We have seen in the last years blockchain invading front pages, forums and communication channels. Although the technology was first proposed in 1991 (check my post https://www.linkedin.com/posts/emanuel-agnelli-642842b8_blockchain-before-bitcoin-a-history-activity-6779678832111697920-9Dsp) it wasn’t until 2009 (with the publication of the Bitcoin paper “A peer-to-peer cash electronic system”) that the general public started to see this technology with a real world impact. Since then, new chains have appeared with different functionalities and purposes. Now, we can see applications from product traceability to renewable energy production certification — and this is just the beginning.
Although blockchain technology has a wide array of possible applications one in particular has been the focus of implementation: smart contracts (broadly known thanks to Ethereum, although they exist in other blockchains as well).
A smart contract is a pre-declared blockchain script that automatically executes at a pre-defined point in time or when specific conditions are met. Once a smart contract is in blockchain it cannot be deleted, ensuring its existence without depending on third parties. For example, one could buy a share of a company only when the price reaches a certain value. When this condition is met, the smart contract will automatically do all the necessary operations to move funds and buy the asset. The sources of information used by the smart contracts to verify whether specific conditions are met are called “oracles”, meaning sources of truth that a smart contract can trust to execute its operations.
Oracles
Oracles act as a bridge between the world and the blockchain and their integrity and reliability are extremely important. There are several forms of oracles, including:
Hardware Oracles — sensors interacting with tangible physical objects or physical dimensions. Primary examples would be in supply chain tracking with the use of RFID tracking systems to feed data, such as storage conditions and locations of products, into the blockchain.
Software Oracles -the most common form, pulls data from third-party sources such as web APIs.
Consensus Oracles — represent a step towards decentralized oracles and rely on aggregating data from several oracles with proprietary methods for determining their authenticity and accuracy.
IoT and Decentralized Identity as Oracle
What we do here, is to propose and alternative solution to create oracles in an automated and trustful way through the combination of :
- Real-world readings coming from IoT systems,
- Their Decentralized Identity and
- Their Public Blockchain Certification.
This combination is what Armilis calls Trusted Sensing. With this setup, we can ensure the oracles of a smart contract being 100% reliable as long as the physical sensor is not tampered-with — a condition that can be subject to verification and could be included in the smart contract itself for better security.
Application example — Oil & Gas
In a very simplified chain of crude oil extraction and refining we have different actors, each with a precise task. Apart from the maintenance and other upkeep activities, most of the work is done by machines and IoT comes in handy to read and process the data coming from them -working as a link between the physical world and the digital one.
By connecting IoT devices to Blockchain we can certify the data coming from them, obtaining an immutable proof of its existence and use it as an input for a smart contract that says: “X tokens will be transferred to company Y when N liters of crude oil will have flown through the pipeline”.
We could think to use this as an oracle, however an important piece is missing: identity. As anyone can write information into public blockchains, recognizing the source of that information is of the utmost importance. Malicious parties could create fake oracles and try to sabotage the system by writing fake data into the blockchain.
To tackle this all-important issue, each IoT device will have its own identity (a pair of a private-public key, generated locally inside the IoT device to avoid identity replacements or duplications) to sign the data it reads and takes responsibility for its correct operation, providing the remaining piece of trust to use that information as an oracle. Now, a smart contract can use that immutable but also attributed information to undergo a fund transfer from the refining company to the extraction one for the service and product provided.
Conclusion
Why is this solution better than a pure software oracle accessing (in this example) the Scada system?
- IoT with its trustless identity simplifies the process of auditing by third parties. The public key is reachable and known by any entity of our interest so they can verify it. Any attempt to replace, modify or delete such identity will raise warnings, ensuring the robustness of the system
- It solves the last mile-problem: the data is signed onboard and cannot be altered downstream, making the data Chain of Trust more reliable, reducing costs of network monitoring and security
- Auditing of data sources is extremely simplified: only auditing the sensor and its installation is enough
As proposed above, an oracle having a trusted origin in the real world is an extremely streamlined and trustworthy solution with trusted IoT playing a central role, when a proper Decentralized Identity framework and auditing of the sensor itself is put in place.
With such an architecture, automating complex interactions between participants is possible in the most transparent and reliable manner, securing the smart contract executions and transactions. The same architecture can be used to provide irrefutable evidence of an activity performed properly, that can serve as an additional feature for a service or, for example, for insurance companies to have reliable data in case of a problem.
To summarize, IoT and Blockchain are formidable technologies that can improve business efficiency, transparency and reliability — in the near future, systems like this will be a must-have in order to undergo contracts and agreements, as will be a proof that a company works properly and its business runs smoothly.
