From Collectibles to Connected Devices: How NFTs and IoT Can Transform Industries Together
The Internet of Things (IoT) is the foundational concept upon which the fourth industrial revolution (Industry 4.0) is being built. Essentially, it refers to the technical capability of small-scale devices (which could be anything from a machine, sensor, worker, raw material, cargo container, or even a smartwatch as an end product) that make up the various sectors of industry (regardless of whether they are in the production or service sectors) to communicate with each other at internet speeds. By giving micro units of objects the ability to communicate with each other at internet speeds, IoT is transforming the way we do business. With IoT, each micro unit of work can be tracked, and micro-level decisions can be made quickly and sometimes automatically. This communication infrastructure also paves the way for industries that can self-manage with the power of autonomous systems (such as AI-based decision makers + robot arms in production or AI-based chatbots + warehouse robots in service). This marks a new era of industrial efficiency and innovation.
On the other hand, Another one of today’s most popular technologies is blockchain, which actually has its roots in the 80s and was further developed by Nick Szabo’s famous paper in 1992, where he described the concept of “Smart Contracts” as self-executing contracts with the terms of the agreement between buyer (receiver) and seller (sender) being directly written into lines of code. In the late 90s, this concept combined with cryptographic proof technologies and led to the emergence of digital currency and distributed wallet concepts. Simply put, blockchain is a database technology that uses cryptographic principles to facilitate decentralized communication.
It’s not too difficult to see the connection between these two technologies when they are described side by side. Both IoT and Blockchain are centered on “communication”. According to our definitions, while IoT is primarily concerned with producing and outputing information, blockchain is focused on the secure transfer and storage of data. The intersection of these technologies presents numerous opportunities. In this article, I will explore the role that blockchain, particularly NFTs, can play within the context of IoT.
At its core, blockchain provides two things: validation of information and transfer & storage of validated information. While this process is not unfamiliar to us, as it is essentially a database infrastructure, blockchain distinguishes itself in three key ways:
- Decentralization: Traditional databases are centralized and owned by a single entity. In blockchain, all data can be stored in a decentralized manner, with ownership and validation rights equally distributed among all decentralized units.
- Transparency: Thanks to its decentralized structure, data can move transparently and without the need for authority approval between data structures.
- Permissionless and Easy Participation: Since there is no central authority, new decentralized nodes can be set up in a permissionless manner.
Today, database services enhanced by cloud technologies, have evolved to provide the storage and flow of data with near-flawless efficiency and in a completely integrated ecosystem with environmental devices. However, in cases where one or more of the distinctions above are required, blockchain can serve as a viable substitute to conventional database infrastructure. While there are additionaly hybrid solutions available that merge blockchains and traditional databases, it’s important to remember that we’re discussing this conceptually. Continuing on this level, in what situations might a blockchain be necessary as a database? A straightforward answer to this question is: “When parties without an unconditional trust relationship require a means of communication”. In other words, blockchain can be utilized to share data that needs to be transparently shared to the public or a specific community. To be even more specific:
- For example, in an agricultural insurance pool formed with the participation of farmers, it is possible to keep common and transparent accounts using blockchain.
- Or, two companies can transparently track and execute approval steps for logistics data shared between them on a private chain with equal ownership of the data.
- Or, communication between healthcare institutions can be maintained on the blockchain through medical data of all patients in a country.
When considering these examples with the power of IoT, use cases get even more interesting.
- Imagine in the first example, imaging systems and other sensors are installed in the regions where the fields are located, collecting climatic data, and this data is automatically transferred to the blockchain. In a system where communication is ensured with this transparency, the insurance premium payable from the common pool to farmers who have lost their products due to floods or frost can be automatically paid through a smart contract without the need for additional control by any authority (see Lemonade).
- Or, in the third example, imagine that devices producing regular blood sugar measurements for diabetic patients can write their data to the blockchain instantly, and this data can be transparently tracked by authorized parties such as personal doctors, hospitals, insurance companies, state institutions (see Healthnet).
There is a blockchain developed with the aim of expanding all these usage areas of IoT + Blockchain and establishing a connection between the real world and Web3: IoTeX. There are dozens of IoT-focused platform and device projects in the IoTeX ecosystem, and over 18K physical assets have been connected to Web3 through these projects. These projects include:
- Pebble device, which provides traceability to real world assets on Web3 by pushing the various sensor and GPS data it collects directly to the blockchain,
- UCam, a blockchain-based security camera,
- Healthnet, which aims to provide a security-oriented distributed storage infrastructure for medical IoT device data.
Stage of the NFTs
If we briefly define NFTs in relation to our topic, they can be described as a metadata format that can contain multiple pieces of information in written or visual formats within the blockchain. NFTs can be used in two main use cases:
- Verified Credential: They can be used as an unforgeable key function for the wallet they belong to, acting as a signature or an access card. In this way, authorization processes within IoT systems running on the blockchain can be ensured through NFTs.
- Dynamic Data Format: In accordance with the definition we have made above, NFTs can be directly used as a metadata format that contains data in different formats. With Dynamic NFTs, this data can be updated dynamically according to various situations. For example, in the case of agricultural insurance, field parcels can be defined as NFTs, and data such as sensor data, ownership, and insurance history collected from the field can be recorded based on this NFT.
Of course, when we talk about NFTs, it’s not possible to refer to just one definition. As of the date this article was written, there are 19 different NFT standard developments and extensions published as Ethereum Improvement Proposals. For example, the ERC-998 standard we discussed in the previous blog post allows for NFTs that can own other fungible and non-fungible tokens, while the ERC-4519 standard, which was developed with the aim of direct use in the IoT field and was introduced at the end of 2021, establishes a relationship based on usage rights between NFTs and physical assets, by adapting the concept of “usability” in addition to “ownership” from the most commonly used NFT standard, ERC-721. With ERC-4519, the owner of the NFT has a kind of administrative right over the physical product, and can distribute user permissions for the use of the product.
As a conclusion, with their inherent ability to secure ownership and transferability of digital assets, NFTs can be utilized to create digital twins of physical assets, track and manage supply chains, enable secure and efficient data sharing between machines and systems, and facilitate smart contract automation & integration. Although it is difficult to give a concrete example of NFTs being directly integrated into a physical industrial system yet, it can be said that many developers working on blockchain technologies focused on IoT also have NFTs on their agenda. As we move towards the future, it is possible that the term “NFT” may eventually become outdated or evolve into new aliases. However, as the standards that offer NFTs’ functionalities continue to be customized for various applications and needs, we can expect to witness an increasing integration of Web3 & NFTs with the Industry4 & IoT ecosystems.