What are the Challenges of Adopting Blockchain in IoT?

internet of things and blockchain

Many experts have already cited how blockchain can secure IoT, however, researches and developments in this area are still in progress. Several challenges exist in adopting blockchain in IoT. These are as follows:

1. Scalability issues of decentralized blockchain networks

IoT experts and developers want blockchain to secure IoT systems. Their interest in blockchain stems from its security features. Naturally, they want the most robust security that blockchain can offer.

At the time of writing, decentralized public blockchain networks like Bitcoin and Ethereum can offer the highest decentralized security. These networks offer decentralization, transparency, disintermediation, encryption, digital signature, cryptographic hash functions, and consensus algorithms.

What if you dilute any of the above-mentioned attributes? You still have a blockchain network, however, its security will not match that of Bitcoin or Ethereum.

The high level of decentralized security offered by Bitcoin and Ethereum comes at a cost though. The “Proof of Work” (POW) requires the participation of all miners in the transaction validation process. This slows down the transaction validation process. The more the Bitcoin and Ethereum networks grow, the higher will be the scalability challenge.

IoT networks are very large. They will become far larger in the future. At the time of writing, IoT has realized a fraction of its potential. The size of IoT networks will grow manifold as more organizations and entities use them.

Many IoT networks will have micro-payment transactions. By their very nature, these will be numerous transactions of small amounts.

The network size and transaction volume make scalable solutions imperative in IoT. Therefore, IoT developers will find it hard to use a fully decentralized public blockchain network like Bitcoin or Ethereum.

2. Computing power and time required in decentralized blockchain networks

IoT experts and developers require the best possible security from blockchain, and this requires the “Proof of Work” (POW) consensus algorithm. The Bitcoin blockchain network uses it. At the time of writing, Ethereum uses it too.

These networks have a process called “mining” for transaction validation. This process uses the POW algorithm. “Miners”, i.e., transaction validators try to solve a cryptographic puzzle.

The puzzle isn’t complex. However, it requires plenty of number-crunching at a fast pace. Miners must use computers with high computing power. They need to run their computers for long periods of time. Mining involves financial rewards, therefore, it’s competitive.

As a result, many miners run these computing-intensive processes for long periods of time simultaneously. Computing-intensive operations and associated costs act as disincentives for hackers.

Several other consensus algorithms exist. However, experts say that POW is more secure than the other algorithms.

IoT experts and developers find a challenge here when integrating blockchain with IoT. IoT devices often have low computing power. That makes the POW algorithm practically unsuitable for them.

Note: Highly computing-intensive operations at a large scale increases the energy costs of Bitcoin mining. In fact, Bitcoin mining consumes more energy than many countries. High energy costs pose practical challenges in IoT-blockchain integration.

3. Storage space, RAM, and Internet connection requirements in integrating decentralized blockchain with IoT

The decentralized network of transaction validators is a key reason why a decentralized public blockchain like Bitcoin provides the best security to an IoT network. Observers estimate that there are over 1 million individual Bitcoin miners.

Hackers can’t possibly manipulate the majority of this network. The Bitcoin network is transparent too. Any effort at manipulation attracts immediate attention.

Bitcoin miners need to have the entire data on the Bitcoin network for transaction validation. They need to run a full Bitcoin node. A Bitcoin miner needs at least 350 GB of disk space to run a full node. Miners should provide at least 2 GB RAM, furthermore, they should have a robust Internet connection.

IoT experts and developers find these requirements challenging. Many IoT networks have devices with relatively lower disk space and RAM. Internet connections can be slow in many cases. The integration of such IoT networks with a public decentralized blockchain can be hard.

4. The trade-off between decentralized security and scalability as seen in the IOTA cryptocurrency

IoT and blockchain experts know about the above-mentioned challenges. They try to circumvent them by using different technology solutions. These solutions involve a trade-off between top-notch decentralized security and other objectives like scalability and performance. Some of these projects show considerable promise. However, they don’t yet measure up to stringent security objectives. This is a challenge in blockchain adoption in IoT.

Take the example of the IOTA cryptocurrency. It doesn’t use the kind of blockchain technology used in Bitcoin and Ethereum. The IOTA project uses a technology called “Tangle”, which is modeled after “Directed Acyclic Graph” (DAG).

Tangle doesn’t use blocks and chains. It uses a tree structure where multiple chains might be intertwined with each other.

Tangle doesn’t use the POW consensus algorithm for transaction validation. IOTA doesn’t require mining. Completing one transaction in Tangle requires validation of two previous transactions.

IOTA offers better scalability than Bitcoin and Ethereum. You get a better performance throughput, and the energy bill isn’t high. These would bode well for IoT systems.

However, experts find that Tangle isn’t as secure as the Bitcoin or Ethereum blockchain. It can’t match the decentralized security offered by the Bitcoin network. Experts state that hacking the IOTA network is considerably easier than the Bitcoin or Ethereum networks.

5. Security risks due to smart contract bugs

IoT and blockchain experts would want to extend the capabilities of an IoT-blockchain system. They would use smart contracts for that. The Ethereum project introduced smart contracts. Smart contracts can offer efficiency by automating contract administration. However, smart contracts can have security risks. This poses a challenge to blockchain adoption in IoT.

Ethereum smart contracts are pieces of code that transfer cryptographic assets based on predefined conditions. They run on the decentralized Ethereum network. Smart contracts are open-source, autonomous, irreversible, and immutable. These characteristics of smart contracts can help to automate contract administration.

While decentralized public blockchain networks are incredibly hard to hack, smart contracts are programs that run on them. Any program can have bugs. However, smart contract bugs can be hard to recover from. The 2016 Ethereum DAO hack was an example.

The immutability of smart contracts prevents you from modifying them after deploying them. You can’t fix bugs. Cybercriminals routinely look for common smart contract vulnerabilities. They exploit them to hack the blockchain application.

Blockchain experts need to find tools, processes, and methods to review and test smart contracts thoroughly. Adoption of blockchain in the IoT space requires defect prevention in smart contracts.

6. The lack of regulatory clarity over decentralized blockchains

Considerable regulatory uncertainties exist in many countries concerning blockchain. This makes the adoption of blockchain harder in IoT systems.

Bitcoin, an application of blockchain became famous earlier than the underlying technology. This decentralized digital currency is outside the control of central banks and governments.

Monetary policy is closely related to the sovereignty of countries, and the national currency is important to a country. This sets cryptocurrencies on a collision course against governments and central banks.

Many countries explicitly ban cryptocurrencies. China, Bangladesh, and Egypt are a few examples. Countries like Guyana, Kuwait, and Bahrain implicitly ban cryptocurrencies. Several other countries allow cryptocurrencies.

Developers can use decentralized blockchain networks to create cryptocurrencies. Therefore, regulatory strictures affecting cryptocurrencies affect such blockchain networks.

There isn’t a uniform set of regulations in the world governing decentralized blockchain networks. Enterprise blockchain frameworks like Hyperledger Fabric aren’t used for creating cryptocurrencies, therefore, regulatory uncertainties don’t affect them.

However, enterprise blockchain networks can’t provide the kind of decentralized security offered by the Bitcoin network. Many IoT projects might not use an enterprise blockchain framework. They are affected by regulatory uncertainties around decentralized blockchain.

7. Decentralized blockchain networks can’t comply with certain existing regulations

Decentralized blockchain networks can’t readily comply with parts of regulations like GDPR. GDPR requires organizations to allow modification and deletion of data. Decentralized public blockchain networks don’t allow that.

Several regulations require privacy measures for sensitive data. Decentralized public blockchain networks allow all participants to view all transactions. That’s another example of regulatory non-compliance. IoT projects can use decentralized blockchain networks only after the resolution of such regulatory issues.

8. Complexities of IoT-blockchain projects

Blockchain projects tend to be complex since it’s a relatively new technology. Blockchain integration with IoT can be even more complex due to the architectural questions. This directly impacts the ability of organizations to integrate IoT with blockchain.

Both blockchain and IoT involve niche skills. Organizations often find it hard to hire skilled developers for these technologies. Hiring can be an even bigger challenge in IoT-blockchain integration projects.

The ecosystem of blockchain development tools is still work-in-progress. This compounds the complexity of blockchain projects. Organizations need more skilled blockchain developers and advanced tools for IoT-blockchain integration projects.


1. Which are the cryptocurrencies with IoT use cases?

Cryptocurrencies with IoT use cases are IOTA, IoTeX, MXC, Waltonchain, Geeq, Beyond Protocol, Databroker, INT Chain, CPChain, and IoT Chain.

2. Which startups work on blockchain-IoT use cases?

A few startups working on blockchain-IoT use cases are Helium, NetObjex, Xage Security, Grid+, Atonomi, Riddle&Code, HYPR, Chronicled, and ArcTouch.

3. Which sectors and functions can benefit from combining IoT and blockchain?

IoT and blockchain can deliver benefits in supply chain management, automotive industry, smart homes, pharma, agriculture, water management, and sharing economy.

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