cryptocurrencies promises to be the most secure system ever developed in terms of data transfer, and this could lead to full-scale implementation of cryptocurrencies within IoT technologies,” says Deborah Sudeikis, a tech blogger at Academized and AustralianHelp.
Blockchain can do more than that
And in terms of ledger detail transfer, blockchain could again be the answer. This technology has the power to facilitate a digital ledge consisting of every event occurring in the lifespan of a particular device, including non-financial transactions such as repairs and communications with other devices. From there, this information can be encrypted and shared safely, allowing a system which is, although not quite fool proof, the highest level of security system ever produced.
The limitations of cryptocurrencies
Cryptocurrencies do have their limitations, and most of them come, currently, from the failure to develop a centralized and regulated system that facilitates their widespread use. Before this happens, it is difficult to see cryptocurrencies becoming the main source of IoT financial transaction, despite their incredible durability and all the benefits that have already been mentioned.
“Economies of scale in terms of IoT and cryptocurrencies will only come from fully centralized control, and at the moment we are some way off that point. This is the major stumbling block facing full-scale cryptocurrency adoption for IoT-powered devices, although it remains the target says Mark Strange, a business writer at BigAssignments and PaperFellows.
Another stumbling block is a widespread public attitude. Cryptocurrencies have a bad reputation among large swathes of the general population, with many wary of the boom-and-bust nature of these digital currencies to date. Until cryptocurrencies become more stable, the general public will be risk-averse to adopting them for general use, and so they will remain a niche trading system that fails to penetrate the full IoT potential.
But ultimately, it will happen
Cryptocurrencies and the IoT go together like fish and chips, jello and ice cream or any other famous pairing you care to mention. Their similarities and characteristics are just too closely aligned for them not to work together eventually, as ultimately both are borne of the new digital millennium, and will work together to leave the old order behind. It has already begun.
Ellie Coverdale is a career writer with Ukwritings and Boomessays. Among other skills and interests, Ellie enjoys sharing her job hunting, professional development and wellness tips with her audience. Ellie also teaches writing classes at Essayroo.