Besides blockchain, what’s missing from IoT?

September 13, 2016



Brand-new global information infrastructure design doesn’t come along every day. The internet of things (IoT) presents a rare opportunity to build global information infrastructure from scratch — a new, more expansive, and capable set of functions on the periphery of what already exists. But the truly new IoT that’s expected is only now emerging. At the moment, what’s being developed is really just a nervous system of sorts — protocols, communications pathways, local processing and storage, endpoints embedded in various places, and ways for things to talk to and interpret one another. But what would the things say to each other?

What people really want is for those connected things to interact on behalf of humans — including transacting business. The IoT should become a much richer phenomenon, an internet of not just connected things, but a collaboration environment where machines as well as humans can interact, at scale. As Chris Witeck, chief technology strategist at Citrix, “You move the IoT conversation beyond things — where a ‘thing’ is defined as some sort of sensor or device — and more toward how you can solve complexity by integrating things together and automating processes within the digital business.” The International Telecommunication Union calls this evolved IoT the internet of everything.


What has been missing to create such an online collaboration environment? For starters: validated transaction, process management, and intelligence capabilities. Blockchain and smart contracts could be the bones of a governed, transactional internet where machines abide by rules and algorithms provide the kinds of validation normally associated with a human third party. Business process management (BPM) could run each entity’s internal process and act as the connective tissue on one side of the transaction or the other. Smart contracts would extend the capabilities of BPM beyond the four walls of an organization, acting as mediator between two entities.

Artificial intelligence (AI) would provide the high-volume data processing muscle in a sensor-rich environment, augmenting simpler rule-based decision making and statistical reasoning for things on the internet. Machine learning helps when there’s lots of data that’s difficult to interpret and there’s a need for insights into that data; it’s indispensable in a sensor-rich environment where each sensor generates tremendous amounts of data.

Together, blockchain, smart contracts, BPM, and AI would constitute what’s distinctive about an internet of everything, compared with just an internet of connected things.

How would an internet of everything work? A blue-sky scenario

How could such a scheme function in practice? Early in 2016, PwC pondered an automation scenario involving blockchain-based smart contracts. The question was, how could drones, self-driving trucks, and warehouse robots each play a role in an autonomous end-to-end process that smart contracts facilitated? An internet of everything would provide not only the information backbone, but also the intelligence, confidence, and transparency to make such a scenario possible.

This basic scenario is pure autonomous e-commerce, apart from the steps involving the end consumer. The physical movement of goods begins with a fleet of self-driving trucks that delivers goods to distribution centers. The robots at the distribution centers sort and move those goods onto autonomous delivery drones. Then the drones make deliveries to end consumers. An end consumer, meanwhile, has some returns to make (such as shoes that don’t fit) and puts out smart packages for a drone to take back to a distribution center.

Blockchain technology on its own would provide a means of algorithmic consensus or validation — confidence that the interoperating things can register, access the system, and tap into resources. Smart contracts — computable legal agreements that make possible self-executing terms and a single, shared, operational version of each legal agreement — enable the building of governance and rule-based operations around each transaction. These two pivotal capabilities act together as a virtual third party, a digital chief validator that scales and extends the reach of business processes, removing the need for humans in the middle.

How BPM could orchestrate the whole

Considering this scenario within the scope of other enterprise technologies, smart contracts and a blockchain provide only a partial solution, namely self-execution close to the transaction and the transaction recording in each process. BPM in this sense fills a gap.

As the internet of everything becomes functional, enterprises will need to adapt business processes to take advantage of it. Smart contracts as they stand in 2016 are often rigid. Sometimes rigidity is unavoidable and even appropriate. Deterministic parts of a financial process, for example, demand the definite and the concrete.

Alexander Samarin, an independent consultant, book author, and enterprise architect who advises clients on BPM strategy, describes those necessarily rigid parts of a process as “bones” and contrasts the bones to the flexible tissue that connects them: “I usually demonstrate with my arm, which has several bones, but also joints, which make the whole flexible,” he says. While smart contracts playing the chief validator and guarantor role would be the bones, BPM would provide the flexibility. Smart contracts and BPM, Samarin says, are synergistic.

Many people assume that every process in BPM gets represented as a flowchart. The reality, Samarin notes, is that BPM — enriched over the years by many additions and refinements — is a good place to start for just about any process improvement. Flowcharts are one way to represent a process. BPM, he points out, includes the concept of an arbiter or orchestrator and offers a range of coordination modes. “There are different degrees of coordination — stronger coordination, like that in financial transactions, and less-structured goal-based coordination, like that in a soccer team.”

BPM in that sense provides the orchestration backdrop — a context for both the deterministic distributed ledger technology of blockchains and smart contracts, and the more probabilistic machine learning approaches of AI.


AI’s value in a transactional internet of everything

AI and blockchain can be symbiotic: AI can be the scout and the artist, painting a picture of the business risk and opportunity terrain. And smart contracts and blockchains can be the implementers of the processes and the executors and immutable record-keepers of the transactions. In that sense, AI is the creative one on the team, the abstract thinker and observer who studies the fuzzy complexities of the business environment, the unruly customer data, the tidal wave of social media, the complexity that must be abstracted, and the imagery and voice input that needs quick assessment. AI provides the educated guesswork to suggest a path forward.

AI can also provide enough probabilistically ascertained “proof” to help validate low-risk transactions.

Bob Stock, a board advisor at Cashpath Financial and a former credit card product and marketing executive, says: “If it’s a B2B [business-to-business] transaction and you’re delivering something of high value that’s a $4 million object, or you’re shipping gold, you want 100 percent assurance of everything. But if it’s a digital good, if you’re delivering software in a B2B transaction, the item is intellectual property as opposed to a physical hard good of intrinsic value. Then you may want to take more risk and say, ‘I’d rather take a 15 percent risk on something that’s high value and has low or zero marginal cost to me as the seller than get 100 percent assurance and get nothing.’”

Considerations for your business

Obviously, the blue-sky scenario for fully distributed, autonomous e-commerce is many years off. Bob Stock estimates 7 to 15 years, if then. He notes, “Whatever system you and I envision today is unlikely to be what actually gets put in place.” He says point solutions will materialize sooner, including self-driving vehicles, “assuming we can get comfortable with the societal factors.” Over the shorter term, “We’ll see pieces of this come together.”

All of which suggests an opportunity over the next few years for various industries to pilot the piece parts, experiment with how to fit them together, and orchestrate their operation on a small scale. Industry consortia and standards bodies play a major role in how this orchestration will happen. The FIDO Alliance, for example, focuses on payment authentication. For internet standards, the World Wide Web Consortium (W3C) focuses on communications methods and protocols. And The Open Group has worked for many years on BPM standards.

Typically involved in these efforts are influencers and innovators, both of whom donate code and time to bring a shared environment together. Enterprises can monitor the advances in the media and the adoption of standard open-source code by checking the rankings on GitHub and at code-sharing organizations such as the Apache Software Foundation. There’s a clear opportunity to ally with influencers and innovators early on.

That’s the external environment. Internally, leadership’s role would be to raise awareness, provide strategic vision, and act as evangelists for how their organizations best could position themselves to benefit from what essentially would be a distributed autonomous operating environment. Building alliances internally with an eye toward starting small and eventually achieving critical mass would be the main components of the leadership strategy.


Chris Curran

Principal and Chief Technologist, PwC US Tel: +1 (214) 754 5055 Email

Anand Rao

Global Artificial Intelligence Lead, PwC US Tel: +1 (617) 530 4691 Email