By 2020, valuable data streams coming from over 20 billion Internet of Things (IoT) devices will fuel the transition to a blockchain-based industrial future. RIDDLE&CODE and Deloitte analysed how so-called “digital twins” can deliver this vision in a 2018 report.

Every technical innovation looks promising when seen from the right angle. But the emerging blockchain ecosystem is considered by many to be much more paradigm-shifting than other trends that are part of the digitalization of our commercial and industrial world. Why is that? Let’s take a look at both the detail level and the big picture.

Starting with the latter, one of the most fundamental differences compared to the rise of the internet is that we are now moving from the relatively insecure exchange of data to a blockchain-based infrastructure for the very secure exchange of value.

But what does that mean for industrial processes of real businesses? And what else is changing based on this principle? Let us take a closer look at how Digital Twins can become central in this new industrial reality and how digital underwriting services will be one of the most far-reaching opportunities in this new era.

BRIDGING THE PHYSICAL-DIGITAL GAP
Previous forms of secure digital technologies were limited to being small islands of heightened security in an otherwise open sea of (potential) hacking.
Blockchain addresses this with a secure and decentralized ledger system.

What does this mean? The credit card industry, for example, has processed data digitally for decades and is also based on secure hardware concepts with a layered security architecture. But credit card fraud happens despite these technical measures, and it occurs either side of secure elements on chip cards, ranging from repeat transactions to stolen cards, identity theft or more sophisticated hacking.

In the future, the concept of value transfer will be executed in a decentralized way, closing many of the previously existing gaps around the digital value transfer. Crypto chips can link any physical object directly to a blockchain of choice. The object can be a credit card, an Amazon parcel, a chip embedded into a timepiece or an industrial machine on a factory floor. Transactional data can then come from highly secure sources with proven integrity. Private keys never leave the crypto chip, and transactions are fully encrypted in transport until recorded in an immutable ledger system.

Compared to the ‘island’ that we described when talking about legacy hardware security for credit cards, we will have a ‘Mare Tranquilitatis’ in the blockchain future of value transfers.
Digital Twins are virtual copies of these physical objects but also their surroundings or processes related to them. They consist of IT components for status updates, connectivity, defined data structures and user interfaces that enable the visualization of relevant data. Digital Twins represent data that is in most cases a pre-requisite to determine if value transfer should occur. The business rules associated with any use case are usually referred to as ‘smart contracts’ in the blockchain world.

Data sources are either human or a machine-based. Machines measure the physical world around or within them. An example of this is the modest temperature sensor.
Digital Twins, stored on blockchains, will be fundamental for many industries. As their data can come from Blockchain-secured sources, they will be trusted and used more efficiently to regulate multi-party business collaboration. Trust lacks if one business party is in control of the data source used to settle financial transactions.

HOW END-TO-END SECURITY LEADS TO THE DIGITAL NOTARY OPTION.

Cryptographic security, hardware design and the benefits of decentralized systems all converged in our founder Prof. Fürstner’s thinking into a hardware and software platform. It is the result of a thorough analysis of how IT components and IoT / machine data, in general, can be trusted in the future. The easier part of the equation was to make them available in the form of Digital Twins. The critical step is to enter then only data points coming from trusted sources into the target blockchain.

This combination of blockchain technology and cryptography, both at the hardware and software level, will be a pre-requisite for many industrial processes of the future, that either require high security or high transparency and trust levels. Thus, the same algorithm and all related drivers will work in trusted execution environments with NFC Inlays as well as RFID labels, extended micro-controllers, FPGA- and ASIC designs, IoT gateways and end-nodes, IT component networks and networked servers. The base for this is the combination of a highly energy-efficient micro-controller, a crypto-accelerator and an active NFC/UHF/RFID transponder.

Such a set-up brings an immutable, trusted digital identity to physical goods of all kinds. We do this by embedding crypto chips, linked by our middleware solution to a blockchain, or sticking crypto tags onto an exterior surface of a product, where they act as a seal – once you try to peel them off, the antenna will break, and they will lose their smart digital character.

This combination allows for a highly secure data transfer and data repository. Only authorized persons can insert descriptive metadata, or – if we use a fully equipped crypto chip inside an IT component or actuator – by the machine itself. This set-up proves the provenance of a physical good or machine part and certifies their relevant history of usage (for passive tags) or measurements (for active IoT devices). We will be able to build efficient Smart Cities that respect data privacy, and we can optimise other business environments, from supply chains to product manufacturing.

This solution is designed and abstracted so that it works with any blockchain. We often use our own chain (a sidechain built on Bigchain DB) and optimized data handling processes around it. But the strategic selection of the best blockchain solution for their respective use cases is made by our customers. We choose the most suited data transportation layer to cater for use cases, business goals and in respect of the physical environments for a specific application. But while security and efficiency will be a good reason for many companies to move some of their more relevant industrial processes onto a blockchain, this new approach of secure value transfer can also unlock new business potential, another important reason to consider using blockchain technology. One example is machines that will become trusted agents and will receive mandates to execute transactions, thus increasing the client base for some businesses. Another benefit comes from the fact that all our crypto chips contain a wallet functionality, be it HW or SW-based, and can thus become participants of new marketplaces.

Low-end crypto hardware form factors such as the crypto tags we design for logistics and proof of provenance are also evolving. The next generation, available early in 2019, already has sufficient storage to program an array of applications, turning tagged goods or machines into trusted agents. A new marketplace is emerging where this interoperable wallet backend will create opportunities, be it for the use of tokens or other forms of values, e.g. loyalty system points.

Another issue in the IoT space is the energy consumption of sensors and actuators; This problem can quickly turn into an operational nightmare if a network of components needs to work on a 24/7 basis.

RIDDLE&CODE designs its own crypto chips and tags. The induction field of NFC-enabled mobile phones or the radio waves emitted from industrial UHF readers are already enough to activate our tags.

Energy harvesting and other energy-efficient use cases will also open up new business potential in previously unchartered territories. The issue of deploying and exchanging energy sources, such as batteries, as all kinds of sensors gain in importance could become a significant obstacle in the nascent world of IoT.

We also see a wide array of potential use cases for countering product piracy – even for the most basic crypto hardware form factors such as tags.
Warehousing use cases based on UHD RFID rather than NFC tags enable longer distance scans and hundreds of reads per second. The possibility of instant settlement using an associated wallet backend can be an excellent reason to think about blockchain-based business modelling in this sector.

For those networks that require maximum data security or trust like self-driving cars, it will not be sufficient just to store data in a secure, distributed ledger, but all parties involved will need to accept that data comes from the intended measurement devices. Achieving this level of trust brings us closer to self-certifying machine networks. This form of automated “Digital underwriting”, based on digital data twins, will become an attractive and sustainable business model. This new commercial opportunity can unlock both savings potentials from an insurance tariff point of view, and new business opportunities for the vendors of those systems and the operators of these industrial data processes.

By establishing trust as a function of technical systems, we will see new business models emerge, and other models adapt. This paradigm shift will, for example, see double-entry book-keeping replaced by secure, blockchain-based data management.

For more information about Digital Twins and their future use in many industries, download the study here: (https://www.riddleandcode.com/iot-powered-by-blockchain/). Riddle&Code and our partners from Deloitte have published it in Q2 2018.

Written by Alexander Koppel at Riddle & Code. Riddle & Code will be speaking and exhibiting at Blockchain Expo North America 2018.