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Perspectives

How Digital Twins & Blockchain Enable IoT to Enter the Sharing Economy

2019-06-12


Digital twins and machine-to-blockchain-powered smart contracts can enable borderless and ownerless ecosystems that will be driven by seamless collaboration and more predictable operational outcomes.

The Internet of Things-led (IoT) movement within manufacturing continues to create efficiencies on the factory floor. However, small and large industry players’ efforts to monetize the connected devices that they manufacture or use for production have not borne fruit — until now. The rise of the sharing economy and supporting technologies represents a paradigm shift in the access and consumption of IoT products and services.

In traditional transactions, the transfer of ownership to a buyer is the end of the line for the manufacturer or vendor in the value-creation process. In the new sharing economy, however, the transfer of ownership is blurred, for the manufacturer as well as the end consumer or user of the asset or its output. In a sharing economy, either the asset is a shared entity or the device/asset’s output is portable. For example, a car is a physically portable asset that can be collaboratively consumed. But in the case of a windmill, it is the asset’s output — wind energy — that is shared.

The dual concepts of a digital twin and machine-to-blockchain networks are key technology facilitators that enable industrial IoT devices to participate in the evolving sharing economy. Together, they offer an efficient platform that promises to create a seamless user interface, generate real-time data to handle demand and supply, and enable smart, efficient and trusted ways of transacting among participating peers across the value chain.

IoT: Stealing the limelight

As IoT makes its way into mainstream applications, numerous, perpetually evolving business and monetization models are developing around it. Accordingly, global market forecasts show a surge in end-user spending on IoT-based solutions. Due to the accelerating IoT market, size estimates have been revised upward, with the total market now expected to exceed $1.5 trillion by 2025.

However, IoT initiatives face several implementation challenges, including:

  • Network availability and latency.

  • Expensive gears and sensors.

  • Energy consumption.

  • Lack of user-centered design.

  • Lack of standard legal and data protocols.

Growing customer demands are pushing solution providers to create alternative and innovative business models, while addressing the above list of challenges. IoT players, particularly IoT device and/or component makers, have consistently offered product-based monetization models. This approach revolves around a one-time premium charge paid to the manufacturer or enabler during the purchase, and it involves ultimate transfer of ownership. But this is changing.

As the digital era evolves, business models are gradually shifting. One emerging approach includes a service-based business model applied to individual IoT devices, which offers an auxiliary revenue stream based on usage or outcomes.

This new paradigm brings two key delivery enablers: one to virtually showcase and provide technical specifications of the IoT device to prospective customers (i.e., digital twins), and the second to facilitate smart and secure monetary transactions (i.e., machine-to-blockchain).

The sharing economy: A new reality

Platforms that provide access to shared goods and services are firmly established and growing quickly. The ongoing shift in car ownership in the consumer space (from cost to shared asset) offers numerous shared ecosystem possibilities in the industrial space — some realistic, others less so.

For example, by applying shared economy principles to electricity generation, any excess solar power generated either in a residential hub or an industrial plant can be shared with respective consumers based on demand. This enables energy producers to leverage their underused assets and monetize excess power generated by sharing the load with buyers who need energy. Device-sharing cases such as 3-D printers, vehicles and machinery, are often-cited examples of the sharing economy.

For a potential asset to participate in the sharing economy, it must meet the following building blocks that together will enable a seamless transaction:

  • Provide access to the asset via an application programming interface (API) to deliver a clearly defined set of outcomes.

  • Offer visibility into commercial details pertaining to the transaction.

  • Contain an e-commerce platform, which is fundamental to the business model.

As consumption shifts toward the sharing economy, the value of asset ownership gradually fades. This transformation decouples the benefit and pain in this typically cumbersome transaction. The new untangled process provides multiple choices, cost savings and instantaneous availability of an asset or service to the participating stakeholders.

Figure 1

Digital twin: The technical enabler

In simple terms, a digital twin is a virtual surrogate of a physical object and its characteristics. However, a digital twin is more than a blueprint and a schematic layout of a machine, device or piece of equipment. It is a virtual representation of the asset’s characteristics and dynamic behavior. As a digital model, test scenarios can be performed on it to predict future events and performances of the physical asset.

In operation, as the physical asset undergoes changes, these modifications are captured and displayed to the user on a real-time basis. The overall functional role of a digital twin is three pronged — observation, optimization and operation (see figure 2).

Figure 2

Digital twin technology promises to transform the way products are designed, built and operated across industries. For example, the manufacturing industry is now beginning to experience the following impacts:

  • Design. Operational insights contribute to better design. In a windmill power generation scenario, for example, detecting frequent wind direction variations at given sites will demand different kinds of support structures.

  • Build. Continuous learning from these virtual twins helps manufacturers anticipate and avert glitches, and to further analyze and forecast results that might impact regular business.

  • Operate. Informed service and support mechanisms yield better operations. For example, generating text messages/email to inform users about scheduled services and part replacements can substantially reduce breakdowns.

A digital twin is the software avatar of the physical version of the device, and is hosted in a cloud environment that can be accessed any time by peers (other digital twins, systems and platforms) with the necessary access permissions.

In a traditional business scenario, the buyer is typically reliant on the information that is provided by the asset owner. There is no information available directly from the device. The digital twin addresses this shortcoming by acting as a credible knowledge repository of the asset.

Machine-to-blockchain: The commercial enabler

Blockchain’s distributed, immutable and transparent nature makes it an ideal technology to achieve peer-to-peer asset sharing. It enhances trust and security via its use of public key encryption. It also acts as a backbone for commercial transactions via shared infrastructure in a sharing economy, which eliminates redundancy and reduces costs.

A derivative of blockchain technology, machine-to-blockchain smart contracts enable machines to participate directly in transactional activities.

Machine-to-blockchain technology:

  • Enables IoT ecosystems to break from the traditional intermediary-based networking paradigm in which devices rely on a central cloud server to identify and authenticate individual devices.

  • Allows for the creation of secure networks, where IoT devices communicate commercial information to execute every transaction.

  • Supports the formation of a network that is scalable to support billions of devices without the need for additional resources.

Whenever an IoT device needs to create and participate in a payment transaction, blockchain’s distributed ledger and public encryption techniques protect sensitive information while allowing data verification and authentication by all pertinent users.

As an example, a windmill gets a request for 10 megawatts of power. Since the cluster of windmills belongs to an enterprise, a service level agreement (SLA) must be created to cover the overall terms of the contract to dispatch the power. The requestor can be an enterprise, government or corporation. Once the SLA is mutually agreed upon, it is put into a private blockchain network. This ensures that the contract is mutually accepted, transparent and secure. This would be phase one of the entire transaction.

The second phase is operational and sets conditions for the sharing of information — i.e., energy transfer, which in this case is between the two entities.

Looking ahead: The way forward for IoT

Since the Industrial Revolution, ever-accelerating technological change has provided a fulcrum for altering human lives. As the IoT sharing ecosystem evolves, with enabling technologies provided by digital twins and machine-to-machine (M2M) blockchain networks, the business world is poised to move away from an asset-based economy and toward an outcome-based economy.

Going forward, we advise the following:

  • All IoT device manufacturers will need to include the digital twin as part of their deployment.

  • A standard baseline mechanism to discover digital twins through online access will be essential.

  • Blockchain service providers and systems integrators will need to provide smart contract templates to handle IoT devices and their virtual twins.

With such strong systems in place, ownership will lose relevance and access to shared assets could rule the day. This ease of access to any device or asset at any time will impact what we do and how we do things in the near future, both in our professional and personal lives.

To learn more, read “Virtual Digital Surrogates & Blockchain: The Path Ahead for the IoT in the Sharing Economy”, visit the Connected Products section of our website, or contact us.

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How Digital Twins & Blockchain Enable IoT to Enter the Sharing Economy